Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving an agent misrepresenting 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 acting outside of your expertise.

A residential Real Estate agent was approached by a potential buyer who was looking for property where he could live with his family, as well as operate a pest control business. The agent advertised herself as being an expert in residential and commercial real estate.

Problem:
The agent was unfamiliar with the nuances of commercial zoning, and no procedures had been implemented by the managing broker to identify and correct mistakes made by agents.

Mistake:
Inexperienced with zoning issues, the agent located a piece of property that was listed by another “in-house” agent. Believing that it would be suitable for both her buyer’s residential and business needs, she incorrectly assumed that the property’s zoning would allow her client to operate his business, and thus encouraged him to purchase it.

Result:
About one year after the buyer closed on the property, he received a notice from the city advising him that the operation of a pest control business did not conform to the zoning regulations. After the city denied his request for re-zoning, a lawsuit was brought against the agent and her broker seeking compensatory damages, lost revenue, and attorney’s fees. The buyer alleged that he relied on the expertise of the agent and that the broker failed to properly supervise the actions of the agent.

Prevention:
In this case, the agent and broker could have avoided litigation if pre-established office procedures were in place. The agent would have served her client better by seeking advice from the broker or other zoning expert—and by not misrepresenting herself as an expert in areas unfamiliar to her. The broker may have also helped avoid litigation if he closely supervised the agent throughout the transactional process. In the end, the litigation was resolved after it became apparent that the agent and broker would likely be found liable if the case were ever tried.

Do you have a similar story involving office procedures, misrepresentation, or acting outside of your 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!

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