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The Real Estate Licensee’s Need to Confirm in Writing the Material Aspects of a Transaction

How well does a typical real estate agent know his or her client? Good question. In the vast majority of the situations when a real estate agent transacts as a listing, selling or dual agent, the answer is “not very well”.

Most clients are complete strangers or acquaintances, rather than good friends who have known each other for a long period of time. These clients can, and most likely will, “turn” on their real estate agent when a transaction closes and there are problems with the sale. These problems may result in a claim, or possibly a lawsuit, where the real estate agent is named as a defendant or cross defendant. And because certain material information that was discussed with a client (typically the buyer) was not memorialized in writing before close of escrow, the client now has selective memory.

The best way to prevent a claim or lawsuit against you is to memorialize what was discussed in writing. Start with the log notes in your transaction file, and then follow up with an email (not a text message), fax transmission, or a hard copy letter (preferably certified mail return receipt requested). Send this information to the client memorializing what was discussed, asking that a copy be dated, signed and returned by the client before close of escrow.

Far too many times, I have sat in a deposition where the former client is suing a real estate professional, and that real estate professional denies a material issue of the case. For example, I had a client who was verbally told by the agent to have a second inspection of a property before close of escrow. This became contrary to what the real estate agent testified, causing my client to be visibly upset because they believed that the real estate agent would tell the truth under oath.

As a licensed real estate professional under California’s Bureau of Real Estate, the commissioner and the public, in general, expect and demand a higher degree of skill, training, and knowledge from you to safeguard the client’s interests in a real estate transaction.

Common items that need to be memorialized in writing by an agent are:

  • Confirmation that the client does not want certain third-party expert inspections
  • That you as the real estate professional see certain red flags that the client is turning a blind eye to
  • Recommendations that the client proceed slower in his or her desire to close (while mentioning the buyer’s duties to use due diligence under Civil Code section 2079.5 to protect his or her interests in the transaction)

Within each written confirmation, the prudent real estate professional should suggest that the client (buyer or seller) “consult with a reputable attorney on the matter before proceeding to close”.

Through the years, I have handled thousands of risk management inquiries as a practicing real estate attorney. A concern that commonly occurs is when a buyer does “not understand” a third-party expert report before close of escrow. Because of the lack of understanding, the agent will suspect that the buyer will “turn on” him or her after close when the potential problems become a reality, even though the client has dated and signed the document. The best way to handle the issue is to send an email to the client and the escrow officer with the already signed and dated report attached. In the email, mention it specifically with the request that the escrow officer print out the report and go over it with the buyer at escrow’s close. Request that the client date and sign it if understood and approved, and if not, suggest that close of escrow be delayed pending the client’s understanding of the document before he or she dates and signs it where an attorney is suggested to be consulted.

The email is then placed in the selling agent’s file. If a problem arises after escrow’s close where the client claims he or she did not understand a given document’s legal ramifications, this claim should be greatly discredited. The document presented will have been signed twice at two different times before close of escrow and before two separate and distinct professionals: one a real estate agent and the other an escrow officer whose job is to explain documentation in a real estate transaction before it is concluded.

You cannot rely on memory alone when conducting real estate actions. Make sure you are covered by creating a written history that will protect you long after a transaction has taken place.


About the Author

Edward McCutchan

B. Edward McCutchan, Jr.

Sunderland | McCutchan, LLP

Mr. McCutchan’s practice is primarily civil litigation with an emphasis in defending professionals and businesses in real estate, mortgage brokering, construction, banking and agricultural industries and all phases of dispute resolution through trial and appeal. His area of practice is also agricultural law (viticulture and wineries), trusts and estates, probate, real estate transactions, business law and elder abuse. B. Edward McCutchan, Jr. was admitted to the Bar in 1985 and is admitted and qualified to practice in all California courts and the U.S. District Court, Eastern and Northern Districts of California as well as the United States Tax Court.

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