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.

Problem:
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!

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?

Following the close of escrow on a residential property, a Real Estate broker and his agent were sued by the buyers for allegedly failing to provide the required Seller’s Property Disclosure Statement. The broker and his agent were adamant that they were in compliance and would have been able to demonstrate from documentary evidence that it was provided to the buyers’ agent. The evidence included a facsimile transmission of a cover letter addressing the “attached” property disclosure, along with electronic mail exchanges with the buyers’ agent discussing the property’s condition.

Problem:
Believing that the lawsuit was frivolous, the broker and agent simply ignored it. They also ignored the ensuing Motion for Default brought by the buyers’ attorney for failing to file an answer to the complaint.

Mistake:
By ignoring both the lawsuit and default motion, the court entered a five-figure judgment against the Real Estate brokerage. And to make matters worse, the Default Judgment was not tendered to the Real Estate Errors & Omissions insurance carrier until one month later.

Result:
Despite an all-out effort on the part of the defense attorney assigned by the Errors & Omissions insurance carrier, the Default Judgment could not be overturned due to the delayed responses on the part of the brokerage. Furthermore, the insurance carrier was under no obligation to pay the judgment since the Real Estate brokerage failed to comply with the terms and conditions of its Errors & Omissions policy by not providing timely notice of the claim.

Prevention:
Many jurisdictions have very strict deadlines for filing court documents. In this case it’s quite clear that the Real Estate brokerage could have avoided its problems if the lawsuit was reported immediately to the Errors & Omissions insurance carrier. And given the favorable evidence in the transaction file, the claim may have been voluntarily dismissed once the buyers’ attorney was presented the irrefutable evidence. In order to preserve this evidence, it is very important not to destroy your file following a closing so that an effective defense can be asserted on your behalf. The transaction file should include the following:

• the date and time of all meetings or phone conversations and a list of all participants

• e-mails and faxes

• verification that what you say and write is correct—keep a record of all verified information, contracts, agency disclosures, seller disclosures, and closing documents with the appropriate signatures. And never sign anything for your client.

Do you have a similar story involving negligence 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.

1. Put aside all personal issues. Be attentive and concentrate on hearing what the speaker has to say.
2. Comment on what you hear, and individualize your comments: “Cheryl, that’s obviously very important to you.” If you train yourself to comment meaningfully, the speaker will know you are listening and may offer further information.
3. Show empathy. If you respond to human issues, people will respond to you.
4. Don’t ignore opportunities for humor. When it arises naturally our of a conversation, humor enhances what may otherwise be an overly somber situation. Avoid sarcasm, however, which is rarely humorous.
5. Be aware of nonverbal communication: silence, facial expressions, tone of voice, body gestures. These can be telling symptoms, but don’t allow these messages to be the basis for speedy conclusions.
6. Know the value of silence. A brief period of silence will generally cause the speaker to produce more in-depth responses and allow both of you to reflect on what’s been said, ask additional questions, seek further clarification, or provide more information.
7. Ask questions to clarify information. The best indicators that you hear and understand are your questions and how you ask them.
8. Be sure you are not making inaccurate assumptions. When the speaker leaves a point unfinished, finish it yourself and ask for agreement, or simply ask the speaker to finish it.
9. Be careful. Most people have an almost immediate grasp of the obvious, but few of us can grasp immediately what a speaker means to convey.

A Real Estate professional was serving as the commercial leasing broker for a shopping plaza on behalf of the holder of a 15-year ground lease that included an option to renew for four successive five-year terms. The renewal was contingent upon the ground leaseholder giving written notice to the plaza owner nine months prior to the expiration of the lease. As part of his duties, the broker agreed to accept the responsibility of exercising the renewal option as well as those of the six retail tenants in the plaza.

Problem:
The ground lease and the retail leases were not timely renewed.

Mistake:
The leasing broker marked the wrong date in his calendar, therefore missing the deadline.

