You can do everything within your power to prevent a real estate errors & omissions claim. You can, with the best intentions, give every detail the highest amount of attention with the utmost professionalism and honesty. But, no matter what you do or who you are, you cannot guarantee a career free of claims or litigation.
There are far too 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 as many steps possible to avoid them.
Common real estate E&O claims
1. Fraud typically revolves around not disclosing all pertinent information regarding the property, or willfully lying about the property. 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. The claimed injuries, should the courts side with the plaintiff, include everything from attorney’s fees and emotional distress to repair costs and lost profits. The plaintiff may also have punitive charges applied as a form of punishment. In short, a fraud claim can get expensive really fast.
2. Breach of Fiduciary Duty claims are when a client feels that the agent or broker has neglected to act in their best interest. This may include neglect or dishonesty, such as not disclosing land disputes or flood risk. The main difference between a breach of fiduciary duty and fraud is the plaintiff sought personal gain through their actions.
3. Breach of Contract claims occur if any part of the contract isn’t fulfilled. Fraud, breach of fiduciary duty, and negligence are usually filed alongside this claim.
4. Negligence is when the plaintiff can prove that the defendant’s inaction caused harm. This can extend to a real estate licensee not doing their due diligence to discover information about the property or for not performing their duties as an agent or broker in a timely or effective manner. If fraud isn’t proven, many plaintiffs will claim negligence.
5. Bodily Injury and/or Property Damage can be applied when there is damage that decreases the value of the property. Bodily injury is when a plaintiff becomes injured during a showing or becomes ill as a result of an undisclosed problem in the home such as mold. Mental anguish, pain and suffering, and emotional distress are also covered under this claim.
6. Misrepresentation regarding the Condition of the Property is a general claim that usually covers damages to the property that were not disclosed prior to the sale. Examples include faulty appliances, mold in the attic, previous water damage, roof damage, and foundations issues.
7. Consumer Protection Act claims occur if the plaintiff can prove that the agent or broker violated any part of the Consumer Protection Act. While the entire act is lengthy, the main eight consumer rights are safety, information, choice, to be heard, satisfaction of basic needs, redress, consumer education, and a healthy environment.
8. Earnest / Escrow Money Dispute claims stem from a proven failure by the real estate licensee to pay, collect, or return any money related to the sale. This may include security deposits, earnest money, escrow or commissions.
9. Misrepresentation regarding Flooding or Leaks claims are applicable when the licensee knew there was flood damage or the risk of flood and did not disclose this. These claims include claimed damages.
10. Misrepresentation regarding the Value of the Property may result as a dispute over the appraisal or broker price opinion (BPO). An example of this would be if a broker did not correctly assess the value of the property and listed it for too little.
For more information about business risks and what you can do to protect yourself, go to https://www.cresinsurance.com/faqs/.
Protect Your Business with Superior Real Estate E&O
A claim or real estate lawsuit not only derail your business financially, but it can take a significant amount of time away from your everyday activities. Real estate professionals can be drawn into legal proceedings even when you’re not at fault — but you’ll still need an attorney to properly defend yourself.
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