Real Estate Agent Misrepresents

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!

You can also visit our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more. Or get a quick estimate now!

Should a real estate agent be punished for being knowledgeable?

Recently, we came across a couple of articles asking to what extent a real estate professional holds the burden of assisting clients rather than taking advantage of a good real estate deal themselves. On the one hand, a REALTOR owes it to their buyer clients to show them any properties they may be interested in, and to their seller clients to find the best financial offer out there. On the other hand, the agent may also be a buyer, and their offer may be the best one the seller receives.

Real estate agents, and REALTORS in particular, are held to the standards of the National Association of REALTORS (NAR), including its Code of Ethics. This includes protecting and promoting the interests of their clients, and treating all parties honestly. So if you know you want to purchase a property as a rental investment, but your client expresses an interest in it, what do you do? Bite your tongue and show them the property without telling them you would like to purchase it? If you are representing the seller, whatever offer entails the highest price would be in their best interest, right?

These questions can be tricky, as can the other point the writer brings up about how REALTORS should want more first-time homebuyers to have a chance to purchase rather than getting beat out by more knowledgeable real estate professionals. Should agents have to endure a waiting period wherein the listing is exposed to the market for a certain amount of time, before they are allowed to purchase a property someone already has their eye on and is willing to put in an offer for?

Here is the Part 1 article from writer Tom Kelly for Inman News.

In response to the comments Kelly received on his first article, “Should Real Estate Agents Get First Dibs on New Listings?”, his Part 2 article discusses the audience response, and follows it up with a Washington state case that delves into this very topic.

“The responses fell into two main pots,” writes Kelly. “Readers said agents should be allowed to buy if it was in the best interest of the seller. Others who responded thought that agents should be allowed to purchase a property as soon as it is listed, provided they knowingly had no other active clients who wanted the same home.”

It sounds like it all comes down to the “treating all parties honestly” part of the code. In the case of the agent who bought from under his client’s nose, he not only bought a property he knew his client was interested in, but he also relayed some personal, and possibly incorrect information to the listing agent to keep his client from winning the bid. To make things worse, the agent bought the property under his wife’s name, presumably to hide his indiscretion.

Court documents show that the seller’s agent didn’t know the buyer’s agent’s wife was related to the buyer’s agent, or he wouldn’t have participated in the deal. Besides this lapse of honesty, there were two other areas it seems the buyer’s agent went beyond ethical judgement as well as Washington law by attempting to beat the system: 1) He seemingly ignored Washington state real estate law requiring a buyer’s agent to “be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in a transaction (and) to timely disclose to the buyer any conflicts of interest.” 2) The law also rules against revealing confidential information after the agent-client relations ceases or has been finalized.

Although the settlement itself is confidential, it is obvious the agent was a bit underhanded in his dealings with his buyer client as well as the seller. Hopefully he had a good E&O policy in place to help him with the legal costs, but it is likely his name has been dragged through the mud in the real estate community.

What do you think—should agents be made to wait until a property has been listed for a while before they get a chance to purchase it, allowing less knowledgeable buyers some time to work out the kinks in their offer? Is it punishing those in the real estate profession to do so?

REALTOR Hires Roofing Contractor

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR® acting outside of your 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 performing a function that is outside of your realm as a real estate professional.

A Real Estate agent listed an older residential property that needed a roof replacement because water was penetrating the attic and running down the walls. As part of the marketing strategy the sellers agreed with the agent that the best way to sell the home for a better price would be to have a new roof installed. In addition to fixing the water intrusion problem, it was believed that the enhanced curb appeal of the property would likely garner more interest.

Problem:
The contractor that was hired to do the work was not fully paid by the sellers when the work was completed.

Mistake:
After the marketing strategy was agreed to, the agent decided to select and hire the roofing contractor on behalf of  her clients so that they could focus on prepping and painting the water stains on the interior walls of the home. The sellers provided a check to the agent for the down payment required by the roofer, but it was the agent who signed
the contract order.

Result:
When the project was close to completion, a potential buyer tendered an offer on the property that the sellers quickly accepted. However, when the contractor wasn’t paid by the sellers for the balance due, he filed a mechanic’s lien against the sellers and the real estate agent for non-payment. The buyer then sued the sellers for specific performance and
demanded that either they or the agent pay the contractor to lift the lien. Following a two-month delay in the closing, the matter was resolved after the sellers and agent agreed to contribute equal shares to pay the contractor.

Prevention:
An agent should never select and hire any vendor to do work on sellers’ property—and should certainly never sign a work order on their behalf. By doing so, an agent becomes contractually liable to the vendor and may, as in this case, become the object of litigation when a buyer of the property attempts to enforce a Purchase Agreement. It’s also important to remember that most, if not all, real estate errors & omissions policies don’t provide coverage for claims based on or arising out of liability of others assumed under any contract or agreement. Making the simple decision to leave contractor selection and engagement to a homeowner will increase your chances of avoiding litigation from both the contractor and any potential buyer of property.

Do you have a similar story involving 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!

You can also visit our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.