Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving 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 contract dispute.

A Real Estate agent listed a piece of residential property for sale. The buyer entered into a purchase & sale agreement with the seller, but decided later on to back out of the transaction. The agent located a second buyer who also entered into a purchase & sale agreement with the seller. However, after the second contract was accepted, the first buyer changed his mind and wanted to purchase the property.

Problem
The property was under contract to two separate buyers who both sought specific performance under their respective sales agreements.

Mistake
The real estate agent failed to have the first buyer communicate in writing his initial desire to terminate the sales agreement.

Result
Both buyers filed suit against the seller seeking specific performance and against the real estate agent claiming negligence. The seller brought the real estate agent into the lawsuits and demanded he provide a defense and indemnification in the underlying actions brought by the respective buyers.

Prevention
By failing to obtain the first buyer’s written intent to terminate the sales agreement, the contract remained in force. This oversight left the real estate agent’s seller/client exposed to a possible breach of contract claim from not only the first buyer but the second buyer as well. The seller was not sure how to proceed and had no option but to seek legal advice. Obviously, if the real estate agent followed the proper procedures established under both contract law and office policy, the problem could have been prevented.

In cases like this when property goes under contract to two separate buyers, it is typically resolved when one of the buyers agrees to accept a cash settlement to voluntarily terminate his purchase & sale agreement. When both buyers remain adamant about purchasing the property, the amount in legal fees can be tremendous.

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