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Real Estate Electronic Client Communication: Best Practices to Avoid E&O Claim Situations

Did you know that even a text message between you and a client can be used as defense a should a real estate E&O claim be filed against you? Proactive and documented communication is essential in the real estate industry to help reduce your risk of a claim. But what exactly qualifies to be in put in writing? And if it does need to go in writing, is an email enough or do you need to get a physical signature from the client as well?

Email vs. Text Message

When it comes to communicating with clients in writing, most real estate attorneys advise their clients to use email as opposed to text messages. This is because emails can be saved and retrieved at a later date, especially if those emails are routed through the brokerage’s servers. Text messages can be easily lost, such as when a phone is lost or stolen. And while some states do allow for text message transmissions to be admissible in a court of law, other states do not.

The Uniform Electronic Transaction Act

While email is the clear winner when it comes to communicating with your clients in writing, you must be aware of what an email document can and cannot do based on the state in which you conduct business. The Uniform Electronic Transaction Act (UETA) of 1999,  “Establishes the legal equivalence of electronic records and signatures with paper writings and manually-signed signatures, removing barriers to electronic commerce.” The UETA was enacted in all states and territories in 1999, with the exception of Illinois, Washington, New York, and Puerto Rico, where the act was enacted in 2017.

The UETA outlines that when it comes to the filing of real estate paperwork, each state is different. Most states allow for some documents to be electronically submitted, while others still require a wet, notarized signature on a paper document. The UETA also states that it does not in any way bind you or your clients to use either electronic documents or paper documents. Rather, the Act stresses the need to remain with the media that best suits the transaction.

Additionally, it is important to note that the UETA does not differentiate between email or text message. Rather, the Act’s definition of an ‘electronic transaction’ is simply, “Electronic transactions are conducted by communicating digitized information from one person to another.”

What Constitutes an Electronic Contract

For an email or text message to be considered transactional, the UETA requires that the electronic transaction meet two requirements:

  1. That it is in fact an electronic record. An electronic record means that the document communicates intent to create a contract.
  2. That it includes an electronic signature. An electronic signature can be as simple as your name at the end of an email. In the state of California, an electronic signature is defined as, “An electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.”

The Four Basic Rules of the UETA

According to the Uniform Law Commission, the four fundamental rules set forth by the UETA governing electronic transactions are:

  1. “A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.”
  2. “A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.”
  3. “Any law that requires a writing will be satisfied by an electronic record.”
  4. “Any signature requirement in the law will be met if there is an electronic signature.”

Understanding the Risks of an E&O Claim Associated with Electronic Transactions

The main thing to understand is that if you live in most states, an email with your name on it can be considered a contract. For example, if the buyer’s agent sends an offer to the seller’s agent in the form of an email and contains the same information that a paper offer would contain, that email can be considered a contract and be accepted by the seller’s agent as long as the buyer’s agent’s name is in the body of the email (the email signature).

When Conversations Become Binding

More often than not, emails do not contain all aspects of a paper contract, but they can still be considered binding in a court of law. Problems arise when one party believes one email or a series of emails over time means one thing (such as the acceptance of an offer), while the other party has a different interpretation of the information. The result can be a real estate lawsuit.

In the Massachusetts case Feldberg, et al. v. Coxal in 2013, the buyers in the case alleged that an unsigned draft of a purchase offer within an email was enough to bind the sellers to the sale of their property. While the parties in the case eventually settled out of court, the main takeaway is that even emails that are unsigned by your clients can be considered binding and be used as the foundation of a real estate lawsuit. To protect yourself from this type of situation you should:

  1. Expressly state in the email exactly what it is. If the content is only to be used as a preliminary negotiation and not binding until final approval from the client, then state that in the email.
  2. Include a disclaimer at the bottom of your email that your email is not a binding contract and cannot be used as such.

Understanding the eSignature Software

While the UETA states that an electronic signature can be as simple as your name in an email, an eSignature software program is something entirely different. eSignature services such as DocuSign or Adobe EchoSign allow agents to send contracts to a client’s email with all signature and initial lines highlighted for the client to ‘sign’ using the software. Most of these programs also serve to help secure the information being sent via email and protect it from theft or alteration. Many of them require PIN access numbers and are integrated into your email system. However, before selecting and trusting eSignature software, read the reviews and ensure that the documents being sent through the service are secure, unable to be altered, and that the vendor supports most or all mobile devices (such as tablets and smartphones).

Getting It in Writing and eSigned After the Fact

eSignature software can also be used to memorialize verbal conversations pertaining to the transaction. Topics like inspections, warranties, disclosures and price are all items that you will need to memorialize in writing after the fact. If the information is critical to the sale or sensitive (such as an agreement on listing price or the client’s desire to waive an inspection), that verbal conversation can be memorialized in writing and sent to them via an eSignature software program for them to date, sign and return to your office, providing you another layer of protection against a real estate lawsuit.

Avoiding an E&O Claim

Real estate professionals are at risk for an E&O claim when you or your clients fail to fully comprehend that an email exchange can be a binding contract. In order to reduce your risk of a claim, consider doing the following:

  • Carefully read any email that could be perceived as a contract in its entirety before responding to that email.
  • Explain to your clients that emails can be the same as contracts.
  • Use a secure eSignature software that allows contracts as well as the acknowledgement of critical or sensitive conversations to be signed, dated and returned to your office.
  • If you are not 100% confident of the intent of the email (where you aren’t sure if the sender wants to enter into a contract via that email), email them separately to both confirm and memorialize their intent.
  • If contractual terms are sent to you via text message, transfer that content into an email and have the person who originated that content confirm it and send it to you with their electronic signature in the body of the email.
  • Add a standard disclaimer to the bottom of your email that states any information within the email cannot be construed or used as a binding contract.
  • When in doubt, contact the CRES ClaimPrevent® Legal Advisory Hotline to have them review your electronic document prior to sending it.

What do you communicate in emails? Have you had success or any challenges with eSignature software? Tell us your story in the comments below!

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