Monthly Archives: July 2010

Overstated Adjectives in Real Estate Mislead Buyers

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Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR overstating a property’s condition to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over misrepresentation.

A real estate agent accepted a listing to sell an older residential property that had been renovated by the sellers. While the sellers only had the property for a year, they had spent a significant amount of money refinishing the hardwood floors, painting the walls and ceilings, and doing some minor electrical and plumbing upgrades in the kitchen and bathrooms.

Problem
Although the property looked to be in excellent condition with the cosmetic improvements, the agent marketed the property in the Multiple Listing Service and sales brochure as being “totally renovated.”

Mistake
The agent’s advertising material and verbal representations overstated the improvements that were made to the property.

Result
The agent was approached by first-time homebuyers who mistakenly believed that the home’s electrical and plumbing systems were completely upgraded. They submitted a purchase offer but waived their rights to a home inspection because they lacked the money to pay for it. Shortly after the close of escrow, they discovered that the electrical and plumbing systems were old and deteriorating and would have to be upgraded. They subsequently sued both the agent and her sellers alleging that they misrepresented the true condition of the property and demanded a judgment equivalent to the cost of the upgrades. The matter eventually settled before trial.

Prevention
During the process of selling real estate, always avoid using adjectives that overstate improvements to property. More often than not, these adjectives lead to higher expectations and eventual dissatisfaction of buyers who may believe that they didn’t receive what they bargained for. Also, be certain when stating facts about the property such as age or structure, and don’t gloss over potential buyers’ concerns. It is important to never oversell (“With a little paint, I’m sure this would be great!”). No one wants to be the recipient of a lawsuit and a loss of reputation.

Do you have a similar story involving complaints regarding acting overselling a property to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

REALTOR Dabbling Outside Expertise Leads to Six-Figure Settlement

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Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR acting outside of her expertise to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over misrepresentation.

A residential real estate agent was approached by an industrial organization to help locate new property because it had outgrown its existing manufacturing space. The agent had handled several home sale transactions for employees of the company when they transferred in and out of town and had subsequently developed an excellent reputation with the company. The owners of the plant decided to reward the agent by engaging her services in their search.

Problem
The agent, while well-versed in residential sales, was inexperienced in commercial transactions.

Mistake
Unfamiliar with zoning issues beyond a rudimentary understanding, the agent located a piece of property that was suitable for commercial but not industrial construction—something necessary for the operation of her client’s business. Compounding the problem, the agent failed to obtain a Buyer’s Agency Agreement that contained a section requiring the client to explicitly state the type of property it was seeking. Ultimately, the commercially-zoned property was acquired after the agent represented to her client that it would be ideal for its needs.

Result
Following the close of escrow, the city denied the client’s application to construct the desired building since the intended operation did not comply with zoning regulations. A lawsuit ensued against the agent and her broker after the client’s zoning appeal failed. The lawsuit sought significant compensatory damages, including lost revenue and attorney’s fees, and asserted that the buyer relied on the expertise of the agent and broker. The buyer also alleged that they should have known that industrial zoning was required because its existing operation was zoned industrial. Faced with a likely adverse verdict at trial, the matter was resolved outside of court for a six-figure settlement.

Prevention
Mistakes often occur when a real estate professional dabbles outside his or her area of expertise. In this case, the agent should have followed pre-established office procedures and asked for assistance from her broker. The broker could also have avoided litigation if he closely supervised her throughout the transactional process. Soliciting the counsel of experts in commercial real estate could have prevented the end result.

Do you have a similar story involving complaints regarding acting within your area of expertise to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Should Buyers Be Allowed to Move in Early?

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Have you ever been involved in a real estate transaction where the buyers ask the sellers if they can move in early? If the buyers’ lease runs out on Aug 1 (or they for some reason are stuck without a place to live) and the closing date for the property is not until Aug 6, you may be caught in this predicament, however innocent the request may be.

In Inmen News today, Bernice Ross explains the consequences that can occur if the sellers agree to let the buyers take possession early. In a nutshell, advise your seller clients not to allow this, or at least recommend they draw up a lease agreement and demand a security deposit. So much can happen in the short time between the sellers moving in and the official closing. Help your clients avoid these major mishaps with advice from “Pre-Closing Horror Stories.”