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 disclosing property conditions.

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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving failure to disclose 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 disclosing property conditions.

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.

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 a seemingly minor detail.

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.

Considering venturing into the lucrative—if you can handle the extra workload—life of short sales? Roger Higle, course writer for Keller Williams University, Keller Williams Realty International in Austin, Texas, asks four top distressed property agents how they became successful at selling short sales and REOs in A Peek into the World of Short Sales and REOs.

According to Higle’s experts, seller qualification is very important in short sales. A seller must be very forthcoming with his financial situation, have the work ethic to produce the many documents required by banks to make a short sale successful, and trust his agent’s advice and expertise to make the short sale happen. Short sale lead generation is much like traditional lead generation, with one exception: asking the seller a very direct and sometimes unsettling question, “Are you behind in your mortgage payments?”

Lending institutions are now expecting more from agents than ever before. It’s the agent doing a lot of the work that a bank previously performed, resulting in additional overhead for the selling agent. Agents are also taking on additional risk. Since bank-owned properties are typically sold “as is,” agents need to really consider the risks of unforeseen defects and other problems with the properties—and to have all lender contracts reviewed and to know what their E&O insurance will cover.

For the full article, visit A Peek into the World of Short Sales and REOs.

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.

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, serving as property manager of a condominium building, was asked by the owner to sell it because he was approaching retirement and wanted to dispose of his real estate holdings and move to a warmer climate. Several months later, an offer was submitted through another agent that was accepted and then formalized in a Purchase and Sale Agreement.

Problem
The condominium grounds had a shared driveway with the adjacent property, but this fact was not divulged in the seller’s property condition disclosure or the Multiple Listing Service.

Mistake
The agent agreed to complete and sign the seller’s property condition disclosure and other documents on behalf of the owner.

Result
Following the closing, the buyer received a letter from the adjacent business owner’s attorney seeking a monetary sum for the use of the driveway. The buyer subsequently sued the seller and both real estate agents for failing to advise or otherwise detect that the seller had an established agreement to share the driveway. The agreement contained a provision that it was not transferable in the event the subject property was sold. During the litigation, documentary evidence revealed that the listing agent was aware of the agreement in his role as property manager.

And while the seller admitted that he gave the agent the authority to sign the property disclosure, he testified that he was unaware that the agent failed to disclose the agreement. The case was ultimately settled when the seller and listing agent agreed to pay the buyer the annual fee for use of the driveway for the next seven years.

Prevention
Obtaining the proper signatures or initials on all documents will always help protect you and your clients, while assuring that the transaction will proceed in a straightforward and legally binding fashion. In this case, the agent stepped into the shoes of the seller by executing the documents, resulting in the strong likelihood of a jury finding that the agent was making firsthand representations as to all facets of the property’s condition. Many real estate errors & omissions claims can be avoided by simply exercising ordinary care and judgment. This includes not only good communication skills, but also the implementation of other risk reduction methods into your daily routine that will help you avoid the need to pay costly attorney fees and settlements.

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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR overstating a property’s condition 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 real estate agent accepted a listing to sell an older residential property that had been renovated by the sellers. While the sellers only had the property for a year, they had spent a significant amount of money refinishing the hardwood floors, painting the walls and ceilings, and doing some minor electrical and plumbing upgrades in the kitchen and bathrooms.

Problem
Although the property looked to be in excellent condition with the cosmetic improvements, the agent marketed the property in the Multiple Listing Service and sales brochure as being “totally renovated.”

Mistake
The agent’s advertising material and verbal representations overstated the improvements that were made to the property.

Result
The agent was approached by first-time homebuyers who mistakenly believed that the home’s electrical and plumbing systems were completely upgraded. They submitted a purchase offer but waived their rights to a home inspection because they lacked the money to pay for it. Shortly after the close of escrow, they discovered that the electrical and plumbing systems were old and deteriorating and would have to be upgraded. They subsequently sued both the agent and her sellers alleging that they misrepresented the true condition of the property and demanded a judgment equivalent to the cost of the upgrades. The matter eventually settled before trial.

Prevention
During the process of selling real estate, always avoid using adjectives that overstate improvements to property. More often than not, these adjectives lead to higher expectations and eventual dissatisfaction of buyers who may believe that they didn’t receive what they bargained for. Also, be certain when stating facts about the property such as age or structure, and don’t gloss over potential buyers’ concerns. It is important to never oversell (“With a little paint, I’m sure this would be great!”). No one wants to be the recipient of a lawsuit and a loss of reputation.

Do you have a similar story involving complaints regarding acting overselling 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 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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving Documentation 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 real estate agent listed and sold a residential property containing numerous defects. Because of the defects, the home was sold “as is” with a general “handy man special” comment published with the Multiple Listing Service.

Problem
Following the close of escrow, the buyer moved into the property and soon discovered the extent of renovation was more than he anticipated. He subsequently called the real estate agent and asked for copies of the transactional documents. A year later, the buyer filed a claim against the seller and agent, alleging he never received a copy of the seller’s property disclosure statement prior to the close of escrow and that the property had more defects than he was led to believe.

Mistake
Unfortunately, the real estate agent discarded his transaction files six months post-closing, along with the seller’s property disclosure statement naming the numerous defects.

Result
Without the transactional file, the agent was unable to prove that he had provided the seller’s property disclosure statement to the buyer, even though he specifically remembered faxing it to the buyer’s office.

Prevention
It is very important not to destroy your files following a closing. Some states have a statute of limitations of ten years for breach of contract, and many lawsuits are brought years after a transaction has closed. If your files support your story of the transaction, odds are any claim made against you will be dropped. Attorneys don’t want to fight irrefutable evidence. Remember to include in your files: 1) the date and time of all meetings or phone conversations and a list of all participants, 2) e-mails and faxes, and 3) verification that what you say and write is correct. Be sure to 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 complaints regarding lost or destroyed files 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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a Conflict of Interest 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 property you may purchase.

After completing a comparative market analysis, a Real Estate agent entered into a listing agreement with an owner of residential property. Shortly after signing the agreement, the agent expressed interest in purchasing the property himself and presented the seller with a purchase offer. The agent and seller agreed on a price and proceeded to close escrow.

Problem
The agent never placed the home into the Multiple Listing Service (MLS) and the price he paid for the property was significantly below its true market value. To make matters worse, the agent sold the property a short time later for approximately $30,000 more than what he paid.

Mistake
By neglecting to place the property into the MLS, the agent did not give the seller an opportunity to elicit the best possible sale price for the property—ultimately failing to put the best interest of his client first.

Result
The seller sued the agent and his broker, alleging they had taken advantage of her, and requested she be awarded compensatory and punitive damages. When the agent and broker turned the claim into their real estate errors & omissions insurance company, they were denied coverage because their policy did not offer protection for any individual or entity that had a financial interest in the purchase of property. In the end, the agent settled with the seller for $30,000 and incurred approximately $11,000 in legal expenses.

Prevention
The agent could have avoided professional and personal claims against him and his broker by entering the property into the MLS or by not purchasing it altogether. However, if he still decided to purchase the property, providing the seller with full disclosure of the potential conflict of interest prior to closing could have also prevented the claim from being made.

Most, if not all, real estate errors & omissions insurance policies do not cover situations where an individual or entity of a brokerage has a financial interest in the purchase of property. So before you enter into any unique transactions, familiarize yourself with the terms and conditions of your errors & omissions insurance policy, seek clarification on unclear terms and conditions, and consult with your insurance agent or carrier to ensure your transactions will be covered.

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