Result:
Although the first extension did not occur within the time frame allowed by the ground lease, the plaza owner, who discovered the oversight, still accepted the renewal. However, the retail tenants refused to renew their respective leases under the same terms despite the broker’s frantic efforts to salvage the deals. Five of the tenants notified the broker and leaseholder that they would be relocating, leaving much of the property vacant at the conclusion of the lease period. The broker attempted but failed to locate suitable tenants for the plaza, resulting in a significant shortfall in revenue for the leaseholder. A lawsuit was then filed against the broker alleging negligence and sought reimbursement for lost rental income. After several rounds of negotiations, the parties settled the litigation well into six figures.

Prevention:
If the broker took a moment to carefully review the lease agreements and establish an effective calendar diary system, the error could have been avoided. A sound diary system includes the creation of a backup measure in the event the first notification method fails. Furthermore, it’s always a good practice to conduct periodic reviews of your contractual obligations to ensure that they’re well understood and in compliance. Many lawsuits arise over simple clerical errors that cost the real estate community thousands of dollars in legal fees and settlements. It also results in spending time and effort to fend off regulatory complaints brought by unsatisfied clients, not to mention the possibility of license suspension or revocation.

Do you have a similar story involving negligence 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.

All too often, real estate prospects look to foreclosures as an easy way to buy property on the cheap. Although there are likely decent foreclosure deals available, purchasing a foreclosed home can come with a fair amount of headaches. Keep these in mind if your client decides to go ahead with acquiring a foreclosure.

1) Get it inspected by a professional.

Stipulate to your client that they need to get the property checked out by a certified professional home inspector, and don’t bid on houses that aren’t available for inspection. Don’t let your client base their buying decision on appearances alone; the home could have mold, pests damaging its structural integrity, an insulation problem, shoddy construction, asbestos … you name it. Your client needs to know how much work (and money) they will need to put into the home up front.

2) Consider factors that may have led to the foreclosure.

Is crime on the rise in the neighborhood? Are the schools not making the grade? Is the view not so pleasant? How long has the home been empty? Are there plenty of other foreclosures in the area? Foreclosures aren’t always due to a lack of money or budgeting skills; maybe the previous homeowner bought the house without realizing there was a particular blight on the property.

3) Be cautious if the house is currently occupied.

Keep in mind that some people involved in the foreclosure may be living on the property and may be difficult when it comes time to leave. Even with title in hand, your client could have a hard time evicting the unwanted tenants. And once they do leave, they may have retaliated by destroying the property. (This may not be an issue in certain areas.)

4) Advise your client against flipping.

Unless your client has an arsenal of cheap contractors and materials at their disposal, there always seems to be pitfalls along the way that end up costing more than the person looking to make a quick bundle bargained for.

5) Recommend to buyers that renovations are within the their budget.

Even for properties needing a seemingly modest amount of renovation, there’s usually more work and money involved than planned. In order to make the most of the foreclosure’s bargain price, the buyer should not go into further debt by taking out loans and losing money on interest. Have a home inspector detail all work needed and make sure the buyer has enough cash to fix it all.

6) Recommend they find a reputable lender.

The wrong lender might not spend as much time on a foreclosure case as on a standard real estate purchase, because they stand to make less money on the former. A good lender will research what your client’s best option is. Tell your client to ask a lot of questions—the lender should explain everything to your client very clearly. You should advise them to meet with a real estate attorney as well.

Pearl Insurance is a nationally known broker, marketer, and administrator that specializes in the design and administration of quality insurance plans for associations, affinity groups, unions, and large firms. In addition to providing real estate professionals with quality products and services for 30 years, their partnership with the XL Insurance companies (through Indian Harbor Insurance Company and Greenwich Insurance Company) solidifies their strength, allowing them to offer association members an A rated (by A.M. Best) E&O program. For more information about Pearl’s sponsored E&O programs, call 800.289.8170.

Information provided within this article is not to be taken as legal advice and is to be used for educational and illustrative purposes only.

