How to Protect Yourself When Dealing with Close Friends and Family in Your Real Estate Business

female and male friends or family discussing real estate deal

It may seem natural as a real estate agent to want to help a close family member or friend buy or sell a house.  But you should know the potential consequences if you decide to act as a buyer’s or seller’s agent for someone close to you.

There are three main risks you should be aware of:

  1. You Could Be Contravening the REALTORS® Code of Ethics

The REALTORS® Code of Conduct has a clause (Article 4), which requires disclosure where a real estate agent has a “personal interest” in the property. This extends to any dealings where you are acting on behalf of immediate family in a property purchase (but not when family is the seller, unless you also have an interest in the property). “Immediate family” includes your spouse, parents, siblings, children, grandparents, grandchildren and other descendants.  If you are representing friends in a purchase transaction, disclosure of your relationship is not required. But, you may choose to disclose in either case, to maintain full transparency and high ethical standards in your real estate business.

In terms of disclosing any interest you have in a property, this includes any “legal ownership or possible future ownership, such as through inheritance.” If you’re acting on behalf of a friend or family member who has appointed you as a beneficiary in their will in a property transaction, this means you have an interest.

  1. Tense Situations with Friends and Family Can Be Difficult

Buying and selling a home can be a stressful experience. Often emotions run high, and buyers and sellers experience stress about finances and moving. This can include worrying about whether the timing of the sale is going to fit with their predetermined plans. As a real estate professional, you’re removed from this emotion to some degree. But as a friend and family member, it can be difficult to deal with your loved ones when things start to get tense.

Friends and family members may also have higher expectations than your regular clients. If they expect extra special effort from you, and high (even unreasonable) expectations are not met, it has the potential to negatively impact on your relationships in the long term.

It can also be more difficult to tell a friend or family member something they don’t want to hear. For example, if the property is messy and isn’t looking its best for home opens.  Or if your friend’s barking–but much loved–dog is scaring away prospects. With family and friends, it can be much harder to offer constructive criticism. Not only are they awkward conversations to have with someone close to you, but that person may be offended by your comments.

  1. Others May Perceive a Conflict of Interest, Question Your Ethics, or Even Make Allegations About Fraudulent Activity

Even if you do things by the book and disclose that your friend or family member is a party to the transaction, others may still perceive there is a conflict of interest. Your ethics may be questioned because of how it looks on the surface.  Or even worse, you may face an accusation of fraud.

Working with a family member is not the time to consider dual agency

You need to tread very carefully, when dealing with situations involving family and friends in your work. Acting as a dual agent – where you represent both a buyer and a seller, where one of these is a friend or family member – is not recommended. This opens you up to increased levels of risk, and you could face a lawsuit, even if your professional integrity is intact.

Acting as a buyer’s and seller’s agent concurrently has its own specific risks, regardless of whether you’re dealing with family and friends. You’re an agent acting on behalf of a seller who wants to get the maximum price for their home and a buyer who wants the best deal. Factor a family member or a close friend into that transaction, and you could be putting your real estate career at risk. What if a seller accuses you of not getting the best price, so your family member or friend could get a cheaper deal? What if a buyer accuses you of inflating the price of a property just, so someone you know could make more money?

Perceived conflicts of interest are as important as actual conflicts of interest, so be aware of anything that could come back to bite your business. Your number one priority must be protecting your business, brand and reputation.

What can you do to protect yourself?

As a real estate agent, your network is the heart and soul of your business.  It makes sense that you would want to assist people you know in buying and selling property. But you need to have a plan to protect yourself.

First of all, think long and hard about whether you want to take on the job. Are you ready to dive into potentially tense situations with your nearest and dearest? Or would it be best to refer them to a colleague to prevent putting your close relationships at risk?

If you do decide to take on the job, discuss expectations upfront and document everything. That includes any directions, offers, counter offers, and anything else which could potentially become an issue.

Check your insurance policy to ensure that it will still protect you in a transaction where you have a personal interest, or where it involves acting on behalf of a close friend or family member. Some policies DO NOT cover such arrangements.

CRES errors and omissions policies can include an endorsement for Agent-Owned property that will protect you for transactions in which you act as the listing agent for your own or a family member’s property of 1 to 4 units. A home inspection, home warranty, and all state-required property transfer disclosure statements must be completed.

All CRES E&O  + ClaimPrevent® policies include Legal Advisory Services 7 days a week. So, If you’re facing a situation where you’re not sure where you sit legally, you can contact CRES for advice and guidance. With more than 20 years of experience protecting real estate agents and brokers, we’ve got you covered. Contact us on our toll-free number 800.880.2747 to find out more.

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.

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