Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving an agent not recommending an inspection 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 Real Estate agent was working with prospective buyers who were searching for a residential property with an in-ground swimming pool or level backyard where a new pool could be installed. The agent showed his buyers several properties before they decided to submit an offer on a home that met the latter criteria.

Problem:
The property had a history of soil settlement problems resulting in some sinkhole activity and shifting of the home’s foundation. The owners provided a Sellers’ Property Condition Disclosure revealing the problem, together with an undated soil study report detailing a history of settlement it deemed to be “relatively minor.”

Mistake:
The agent, unfortunately, relied on the report as being factual and failed to recommend to his buyers that they commission their own soil study or have a structural engineer investigate the current extent of the problem.

Result:
After the close of escrow, the buyers hired a swimming pool contractor who quickly discovered that the soil was not stable enough to complete the installation. The buyers then decided to have an expert investigate both the soil condition and the home’s structural integrity. The expert removed the drop-down ceiling tiles in the finished basement and determined that the walls were shifting and the floor joists had been sistered, leading him to conclude that the soil condition was more extensive than what was represented in the sellers’ report. The buyers subsequently sued the sellers alleging intentional misrepresentation and the agent alleging that he negligently recommended accepting the findings of the soil study report and for failure to recommend updated inspections. The parties ultimately resolved the litigation for close to six figures.

Prevention:
An agent should be very leery about accepting expert reports presented by sellers – especially undated reports since they may not reflect current conditions of a property. Also, an agent should never attempt to interpret reports since he or she may likely be acting outside the scope of their expertise. Always recognize when to ask for help from another professional and suggest to buyers when to use the services of professionals such as home inspectors and structural experts. It is essential the buyers realize they have the right to request any type of property inspection and that inspection contracts and reports may contain disclaimers. If the buyers decide not to do so, document this in writing and have them acknowledge in writing.

Do you have a similar story involving misrepresentation 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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