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.

A Real Estate agent listed a residential condominium in an age-restricted community that required, through its homeowners’ association (“HOA”) covenants, that at least one person residing in each unit must be at least 55 years old. Fortunately for the agent and his seller, he was able to sell it quickly to an out-of-state couple who met the age restriction requisite and who planned to live in the property after their retirement two years later.

Problem:
The buyers intended to have their granddaughter live in the property until they retired while she attended a nearby university.

Mistake:
Before the property went under contract, the buyers questioned the agent on whether the restrictive covenants would allow this living arrangement. The agent informed his clients that it would create no problems since the buyers, who would be the actual owners of the unit, satisfied the age condition.

Result:

Soon after the close of escrow, the buyers’ granddaughter moved into the unit and applied for a parking permit only to be informed by the HOA that she and her grandparents were not in compliance with the age restriction covenants since she, as the only resident, did not meet the age requirement. The HOA then declared that she would have to vacate the property. And after unsuccessfully pleading with the HOA Board of Directors to waive the age restriction, the buyers sued the real estate agent, his broker, and the seller alleging negligent and intentional misrepresentation and demanded that they provide alternative housing for their granddaughter until she graduated from college. Following extensive negotiations, the matter was resolved.

Prevention:
The agent incorrectly assumed that there would be no problem with a college-age woman occupying the unit as long as the owners met the age requirement. To complicate matters further, there was a dispute as to whether the agent actually provided a copy of the HOA covenants to the buyers before they executed the Purchase Agreement. If the agent was able to demonstrate that the buyers acknowledged receipt of the covenants in writing, he would have been able to put himself and his broker in a better position to defend the case. Having the ability to prove that the buyers had the opportunity to review the HOA documents would have certainly helped in that endeavor.

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.

15. What should you do if you become aware of a claim? Talk to your broker and/or an attorney. Get as much information from the claimant; attempt to resolve/settle early. Avoid making admissions. Do not write on original documents. Do not panic. Provide a detailed and confidential narrative memorandum to your attorney. Be candid about facts which show you were possibly at fault. Use mediation. Get advice. Make a prudent business decision—remember, justice, whatever that means, can be a very expensive commodity.

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

11. Stick to your specialty. Even the best agents cannot be all-knowing about all properties. You will be considered to know more about the area that you farm and/or your “specialty.” This applies particularly with agents’ services relative to short sales, REO properties, and foreclosures.

12. Review preliminary title reports carefully and as soon as possible.

13. Use standard forms and procedures. The supervising broker should be monitoring your contracts to ensure that what you have written is clear. An important general rule affecting any contract is that vagueness is construed against the party responsible for the ambiguity.

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

7.  Stay well informed. Employ determinative risk management and loss prevention tools from counsel experienced in real estate brokerage and sales law. Attend board/association seminars, and read trade publications (e.g., C.A.R.’s Legal Briefs and Q&As, the DRE Bulletin, etc.).

8.  Do not jump the gun. Avoid situations that could lead to two contracts. Exercise the utmost care with multiple offers, backup offers, and contingencies.

9.  FSBOs raise red flags. Is the seller doing something other than simply saving a commission? Have you unwittingly become the seller’s agent?

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

Schatz and sales manager Cyd Vacio co-presented at the International Builders’ Show in Orlando Wednesday, describing the role real estate practitioners play in serving buyers while divulging essential tips on how to succeed in new homes sales.

Here are their 10 rules to follow:

http://www.realtor.org/RMODaily.nsf/pages/News2011011302?OpenDocument

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

A Real Estate agent listed an owner-occupied, two-family residential property with the sellers residing on the main floor and tenants residing in a ground-floor living unit. The residence was sold rather quickly due to its appeal to investors seeking a steady flow of revenue from the long-time tenants, who expressed a desire to remain there.

Problem:
On numerous occasions over two decades, the City notified the sellers that the property did not meet the zoning requirements because the ground-floor unit had been constructed without a permit and was in violation of City Ordinances and Federal Flood Insurance regulations.

