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.
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.
Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR® 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 not disclosing information about parties involved in a real estate transaction.
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!
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!
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!
Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving unauthorized entry 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 repairs made before the close of escrow.
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!
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!
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!
Real Estate professionals should be extremely careful when you are showing a property, especially if you have never worked with the potential buyer before. Also be certain you are aware and use diligent safety measures when you hold an Open House. In honor of REALTOR Safety Month, please watch this video from the Washington Association of REALTORS (WAR) and the Real Estate Safety Council to learn all the tips you can for the next time you are working showing properties or for any future possible danger that may arise. We care about you!
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!
