This post was fact checked by Lisa Rogers, Principal Attorney and Partner at ARK Attorneys.
While most real estate transactions go well, sometimes clients may not be happy no matter what you do. Your clients may blame you even if you did nothing wrong, because that is just how some people are. And good news, negligence lawsuits in real estate are more common than you think, so if you are being sued, don’t panic.
Mistakes can happen while you are trying to balance multiple listings and contracts, open houses, and dealing with many clients who each have different needs. This is where negligence can come in.
Negligence is considered a type of real estate malpractice and is different from fraud because there is no intent in doing wrong. Even if a real agent acts in good faith, failure to act, carelessness, taking the wrong action, or just an error in judgment can cause a negligence lawsuit.
The most common reasons for a negligence claim to be filed against a real estate agent include:
- Marketing a property below its market value (leading to a loss) or above its market value (which results in a slow sale or increased costs)
- Knowingly providing incorrect advice or information
- Providing legal advice when the agent is not qualified to do so
- Not disclosing serious defects like foundation problems or infestations
- Acting as dual agent and not informing both parties
- Receiving fees that are not disclosed to the client(s) like compensation for using specific vendors like title companies, inspectors, etc…
- It may also be illegal for some of these companies to compensate you, like title companies, so make sure you know which vendors or partners can and cannot give incentives
- Accepting or declining an offer without the client’s approval
- Failing to inform a seller of other offers on the table
- Missing contract deadlines
- Breaching your client’s privacy and confidentiality
In order to go forward with a negligence claim, these four elements must be proven:
- A duty of care is owed and established (what a reasonable person would do under the same circumstances).
- The estate agent breaches the above duty of care.
- The client must suffer some form of financial or personal loss.
- The loss was a direct result of negligence on the part of the real estate agent.
Once proven, the court can award compensatory damages, require the agent to cancel the contract they breached, and award other damages like emotional distress.
Negligence claims can have a big impact on a real estate agent, so if you’d like to lower your chances of finding yourself in that boat, be proactive!
Always:
- Disclose any defects or problems with the property that impacts its value.
- Afterwards document the issue, the discussions you’ve had, and pictures you’ve taken so both parties have a record of it.
- Avoid taking shortcuts regardless how minor they see.
- Recommend a lower instead of giving any legal advice.
- Stay up to date with the real estate laws in your market by doing things like taking continuing education classes.
- If you don’t know something or aren’t sure, tell your client that you will find someone who does know the answer.
- Recommend that the homebuyer does their own due diligence by having private inspections done.
- Review all documents before closing (with and without clients), so there are no surprises.
- Put into place good security practices like updating your computer software regularly.
- Avoid difficult clients.
- Follow up every conversation with a detailed email about the conversation including what was covered, and bcc yourself.
Real estate agents get sued for negligence on a regular basis. It is part of being a real estate professional. By communicating with your clients and having a record of every interaction you can help reduce your chances of a negligence lawsuit happening. And many times you can find a way to settle out of court reducing the negative impact a full lawsuit can have on your business.