Mistake:
When the agent entered into the Listing Agreement with the sellers, they provided him with copies of documents relating to the property, including the most recent non-conforming notice from the City, which also stated that the bathroom and kitchen on the ground floor had to be removed, along with the tenants. However, the agent did not take the time to review the material and simply placed it in his transactional file.

Result:
Soon after the close of escrow, the buyers applied for a permit to complete renovations and learned from the City Zoning and Planning Office that the property was not in compliance. The buyers then sued the sellers and the real estate agent alleging breach of contract, negligent misrepresentation, fraud, and unfair and deceptive trade practices.

They sought damages for lost income, the removal of the kitchen and bathroom, and diminution of value relating to the amount paid above the true market value and the deficient square footage. During the early stages of litigation, a copy of the City’s non-conforming notice was discovered in the agent’s transactional file. The case was settled shortly thereafter.

Prevention:
The agent was one of the leading producers in the marketplace and had successfully closed numerous transactions over his 25-year career. But in this case, the agent’s success led to complacency, resulting in his failure to follow his real estate office’s pre-established procedure of reviewing all documents prior to marketing and advertising property to the public. A simple review would have alerted him to the potential disclosure issues and that his clients were not fully forthcoming about the dwelling’s status. The real estate broker also learned a valuable lesson to make sure that he, too, should follow his own procedures of reviewing the work product of his agents so that situations like this can be avoided.

A Real Estate agent had an exclusive listing agreement with the builder of a new, 10-lot residential subdivision. The agent was quickly able to locate three individual buyers who entered into purchase & sale agreements and tendered earnest money deposits to the builder. Shortly thereafter, construction was underway and the respective lending institutions began to release money from the buyers’ construction loans.

Problem:
Approximately halfway through the construction process, the builder verbally notified the real estate agent and contract buyers that he was experiencing financial difficulties in a separate development project due to slow sales and the inability to create cash flow.

Mistake:
Despite the contractor’s financial problems, the agent continued to market and sell the remaining lots, accepting additional earnest money and turning the funds over to the builder. The agent decided not to advise the new contract buyers of the builder’s financial problems, assuming he would be able to overcome these problems because he was a “good builder”.

Result:
The builder soon abandoned the projects that were underway and filed for bankruptcy protection. He left three contract buyers with half-completed houses and seven more with lost deposits ranging from a few thousand dollars to six figures. The buyers then sued the real estate agent alleging that he failed to disclose the builder’s true financial ability and status. The claims ultimately settled against the real estate agent, but without immediate contribution from
the builder.

Prevention:
An agent should never make assumptions about any seller’s or buyer’s financial capabilities and should certainly disclose something material in nature such as a builder’s impaired financial ability. Clearly, the agent should not have continued to accept earnest money after having learned about the builder’s financial struggles. Being a “good builder” doesn’t necessarily guarantee good business management skills. For good measure, the agent should also
confirm in writing to the existing contract buyers when a significant development such as this occurs. It should additionally be recommended to these buyers that they seek the advice of legal counsel and other qualified individuals to help them make decisions on how to proceed. Legal and financial advice should never be given by a real estate agent in any situation. Following these practices will not only result in well-informed buyers, but will help avoid
unwanted litigation.

Do you have a similar story involving disclosure 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.

A Real Estate agent listed a residential property on behalf of a married couple who were supposedly going to relocate to another part of the country. Approximately two months later, another couple submitted an offer through their agent that was accepted and formalized in a Purchase & Sale Agreement.

Problem:
The sellers were in the process of going through a divorce, with the wife having moved out of the property and unaware that her husband was trying to sell it.

Mistake:
The agent allowed the husband to sign the Listing Agreement and the Purchase & Sale Agreement on behalf of his wife, when both of them were the legal owners.

