Usually, when you say ‘omissions’ in real estate, people think immediately about disclosures. Failure to disclose defects or major issues with a property is a major reason that real estate licensees find themselves facing a lawsuit. But omissions lawsuits can also arise from other issues, including misunderstandings and miscommunications about a property.
Here’s what to watch out for, so you don’t find yourself embroiled in an omissions-related lawsuit in your real estate business.
Examples of Omissions
An omission, by definition, is something that has been left out or excluded. This could mean important information, such as liens on a property or a demolition order, is not communicated to potential sellers. It could relate to a defect or structural issue or any other important information that’s essential for a prospective buyer to know before purchasing.
Misunderstandings and Missing Important Items in The Contract
Many omissions arise from misunderstandings or miscommunications. 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. Simply including the square footage in the listing could avoid this scenario.
Misunderstandings often 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 those listed belowonce the property has sold, it should be written in the contract:
- A spa
- Wall-mounted televisions
- Chandeliers or other light fixtures
- Drapery and blinds
- Appliances that would normally be regarded as fixtures, such as a dishwasher or an oven/stove.
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. Otherwise, the new buyer may be unhappy that they have to clear out the property themselves (at their own cost) before moving their own belongings into their new home.
Failure to Tell the Buyer Important Information
Omissions don’t need to be intentional. It can be something a licensee simply forgot to pass on to the buyer. This includes things like:
- Information about a planned development of a 20 story apartment building right next door
- A current neighbor dispute about a large tree in the yard of the property for sale
- A recent survey of the land that showed a fence is incorrectly positioned
In the case of a boundary line, sometimes property lines are not correct, especially for rural properties. A prospect might reasonably presume the boundary is where the fences are. But, if this is not the case and the licensee did not tell them, the buyer may sue when they realize they own less land than expected.
Another common issue is septic system permits. The number of bedrooms in a home dictates the number of potential residents in a home — and the required size of a home’s septic system. Homeowners/builders need to obtain a permit when they build a home, but home extensions and renovations are very common. As an example, a homeowner may enclose a garage to create additional bedrooms to accommodate their expanding family. These additional rooms may not meet the home’s septic permit requirements and could result in increased costs for the new buyer to fix (which they are unlikely to be happy about and may sue the licensee for not disclosing the issue pre-transaction).
Not Having Permission to have a Dual Agency Arrangement
In states where it’s legal for a licensee or broker to have a dual agency agreement, permission must be obtained from the buyer and the seller. If it’s not, this would be considered an omission/failure to disclose, and it will likely result in a lawsuit.
Tips to Avoid a Lawsuit
Here are things you can do to avoid omissions and reduce your risk of facing a lawsuit:
- Ask a colleague to check property listing information before publishing it
- Pay attention to any required additions to the contract beyond the norm
- Do a thorough visual inspection of every property and ask questions where something doesn’t seem right
- Be cautious with home renovations and extensions and check they comply before promoting the property (As a CRES member, you can use our Building Permit History Reports)
- Encourage all buyers to do their own due diligence and tell them to get a professional building inspection
- Check for any liens or encumbrances on the property
- Be aware of your duties of disclosure in your state
- Make sure you have Errors & Omissions insurance to protect yourself and your real estate business
CRES E&O Insurance
CRES offers tailored real estate E&O Insurance with optional inclusions to suit the specific needs of your real estate business. With CRES E&O + ClaimPrevent®, you’ll have access to our qualified team of attorneys 7 days a week. To minimize your risks and avoid costly litigation, contact CRES at 800-880-2747 today for a confidential discussion.
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