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Why Real Estate Licensees Shouldn’t Make Representations About Permits — and How to Protect Yourself

It’s common for real estate licensees to pull the permit file and include it in the disclosure packet. But this can be risky and make you vulnerable to a permit-related lawsuit. Here are the reasons why:

1. Permit Files May Be Incomplete or Contain Errors

A permit file doesn’t show unpermitted work. It only shows what works have been permitted on the property. A real estate professional can obtain the permit file (though it’s not always easy!), but there’s no guarantee the file is 100% accurate. It may be incomplete or contain administrative errors. As a real estate professional, you don’t want to be held liable for this information if it’s not correct. 

2. The Receiver May Presume the Information is Correct and Accurate

Buyers rely on information provided by real estate professionals. You are a trained professional who deals in home sales every day, whereas buyers may only do this a handful of times  in their lifetime. So, it’s not surprising that  buyers might presume the information being provided to them is correct and accurate. 

A permit file is not a replacement for due diligence by the buyer. It’s the buyers’ responsibility to seek information about unpermitted works. They should be encouraged to obtain a professional building inspection, and do other investigations regarding potential property issues, before committing to the property purchase.

3. It Could Result In You Being Sued

Unpermitted work is bad news for the property buyer and can result in costly outcomes. The buyers can be penalized for the unpermitted work, even if they didn’t do it themselves. Potential problems include:

  • Having to do further work to obtain permits
  • Difficulty getting financing 
  • Issues with home insurance
  • Having to remove extensions or sections of the home where the work was not permitted 

If buyers discover unpermitted work after closing, they may also sue the seller and/or real estate licensee for non-disclosure, if they believe there was knowledge of the unpermitted work, or other legal grounds, such as negligence. One in five real estate lawsuits is permit-related

What You Can Do To Avoid a Permit-Related Lawsuit

A. Use a Disclaimer 

If you do provide any permit documents to buyers, use a written disclaimer. The disclaimer should say that you are passing along on the information and you assume no responsibility for the accuracy of such information. As you want your disclaimers to stand up in court, it’s best to seek the advice of a legal professional when writing them. If you have a CRES E&O + ClaimPrevent® real estate insurance policy, you can obtain legal advice from a qualified attorney 7 days a week. 

B. Disclosures

You have an obligation to disclose anything that materially affects the value or desirability of a property. If you know about unpermitted work, you need to disclose it. It’s that simple. If you don’t, you (and the seller) can be sued. 

C. Benefits of using CRES Building Permit History Reports 

CRES offers Building Permit History Reports to real estate professionals to make your job easier. These reports are comprehensive and help you avoid the risk of a real estate lawsuit. They are also a great way to give you an edge over your competition. You can easily access the reports to pre-screen renovated homes, and you can share them with sellers and/or buyers. Agents can simply forward the report. Be sure not to provide any interpretation or additional commentary about the information in the report though — as that can be risky!

There are also other benefits of using CRES Building Permit History Reports. If you provide the home buyer with one of these reports that includes a coverage timeline PRIOR to closing, you reduce your out-of-pocket claims expense by up to $2,500. Please note: This benefit is not available for commercial buildings or if the property is not “in coverage” (see Building Permit History Report FAQs). 

CRES E&O + ClaimPrevent® clients receive a free allotment of Building Permit History Reports each policy year. Additional reports are available for purchase (by anyone). Learn more about CRES Building Permit History Reports

D. Make Sure You Have The Right Insurance

Protect your business against potential lawsuits with real estate E&O insurance. CRES  extensive real estate E&O insurance packages can be tailored specifically to suit the needs of your real estate business, including protection if you’re involved in:

  • Real estate sales
  • Appraisal
  • Escrow
  • Mortgage brokerage
  • Property management
  • Transaction coordination

Contact the CRES team today at 800-880-2747 for a confidential discussion.

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