Result:
Following the execution of the Purchase & Sale Agreement, the husband informed his wife that he had sold the house and asked her to attend the closing to sign the necessary documents. The wife refused to do so and notified the real estate agents that the deal was not going to go forward. After the buyers were notified, they sued the sellers for specific performance under the contract. The wife seller then third-partied the listing agent into the litigation alleging that she acted negligently in accepting the forged signatures. The case was ultimately settled when the husband seller and the listing agent’s errors & omissions insurance carrier paid a monetary sum to the buyers to walk away from what was otherwise an invalid contract.

Prevention:
Many real estate errors & omissions claims can be avoided by simply exercising ordinary care to your clients. This entails knowing who your clients are and properly communicating to each one of them anything—from the comparative market values to what they should expect during the listing period and after the property goes under contract.

Obviously, getting the proper signatures or initials on all documents will help protect you and your clients, while assuring that the transaction will proceed in a straightforward and legally-binding fashion. Good communication skills and the implementation of other risk reduction methods into your daily routine will help avoid the need to pay costly attorney fees and settlements.

Do you have a similar story involving negligence 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.

A real estate agent listed a residential property on behalf of sellers who completed a Seller’s Property Disclosure Statement, which revealed problems with leaky windows in the attached garage.

Problem
The property went under contract to prospective buyers, who hired a home inspector. The inspector discovered that the windows throughout the home were either defective or had been installed improperly. The findings resulted in a failed transaction, with both the sellers and the real estate agent having received a copy of the report.

Mistake
Another buyer came along and eventually purchased the property and was provided a copy of the Seller’s Property Disclosure Statement. However, the statement was not amended to reflect the results of the recent home inspection and the buyer was not provided a copy of the inspector’s report. The real estate agent claimed that she verbally advised the buyer of the content of the report.

Result
Following the close of escrow, the buyer soon discovered that most of the windows were experiencing problems. He then sued the sellers and the real estate agent alleging that by not providing the inspection report and not amending the Seller’s Property Disclosure Statement, they failed to fully disclose the defects. It was further alleged that the real estate agent recommended to the buyer that he waive the inspection contingency in the Purchase Agreement. The case ultimately settled for $12,000.

Prevention
The litigation may have been prevented if an amended Seller’s Property Disclosure Statement and the home inspection report were provided to the buyer. Although this would not necessarily guarantee that the buyer would not have brought suit under the same pretext, it would have helped the defendants position their respective cases to request that the court dismiss the litigation.

Do you have a similar story involving disclosure 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.

A real estate agent listed a residential property while, at the same time, working with prospective buyers who were looking for a home that could be renovated and sold later at a profit. The agent subsequently showed the property to his buyers who saw the potential in a positive resale if the floor plan could be opened up by removing portions of walls between the kitchen, dining room and living room. Eventually, the parties entered into a purchase and sale agreement.

Problem:
Due to job relocation, the seller vacated the property prior to the close of escrow and, at the request of the agent, allowed the buyers access to the property in order to take measurements for the renovation project.

Mistake:
The agent thought that it would be easier if he provided the lockbox combination to the buyers since he was confident that the buyers would meet the financial contingencies to acquire the property.

Result:
The buyers shared the agent’s confidence that the deal would go forward. They decided to get a head start on the renovation project and proceeded to remove the walls and electrical wires. Shortly thereafter, they received notification from the lending institution that their mortgage application had been denied. After applying to several other lenders with the same result, they abandoned the project and notified the agent that they were terminating the contract. The seller then sued the agent alleging that he negligently allowed the buyers unsupervised access. The seller also sued the buyers alleging unlawful entry and property damage. Four months into litigation, the parties resolved the dispute for $17,500.

Prevention:
Obviously, an agent should never provide keys or access codes to any buyer, contractor, or other unauthorized persons prior to the close of escrow. In the event a contractor must enter a property, the agent should be present only if the seller is unable to attend. In this situation, it is good practice to recommend to sellers that a relative or friend meet with the contractors in order to avoid any liability claims should something go wrong at the property. Also, a contractor will sue a real estate agent if the seller fails to pay for his services when the agent makes repair arrangements on behalf of the seller. Lastly, written authorization from the seller with “release of liability” language will go a long way in the defense of any unwarranted lawsuit.

