Recently, we came across a couple of articles asking to what extent a real estate professional holds the burden of assisting clients rather than taking advantage of a good real estate deal themselves. On the one hand, a REALTOR owes it to their buyer clients to show them any properties they may be interested in, and to their seller clients to find the best financial offer out there. On the other hand, the agent may also be a buyer, and their offer may be the best one the seller receives.

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?

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® acting outside of your 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 performing a function that is outside of your realm as a real estate professional.

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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® 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 not following standard office procedures.

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.

4.  Recommend expert inspections from reputable and qualified specialists. Recommend a qualified home inspection. Advise that the inspection company or other consultant have E&O insurance. Provide choices for the client. Counsel clients before the inspection. A home inspection is none of the following: appraisal, pest control certification, certification of any kind, FHA/VA inspection or a warranty. A home inspection is a resource for clients to make decisions of two kinds: immediate and during the course of ownership regarding maintenance. Urge the buyers to go on the inspection with the inspector. If the buyers waive inspections, get your recommendation and their waiver in writing.

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

2. Learn to be comfortable with your uncertainty. Know what hat you are wearing. If you do not know something, say so, and then get the answer from a qualified authority (from your principal).

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

1.  Why is it so important to document your files, keep notes, and maintain records? When you are sued by your clients possibly years after the transaction and they have selective memory—this way you have documentation on the advice and counsel you gave them (admissible evidence). It also helps you remember what you did and what you said. Pride of authorship (specificity) is the key. Use confirming letters, “chron logs,” emails, mobile phone logs, etc. Get key points in writing and do so before escrow closes. Treat your files as if you will get sued. Recognize that the statute of limitations for fraud (in California) is three years and four years for breach of fiduciary duty; both from the date of discovery.

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

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® negligence 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 not following standard office procedures.

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.

There are two major property claim databases that contain loss history reports, C.L.U.E. (Comprehensive Loss Underwriting Exchange) and A-PLUS (Automated Property Loss Underwriting System). The C.L.U.E. database, owned by LexisNexis, allows insurance companies to access information on claims that have been filed within the last five years.

More home buyers—concerned about possible previous insurance losses experienced at a property they are considering—are requiring home sellers to provide a C.L.U.E. report as a contingency to a purchase offer. A C.L.U.E. Home Seller’s Disclosure Report is an independent source of information about insurance losses at an address within the past five years. If the home has not experienced a loss within the past 5 years, the report can provide comfort to a potential buyer.

The C.L.U.E. Home Seller’s Disclosure Report does not display information that a home seller may wish to keep private, such as Name, Social Security Number, and Date of Birth. It is available immediately via online delivery for the seller’s primary address or by mail for other properties the seller may own.

Unfortunately, a buyer can’t order a C.L.U.E. report if they are not yet the homeowner. Prospective buyers aren’t allowed to request a C.L.U.E. report for a home they want to purchase, but as an agent, you may want to advise your clients to request one as a condition of the sale.

The C.L.U.E. database tracks numerous “causes of loss” showing why a claim was submitted to a property/casualty insurer for payment, including:

• Contamination
• Damage to property of others
• Dog bite
• Earthquake
• Fire
• Flood
• Freezing water
• Hail
• Liability
• Lightning
• Medical payment
• Slip/fall
• Smoke
• Theft/burglary
• Vandalism
• Water damage
• Wind
• Workers compensation

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving office policies and procedures 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 forgotten detail.

A real estate agent listed a residential property on behalf of its owner who was relocating to another city and looking to sell her home quickly so that she could buy another one before starting a new job. The agent offered to acquire the property under a written guaranteed sale listing contract and established a 90-day time period in the event the property failed to sell on the open market.

Problem
After the property failed to sell, the agent applied for financing to several lending institutions but could not qualify because of an inferior credit history. Meanwhile, the homeowner entered into a Purchase & Sale Agreement on another property and was fully expecting the agent to acquire her existing property. Complicating the matter further, the real estate company that the agent worked for was unaware of the guaranteed sale listing contract and was subsequently reluctant to come forward with the $225,000 necessary to make good on that contract.

Mistake
The agent made the independent decision to offer the guaranteed sale listing contract because he believed that the property would sell quickly and that his broker would not have to become involved financially. Because of his hasty assumptions, the agent never sought the approval of his broker and failed to take the necessary steps to assure financial qualification. In fact, it was also the broker’s policy not to offer these contracts.

Result
The homeowner sued the agent and his broker alleging that they breached the guaranteed sale listing contract and demanded specific performance. She also asked the Court to award money for ongoing mortgage payments, insurance costs, and maintenance expenses, among other damages. The case was resolved when the real estate company ultimately decided to acquire the property and pay the owner her out-of-pocket expenses and legal fees.

Prevention
The broker may have prevented the real estate company from being sued if a system of checks and balances was in place where he or a designee could have reviewed files on a regular basis to make sure office policies and procedures were being followed. This audit process can also be used as a tool to ensure compliance with the proper selection and completion of transactional documents and help avoid costly errors and omissions in all transactions. Lastly, conducting frequent educational sessions for agents is always an excellent opportunity to reinforce policies and procedures and will go a long way in preventing unwanted claims.

Do you have a similar story involving neglected office policies and procedures 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 disclosure 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 failure to disclose.

A real estate agent listed a residential property on behalf of sellers who were involved in ongoing litigation with their neighbors over ownership rights to a driveway that straddled the property line. The neighbor was attempting to prevent the sellers from using the driveway because of the encroachment.

Problem:
In the course of the litigation, the neighbor filed a lis pendens (Latin for “a suit pending”), which provided the sellers with notice that there was a claim on the property. The recording of a lis pendens informs the general public—and particularly anyone interested in buying or financing the property—that there is this potential claim against it.

Mistake:
Because the property was located in a state where a Seller’s Property Disclosure Statement was not required, no written publication as to the property’s legal status was provided to potential buyers. Moreover, the agent learned about the pending litigation from his sellers but misunderstood the ramifications of not disclosing it to those interested in purchasing the property.

Result:
The property went under contract to some unknowing buyers who ultimately decided to cancel the Purchase Agreement just prior to the close of escrow upon discovering the existence of the lis pendens. They subsequently sued the agent, his broker, and his sellers alleging that they misrepresented the property’s legal status and demanded the return of their deposit money, as well as moving & storage expenses, home inspection costs, bank fees, and the lost opportunity of a favorable interest rate, among other damages. The case was settled quickly since it was clear that the court would likely determine that the property’s legal status was material information that the buyers should have been made aware of.

Prevention:
In this situation, the agent should have followed pre-established office procedures and asked for assistance from his broker to learn what the impact of existing litigation would have on the sale of the property.  And regardless of the state’s written disclosure requirements, the agent should have had the sellers provide a document to any potential buyers informing them of the legal dispute with the neighbors. Also, the broker may have prevented the agent and business from being sued if he closely supervised the agent throughout the transactional process.

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 www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.