Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR^® calendar error 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 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.

On a football team every player understands their role. If there is confusion, there is loss of opportunity. The same goes for sales, says Manny Schatz, principal of Professional Builders Services.

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

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving misrepresentation 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 an optimistic promise.

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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR acting outside of 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 misrepresentation.

A residential real estate agent was approached by an industrial organization to help locate new property because it had outgrown its existing manufacturing space. The agent had handled several home sale transactions for employees of the company when they transferred in and out of town and had subsequently developed an excellent reputation with the company. The owners of the plant decided to reward the agent by engaging her services in their search.

Problem
The agent, while well-versed in residential sales, was inexperienced in commercial transactions.

Mistake
Unfamiliar with zoning issues beyond a rudimentary understanding, the agent located a piece of property that was suitable for commercial but not industrial construction—something necessary for the operation of her client’s business. Compounding the problem, the agent failed to obtain a Buyer’s Agency Agreement that contained a section requiring the client to explicitly state the type of property it was seeking. Ultimately, the commercially-zoned property was acquired after the agent represented to her client that it would be ideal for its needs.

Result
Following the close of escrow, the city denied the client’s application to construct the desired building since the intended operation did not comply with zoning regulations. A lawsuit ensued against the agent and her broker after the client’s zoning appeal failed. The lawsuit sought significant compensatory damages, including lost revenue and attorney’s fees, and asserted that the buyer relied on the expertise of the agent and broker. The buyer also alleged that they should have known that industrial zoning was required because its existing operation was zoned industrial. Faced with a likely adverse verdict at trial, the matter was resolved outside of court for a six-figure settlement.

Prevention
Mistakes often occur when a real estate professional dabbles outside his or her area of expertise. In this case, the agent should have followed pre-established office procedures and asked for assistance from her broker. The broker could also have avoided litigation if he closely supervised her throughout the transactional process. Soliciting the counsel of experts in commercial real estate could have prevented the end result.

Do you have a similar story involving complaints regarding acting within your area of 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 www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.