This session covers licensee responsibilities with new listings, information to be gathered with different seller situations, and creating the public listings — all from a risk management point of view. Use this ClaimPrevent® summary for onboarding new hires or as a refresher to help prevent legal problems.
A. Licensee responsibilities with new listings
CHECK TITLE FIRST
Real estate professionals should do title checks first to ensure they’re aware of the ownership of the property and who has the rights to list it for sale. A title check will also identify any encumbrances on the property.
SELLER SIGN-OFF
Whenever you get information from a seller client, make sure the seller always signs off on those representations. Anywhere that you’re going to use the information — the flyer, your website, or the MLS, make sure the seller signs off on it. (Because later when they’re getting deposed and the buyer’s attorney asks your “good friend” client about it, he or she is going to say they never saw it.)
VISUAL INSPECTION
Real estate licensees aren’t required to do a professional building inspection for your listings. But in some states (like California, for example), you do have a responsibility to do a “visual inspection.”
A visual inspection involves a walkthrough of the property and taking note of any “red flags,” obvious defects and property damage. It should be done before the property is listed. It’s a chance to quickly identify any visible defects, safety issues or barriers to open showings, or issues that could affect the sale of the property.
Watch out for any obvious safety risks around pools, such as:
- A diving board when the pool is quite shallow
- Steps in disrepair
- Damage to surrounding decking (if applicable)
Keep records of your visual inspections. Be careful to only describe what you see and don’t speculate about the underlying cause. Avoid phrasing in your report such as:
- “Normal wear and tear”. You are not a builder or engineer, and you can’t be sure what is normal wear and tear or otherwise.
- “Licensee recommends that the Buyer obtain a physical inspection”. That does nothing to show you have performed your own visual inspection.
It’s important to also keep records of any actions you take as a result of your visual inspections. If you make further inquiries with the seller about whether their extension was built to code or if the basement leaks, document these conversations. Record the date, time and the person you spoke to and keep all information in the property file. Even better is getting this information from the seller in writing.
DISCUSSION WITH YOUR SELLER ABOUT LOW INVENTORY ISSUES
Don’t list the property for sale until the sellers are 100% sure that they can go through with it, they’re ready to sell, and they can be out. “What are you going to do when this house sells? Have you got a place to go? Have you already made an offer on another property? Are you going to stay with a family member for a short time? Are you leaving the state? And if you’re leaving the state, have you got a place to go to there?” The sellers should be sure they have a place to go should they get an immediate offer with a fast close.
WHISPER LISTINGS AND POCKET LISTINGS
With a whisper listing, you may take a listing with a buyer in mind, so the property is never advertised to the public via the MLS and/or other public sources.
You want to be sure you have the informed consent of the seller. Explain to them, “I was just talking to this person, I think that he may be the perfect buyer. We can maybe do a whisper listing here.”
One benefit to sellers of a whisper listing is privacy. Sometimes they don’t want pictures of their home on the MLS, where they essentially stay online forever.
The transaction can usually go much quicker and be cleaner as far as the terms. But the seller may or may not get a better offer. They’re likely to get their very best offer with the biggest pool of potential buyers, which is using the MLS.
The danger is if brokers/licensees get greedy, and take the whisper listing for their benefit, rather than for their client’s benefit. If you focus on how does this benefit my client, you can usually avoid some of the concerns. If all you’re focusing on is a quick commission — specifically, a quick dual commission — you’re going to get in trouble.
It’s the same concern with a pocket listing – which is usually a listing not advertised on the MLS, but just promoted throughout the particular broker’s network. A seller may prefer the privacy, but the danger is not getting the best offer because the property isn’t marketed widely. Sellers who think you’ve prevented them from getting a better price will sue you after the sale.
B. Gathering information for certain situations
ABOVE GROUND AND IN-GROUND POOLS
Because some above-ground pools are portable and temporary structures, you need to be clear in the listing contract and the listing itself as to whether it’s an inclusion in the sale or not.
And some above-ground pools are being installed under the radar of authorities. Ask the seller and cite the documentation which confirms that permission from the relevant authorities was granted.
Consider compliance for fencing and access gates as well. Many states, including California, Texas, and Arizona, require a safety barrier or fence to be installed around the perimeter of backyard pools, and there are minimum standards for access gates. Above-ground pools must adhere to state and local pool codes if they hold water 18 inches deep or greater.
DIVING BOARDS
Obtain information from the seller about the diving board. While a diving board may have been built to code two decades ago, it might not meet the required standards today. Ask when the diving board was installed, if it was professionally installed, what pool depth it’s suitable for, and if there are any defects, maintenance issues or safety concerns.
The Association of Pool & Spa Professionals website shows the latest information about the International Swimming Pool and Spa Code. This is a useful guide but be aware that pool regulations vary from state to state. Your buyers and sellers should contact their state regulator to check what standards apply to them in their particular location.
DECEASED ESTATES
When somebody dies, a family member may step in and start maintaining a property and paying taxes until the family is ready to sell it. But unless the property was deeded to that family member, he or she is not the rightful owner and cannot sell it. The person trying to sell the property may think they have the right to do so. But if they don’t, and you don’t verify the owner, you could be liable.
