How to Avoid Real Estate E&O Claims Responsibly and Eliminate Finger-Pointing

man in suit pointing at camera

As a real estate professional, you always want to come across as knowledgeable and helpful to your clients. However, you could find yourself facing a lawsuit if you try to be “too helpful” and go outside of the scope of your expertise. 

A prime example: real estate licensees are ordinarily under no duty to conduct their own independent investigations concerning the condition or characteristics of the subject property. However, if you agree to assume those duties,  you can be held responsible for this.

Here are some situations to watch out for, so you can avoid claims responsibly and eliminate finger-pointing…

Gathering Information The Buyer Should Follow Up Themselves

A real estate professional assists his client to find land suitable to build a large residence. The client notices pipeline easement stakes on the property and asks the broker to determine the width of the easement (the available survey only states it is of an “indeterminable width”). 

The real estate licensee agrees to do so (rather than suggesting the client retain a separate surveyor), visits with the pipeline company, and informs the client the pipeline company says the easement is 50 feet in width. 

However, the client later alleges the broker told him it was only 25 feet. He says he only found out it was 50 feet after getting an angry letter from the pipeline company,  demanding he stop construction on the building intruding on their easement.

What the real estate professional should have done: 

The broker should have diplomatically declined the client’s request to  determine the width of the easement. Suggest to the client that he retain a surveyor of his own choice to look into the width of the easement (and then document the same). 

Real estate licensees are not ordinarily under a duty to conduct independent investigations.So be sure to avoid assuming a responsibility that otherwise would not be yours

Estimating Costs of Renovations

Clients moving to California are looking for a family home in a great suburb. But their limited budget means they need to find a “renovator’s delight”. A real estate licensee shows a home that ticks all the boxes, but it looks like there’s some water damage in the bathroom ceiling. 

The broker tells the clients she purchased a similar home with some water damage and it was a “quick fix”. She says her repairs only cost about $2,000-$3,000, so it’s “not likely to be too expensive”. The buyers then purchase the home and find the extent of the damage is much worse — more than $12,000 of repairs is necessary. Next comes an angry phone call to the broker, saying she misrepresented the state of the home and the costs to repair the water damage.

What the broker should have done: 

The real estate professional should have suggested to the buyers that they obtain an independent building inspection to assess the condition of the home. This would give them a good idea of how extensive the problem is and how much they need to allocate to repairs. 

Arranging Contractors

A seller’s agent tells the sellers that the front yard of their property needs some work, because it’s looking a little unkempt for showings. The weeds and leaves need to be collected, and an overhanging tree branch needs to be cut back slightly for safety reasons. 

The sellers say they don’t have time, but ask if the agent can organize a gardener to do the work and send her the bill. The agent finds a gardener in the local area via Google. The reviews seem to be okay and the price is reasonable. 

But the agent is horrified when he realizes the gardener has cut the entire beautiful Jacaranda tree, significantly changing the look of the home and the street appeal. What’s more, now some of the imperfections on the front of the house are much more visible than before. Naturally, the sellers are unhappy and pursue the agent for compensation. 

What the agent should have done: 

The agent should not have taken responsibility for engaging the gardener. Instead, diplomatically advise your sellers that there are several gardeners in the area, and suggest it’s best they do their own research to determine who they would like to do the work. If the sellers had engaged the gardener, it would be the sellers’ problem. But, the fact the agent got involved and engaged the gardener means it  became the agent’s problem.  

Protect Yourself and Your Business

The takeaway from these examples is:

Don’t agree to assume duties or responsibilities that are not yours!

Sometimes great real estate professionals can make a mistake or find themselves in a situation where they might be facing a lawsuit. Make sure you have adequate real estate Errors and Omissions insurance to protect you in these scenarios. 

CRES can provide real estate E&O insurance packages tailored specifically to your needs  we’ll find you the best protection at the best price. Because no one has access to the product options that we have.CRES E&O Insurance + ClaimPrevent® policies also provide you with access to qualified attorneys who can give you legal advice 7 days a week, so you can tackle problems before they become lawsuits. Contact CRES today at 800-880-2747 for a confidential discussion.

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published October 13, 2021

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