You can do everything within your power to prevent a claim, but you cannot guarantee a career free of claims or litigation.
There are many moving parts and pieces involved in real estate transactions, with some variables out of your control. You can, however, be aware of the most common claims and take steps to avoid them.
The best defense against these claims is to education. Here are seven of the top real estate lawsuits made against agents:
- Failure to disclose
- Breach of Duty
- Breach of Contract
- Bodily Injury/Property Damage
- Failing to keep client data secure
- Misleading clients
- Failure to disclose occurs when pertinent information regarding the property is intentionally kept from the client. Examples include omitting past damage to the home, not divulging future development plans in the area, or any part of the MLS listing not matching the property itself. Any defects to the home that are not revealed to the buyer can leave an agent open to having a claim brought against them.
- Breach of Duty claims are when a client feels that the agent or broker has neglected to act in their best interest or with the highest standard of care. This may include dishonesty, such as not disclosing land disputes or flood risk. Any breach in trust and honesty can lead to a claim of breach of duty. Documenting everything can be a good defense against breach of duty.
- Breach of Contract claims occur if any part of the contract isn’t fulfilled. Not acting within a given time frame is a breach of contract. Fraud, breach of fiduciary duty, and negligence are usually filed alongside this claim. This also includes a proven failure by the agent to pay, collect or return any money related to the sale such as security deposits, earnest money, escrow or commissions.
- Negligence is when the plaintiff can prove that the defendant’s inaction caused harm. However, negligence is different than fraud in that intent is not evident. This can range from the agent not doing their due diligence to discover information about the property or for not performing their duties as an agent in a timely, careful or effective manner. Having good E&O insurance is particularly important for these claims.
- Bodily Injury and/or Property Damage is applicable when there is damage that decreases the value of the property, when a plaintiff becomes injured during a showing or becomes sick as a result of an undisclosed problem in the home such as mold. As soon as a client sets foot on a property, you are liable for their health and safety.
- Failing to Keep Client Data Secure is important each year with transfer fraud being prevalent in the real estate industry. Some cyber crimes start with a simple USB flash drive implanted with a virus that gives criminals access to your data. Unsuspecting agents mistakenly or curiously pick these up and can quickly infect their computer system. In other cases, agents will click on suspicious emails, effectively letting a hacker in the front door. Regardless of how the client’s information is stolen, you are liable for that theft. The best defense it to regularly run security software, change your password often, and never open emails or files that seem irregular or that request changes in standard protocol.
- Misleading Clients covers a few incidents. A claim for misleading clients can pertain to damages that were intentionally not disclosed prior to the sale. This can be everything from mold in the attic or structural issues, to appliances that did not work properly. Flooding and leaks are part of this and must be disclosed to be the buyer prior to sale. Misrepresenting the value of a property is also considered misleading the client. The Consumer Protection Act comes into play when the agent or broker is proven to have violated any part of the Act. The entire document is available at www.ftc.gov. The main eight consumer rights to know are:
- To be heard
- Satisfaction of basic needs
- Consumer education
- Healthy environment
Staying educated on these real estate lawsuit risks is smart business, and having the right insurance coverage to help protect you or cover expenses in the event a claim is filed is essential.
For more information about business risks and getting the right coverage to protect yourself, go to https://www.cresinsurance.com/faqs/.