Do you have a similar story involving unauthorized entry to a property 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.

A real estate agent marketed a commercial piece of property that included street level retail and several residential units on the upper two floors. The owner of the property operated a failing video rental business and was eager to sell the entire building before foreclosure action was undertaken by the mortgage holder. On the other hand, the residential units were producing a steady stream of revenue since they were occupied by longtime occupants who were making timely rental payments.

Problem
Optimistic about the location of the property, the real estate agent erroneously believed that a retail operation could be successful and that the residential lease amounts could be increased since the tenants were comfortable living there and were unlikely willing to move.

Mistake
While working with a prospective buyer, he guaranteed that her greeting card business would generate a positive cash flow and that the tenants would be able to absorb an increase in their monthly rent.

Result
Given these assurances, the buyer decided to acquire the property and notified the tenants of their respective rent increases shortly after the close of escrow. Within the first few months, four of the six tenants informed her that they were unable to pay the increase and decided to move. The buyer then experienced difficulty in finding new tenants willing to pay what she needed in order to make the residential component successful. Compounding the problem, the greeting card business was not seeing the desired foot traffic and corresponding revenue. Over the ensuing 18 months, the status of the business remained unchanged so the buyer sued the real estate agent alleging that he intentionally misrepresented the property’s profit potential. Damages sought included both lost business profits and lost rental income. The parties ultimately resolved the litigation for $75,000 in lieu of enduring a two-week trial.

Prevention
An agent should never make promises or guarantees about the revenue potential or future value of any property marketed for sale. Acting outside the scope of expertise is a dangerous proposition and should be left to a buyer as part of their due diligence obligation. Always recommend in writing that buyers seek counsel of qualified accounting and financial planning experts to help them make decisions on whether to acquire revenue-producing property. Following this practice will not only result in satisfied buyers, but will help avoid unwanted litigation. It should be noted that most, if not all real estate errors & omissions policies do not provide coverage for claims arising out of promises, warranties, or guarantees made as to the future income/value of property or the performance of a business.

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.

A real estate agent was workinAgentg with a prospective first-time buyer who was searching for a residential property that did not require significant improvements because she did not have the financial resources to invest in structural remediation. The agent showed his buyer several properties before she decided to submit an offer on a home that she believed only needed cosmetic improvements.

Problem
The home had a history of water intrusion problems resulting in extensive wood rot and insect infestation.

Mistake
While walking through the property, both the real estate agent and the buyer noticed water stains on the ceilings and walls in the second floor bedrooms. They were advised by the sellers that the stains were a result of “old damage” and that a pre-existing roof problem had been repaired. The agent, unfortunately, took the word of the sellers and failed to recommend that his buyer obtain a home inspection for further investigation.

Result
After taking possession, the buyer discovered during a rainstorm that water was penetrating the roof and seeping through the second floor ceiling and walls. She then hired a contractor who determined that the wood rot and infestation was so extensive that the ceiling joists, wall studs, and sheetrock had to be replaced. The buyer subsequently sued the sellers alleging intentional misrepresentation and the agent alleging misrepresentation and failure to recommend a home inspector. The parties ultimately resolved the litigation for $42,500.

Prevention
Always conduct a careful visual inspection of any property whether you’re serving as a listing agent or buyer’s agent and be sure to look for clues or “red flags” that may indicate latent defects which may involve more extensive problems. Never act outside the area of your expertise. You should recognize when to ask for help from another professional or recommend the use of services from other professionals such as home inspectors and pest inspectors. It is essential that buyers realize their right to request any type of property inspection—and that inspection contracts and reports may contain disclaimers. If the buyer decides not to do so, have them acknowledge this choice in writing and keep all documents for your records.

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.