Tag Archives: real estate transaction

Real Estate Agent Misrepresents

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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 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!

REALTOR Blamed for Soil Problems

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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 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!

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!

Don’t Do Your Clients’ Due Diligence!

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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 an agent taking on what should have been the buyers’ due diligence 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 negligence.

A Real Estate agent was working with prospective buyers who were searching for a residential property for their growing family. The agent showed them several properties before they decided to submit an offer on a home that recently underwent a complete renovation, including a two-room addition.

Home AdditionProblem:
The renovation was completed by an unlicensed contractor who failed to obtain the necessary building permits. Moreover, the property was located in a state that did not require the owners to complete a seller’s property disclosure statement, leaving the buyers to determine whether any defective conditions existed through the engagement of experts.

Mistake:
Since the buyers were busy with their careers and the school activities of their children, the agent volunteered to do the due diligence for the buyers. This included hiring a home inspector and termite inspector. In accepting the agent’s offer, the buyers assumed that he would also research whether or not the project was “legal.”

Result:
Approximately five months after moving into the property, the buyers received a letter from the city informing them that the renovations were completed without the required permits. The ensuing building inspection discovered that the addition did not conform to the building codes since it lacked a load-bearing wall. The buyers then sued the sellers,
the listing agent, the home inspector, and their buyers’ agent for failing to either disclose or detect the property’s nonconformance. The parties ultimately resolved the litigation after the defendants agreed to pay for the remediation and obtain the certificate of occupancy.

Prevention:
An agent should never volunteer to take on the due diligence for buyers by ordering or attending inspections on their behalf. If there’s any defective condition with the property, the agent will likely be sued for negligently referring the inspectors while putting themselves in the position where a jury could determine that they fraudulently induced the buyers into the purchase. Sound risk management on the part of an agent is to have the buyers select the inspectors and not become actively involved in the conversation between the buyers and the inspector. Although it is best to be present during the inspection should the client seek assistance, an agent should not be interpreting an inspector’s findings or recommendations. The agent may later be held accountable for failing to address something pointed out by the inspector. Lastly, always recommend that the buyers contact the controlling authority for conformance inquiries.

Do you have a similar story involving negligence, failure to disclose, or nonconforming renovations 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!