Also, be sure to get in writing what furniture and fixtures are staying in the house.
CLUTTERED OR HOARDER PROPERTIES
You may want to list these types of properties as “as is” sales. In some cases, you might even sell a hoarder’s home full of stuff. This may work for people looking for a tear down or planning major renovations.
You may want to advertise the listing as “Cash offers only.” Hoarder’s homes can make securing a mortgage challenging. Cash offers remove that layer of difficulty.
SQUATTERS
Before selling a property where squatters live or have lived, real estate professionals should be 100% sure the squatters either:
- Have moved out for good, or
- Do not have any claim to the property according to the adverse possession laws in your state.
Squatters tend to move into properties that are vacant for a long time. Unoccupied properties owned by out-of-state landlords, holiday homes, or properties not visited regularly by the owners are particularly vulnerable. Isolated properties, such as farms and industrial properties, are also commonly targeted, because they can be occupied without being visible to nearby neighbors.
Landowners can potentially avoid squatters, if they engage a real estate professional to visit their properties monthly. Taking photographs can be useful to assess the difference between visits, and to spot whether the property has been inhabited by squatters. This can also help to defend against an “adverse possession” claim in which squatters claim ownership of the property.
HOMES TO BE DEMOLISHED
When you’re selling a home that needs to be demolished, what’s wrong with the home may not be immediately obvious. And even you, as the real estate licensee, might not be able to inspect the home if it’s unsafe and internal access is not available. That’s why you’ll need access to property reports or previous building inspections to ensure you have a good understanding of all property issues.
It’s also important to know what parts of the property need to be condemned. Is it just the home? Or do the garages and other structures on the land also need to be removed under the order?
When selling a home that needs to be demolished, your marketing and communications need to be crystal clear. Important information about the property, such as orders to be demolished and timeframes for the works to be completed, must be stated upfront and disclosed to potential buyers.
Typically, the price of a condemned property is less, because it takes into account the costs the buyer will incur for demolition. But it’s important to be upfront about who needs to pay for the cost of demolition, so there’s no confusion.
QUALIFIED OPPORTUNITY ZONES (QOZ)
QOZs are located in economically distressed and disadvantaged localities. Investors in QOZs enjoy multiple tax-related benefits.
It’s a requirement that investments are made via an ‘Opportunity Fund’ which may be a partnership or a corporation holding at least 90% of its assets in QOZ property.
The program also requires that QOZ business property be new or improved, meaning further investment is required beyond the initial purchase (if unimproved or minimally improved land is purchased, the land must be substantially improved). Additionally, there are reporting requirements for investors to maintain their tax incentives.
Suggest that investors discuss the matter with their accountant, attorney, or other qualified professional to determine whether the program offers an effective investment for their particular circumstances.
C. Creating the public listing
ACCURACY HELPS PREVENT LAWSUITS
Accuracy of listings is so important. Typos in address details or property features can not only significantly affect your chances of selling a property — they can also lead to lawsuits.
And errors travel fast when listings are shared to other listing services and third-party websites — fixing small typos across multiple platforms can be a time-consuming process. So, when loading details, check and double-check. If you have an assistant who loads listing details, make sure that person understands the dangers of incorrect or missing information or typos.
Always indicate the source of the information (i.e., “per seller”). Remember though, you cannot have known or have reason to believe to know that the information was false.
All listings should include a disclaimer outlining that there is no guarantee of their accuracy, and information is subject to change. Prospective buyers should be encouraged to do their own research and due diligence, including measurement of the property’s square footage or land measurements.
COMPLETENESS VS OMISSIONS
Many omissions arise from misunderstandings, miscommunications, or details left out. For example, a licensee may market a property as a “large family home,” but not include the square footage in the property listing. A buyer who is purchasing the property sight unseen might then be unhappy post-purchase when they find out, by their standards, it is a small property.
Misunderstandings also arise regarding fixtures in a property or even about what constitutes a fixture and what is not. If a seller plans to remove items (like a spa, wall-mounted TVs, window coverings, chandeliers, etc.) once the property has sold, it should be written in the contract.
Similarly, if it’s a deceased estate or a property being purchased ‘as is,’ and furniture and items are going to be left in the home, this needs to be stated in the contract.
Be Sure You’re Protected by Real Estate E&O Insurance
Listing issues are a common reason for lawsuits. Before you enter any new listing, review these most common listing issues to protect yourself and your brokerage from liability:
- Inaccurate square footage of a property
- Incorrect room sizes
- Real estate copy that overstates the property (for example, “room for a tennis court”)
- Incorrect zoning information
- Age of the house
Every real estate company, broker, and licensee should be sure your business is protected by real estate Errors and Omissions insurance. With CRES E&O, you’ll also have access to expert legal advice pre-claim. We have access to more E&O options than just about anyone, so we can find you the best coverage for the best price.
Check out our other summaries of key risk management issues:
ClaimPrevent® Summary 1: Attracting Real Estate Clients and Showing Property
