7 Reasons Real Estate Agents Get Sued & How to Avoid It

This post has been fact checked by Lisa Rogers at time of publishing by Principal Attorney at ArkLaws.

Even the most diligent real estate agents can get sued, and it happens all the time.  But that doesn’t mean you have to panic if you get served.  Most lawsuits against real estate agents can be prevented if you are proactive and take steps to protect yourself to avoid the courtroom.

If you’re an agent and find yourself getting sued, contact us today and we’ll be happy to talk to you and point you in the right direction.

The seven most common reasons real estate agents get sued are:

1. Breach of Duty
2. Breach of Contract
3. Fraud
4. Negligence
5. Failing to Disclose a Property Defect
6. Giving Legal Advice
7. Not Protecting Client Data

Breach of Duty

Breach of duty means that you fail to do something that is your responsibility to do, and it is one of the most common reasons real estate agents are sued. Because of your expertise and experience, your clients trust you to act in their best interests with honesty and transparency.

Breach of duty claims can be filed for any number of reasons including:

• Failing to inform a seller of other offers on the table.
• Declining or accepting an offer without the client’s approval.
• Dual agency without the client’s knowledge.
• Not verifying that the land an offer is written for as the land you showed your client.
• Forgetting to disclose a dispute with a neighbor over the water rights.

How to Protect Yourself From A Breach of Duty Claim

• Always be upfront and honest with your clients.
• Disclose all facts about a property including anything wrong with the property.
• If you are a dual agent, both sets of clients need to be notified.
• Document every conversation in writing.
  • For example, follow up verbal conversations with an email stating what was discussed so there are no misunderstandings.
• Always act professionally and in your clients best interests.
• Have systems in place to protect your clients confidential data.

Breach of Contract

A breach of contract means that your client feels that the terms of your contract (listing agreement/buyer’s agent agreement) were not followed.  If you find yourself being sued for breach of contract read through what you agreed to do and what the client agreed to.

This includes failing to pay, collect, or return any money related to the sale like security deposits, earnest money, escrow, and commissions.  And can also include fraud, breach of duty, and negligence.

What To Do If You’re Being Sued For Breach Of Contract

1. Review your contract and create a list of the items you agreed to.
2. Look for emails, call records, or anything else that documents you did in fact meet all requirements.
3. Create a list of what your client was supposed to do and mark what they did not complete.
4. Evaluate in a fair way if you did in fact meet all requirements.
   1. It is wise to have a licensed attorney look over the contract and your lists to ensure nothing was missed.

Bonus-tip: Include all appropriate disclosure forms like the Residential Real Property Disclosure Report and Natural Hazard Disclosure Statement.

Fraud

Fraud is when a person(s) intentionally deceives, withholds information, or purposely gives bad advice for their own gain.

Fraud in real estate can include:

• Failing to reveal that the square footage of a home is not the same as what is on the listing.
• Forgetting to mention there is mold or foundation cracks.
• Not telling the buyer that the property is subject to environmental regulations, rezoning, or other laws.
• Failure to provide appropriate disclosures for lead, radon, etc.
• Assisting a buyer or seller in misrepresenting themselves.
• Being involved in foreclosure rescue scams.

Bonus tip:  Damages for fraud can include both actual damages and punitive damages which may not be insurable. Call your insurance provider to find out if you’re covered to protect yourself.

How to Protect Yourself From A Fraud Claims

• Always maintain good communication with clients and vendors.
• Don’t give false expectations.
• Document all of your advice and the decisions your client makes.
• Avoid clients who are difficult or who ask you to engage in unethical, discriminatory or fraudulent conduct.
• Always be mindful of potential conflicts of interest.

Negligence

Negligence is different from fraud, because it lacks intent and is usually a result of not doing proper due diligence.  Even if you act in good faith, if your client feels that carelessness, failure to act, taking a wrong action, or a simple error in judgment occurred, they may file a claim of negligence.

Common reasons for a negligence claims are:

• Failure to disclose information that affects the value of a property.
• Not performing under the terms set in the contract.
• Failing to communicate all potential offers to and from the client.
• Not disclosing all of the material facts regarding the sale and/or purchase.
• Putting the agent’s or broker’s best interests before the client’s.
• Not keeping confidential information confidential.
• Giving clients false information.

How to Protect Yourself From A Negligence Claim

• Document all communications.
• Disclose all information and any material defects that can affect the value of a property.
• If you don’t know the answer to a client’s question, be truthful and let them know you’ll find someone who can get that information to them.
• Don’t rush and take shortcuts.

Failing to Disclose a Property Defect

While the seller is ultimately responsible for disclosing property defects, real estate agents have a responsibility to disclose anything that negatively impacts the value or desirability of the property.

Defects you should disclose include:

• Flooding issues
• Covenants that restrict how the property can be used
• Construction issues like not following local construction codes or not using the correct materials
• Improvements made without a permit like adding a bathroom
• Foundation defects
• The home’s age
• Type of flooring used
• Road noise
• Condition of the roof
• Termites or other pests
• Mold

Bonus tip:  If a buyer sues for failing to disclose a property defect, they have to prove that you knew (or should have known) about the defect and failed to disclose it.

How to Protect Yourself From A Failing To Disclose A Property Defect Claim

• Document any issues you notice, date and initial the document, and ask your client to do the same.
• Recommend that your clients get a home inspection done and take care of any issues that turn up.
• If you’re not sure if a defect should be disclosed, always err on the side of disclosing it.
• Have clients complete the Residential Real Property Disclosure Report

Giving Legal Advice

While most real estate agents know a lot about real estate law, many are not licensed attorneys.  This becomes an issue when the agent gives legal advice, and the client relies on this advice instead of asking their lawyer.  The client is now using the agents opinion vs. actual legal advice.

The best way to protect yourself is to not answer any questions regarding real estate law and advise your client to talk to a licensed real estate attorney.

Not Protecting Client Data

Because you have access to your client’s financial and personal data, you need to safeguard it. If your client’s information ends up in the wrong hands, you can be sued for the failure to protect that information.

How to Protect Yourself From A Not Protecting Client Data Claim

• Make sure that your data storage company uses security measures like encryption, hacker protection, and two-step verification.
• Create privacy policies for records management, cyber security, and confidentiality.
• Regularly change your passwords and make them complex.
• Keep your computer software up to date.
• Don’t leave your clients’ information out in the open.
• Keep your antivirus software updated and firewalls active.
• Never click on attachments or links contained within emails from unknown senders.

Real estate agents can do everything right and still be sued.  The good news is that you can protect yourself and reduce the risk you’ll end up in court by taking a few of these proactive steps.  If your questions or situation is not answered above, contact us through this page and we’ll direct you to one of our licensed real estate attorneys who can help.