Lack of Communication in Real Estate Transaction = Breach of Purchase Agreement
Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving breach of Purchase Agreement 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 a simple matter of lack of communication.
A homeowner placed a house on the market through an agent affiliated with a local broker. At the time of the listing, the house was occupied by the seller’s grown children. A buyer, represented by an agent with the same broker, made an offer on the house, which the seller accepted. The buyer made an earnest money deposit of $2,500 held by the seller’s agent. The Purchase Agreement stated that the seller was not required to make any repair under $300.
Problem
The transaction began to break down over the home inspection process. The buyer wanted repairs on a number of items he claimed were damaged by the seller’s children. The seller had relied on the repair clause in the Purchase Agreement that relieves him of responsibility for repairs under $300. Nevertheless, the seller offered to complete some of the repairs under $300. This led the buyer to request even more, resulting in the exchange of 17 conversations over the repairs. As a result, the buyer refused to attend the closing.
Mistake
Both agents took a passive approach as the dispute escalated. The listing agent failed to adequately inform the seller of his rights and obligations under the Purchase Agreement. The buyer’s agent made no effort to rein in the expectations and demands of his client until it was too late.
Result
The buyer’s failure to appear at the closing caused the seller to take legal action, suing him for breaching the terms of the Purchase Agreement and refusing to close on the home. The seller also sued his agent for not adequately representing him, failing to enforce the terms of the Purchase Agreement, failing to inform the buyer of his limited liability for repairs under the Agreement, and for allowing negotiations for repairs to continue. The buyer demanded compensatory damages and the earnest money being held by his agent. Ultimately, the earnest money was turned over to the seller and an additional modest sum was paid by the buyer and broker to settle the case.
Prevention
Both agents should have been more involved throughout the transaction and the dispute over repairs. Being aware of discrepancies allows you to stay on top of situations, which could potentially spiral out of control. Yielding responsibility for resolution of disputes leaves an open invitation for problems to arise. Remember your representation responsibilities and keep your client informed of their rights and obligations throughout the selling/buying process. Temper expectations that don’t conform with agreements or common sense. Your prompt and intelligent response to issues like this could prevent considerable loss.
Do you have a similar story involving a breach in a Purchase Agreement 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 www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.
Good points