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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving Documentation and Verbal Contracts 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 homeowner listed a single-family house for sale and specifically excluded major appliances and window treatments from the listing—intending to negotiate those items after an offer was made. Three weeks later, a verbal offer was received from an agent representing two buyers for the house as listed. After a few days of negotiations over price, the sellers accepted the buyers’ offer and a sales contract was drawn up.

Problem
The day before the final closing, the sellers moved all their possessions out of the house—including all appliances and window treatments. The next day, during their final walk through, the buyers were surprised to find the appliances and window treatments missing. It was their understanding that both were included in the sale.

Mistake
When the buyers instructed their agent to make the initial offer on the house, they included a requirement that the purchase would include all existing appliances and window treatments. Unfortunately, the buyers’ agent failed to convey that contingency in the initial offer and subsequent negotiations only discussed the price of the house.

Result
When the error was discovered during the final walk through, the buyers’ agent promised she would replace the appliances and window treatments to prevent the sale from falling through. Based on that representation, the buyers went through with the closing and moved into the house. However, when the agent realized the cost of replacing the missing items would exceed $20,000, she reneged on her promise and the buyers sued. Ultimately, the agent relented and paid the buyers the cost of replacing the missing items plus their attorney’s fees.

Prevention
Many claims are the result of simple errors that are best avoided by implementing routine quality controls. In this case, a claim could have been avoided had the buyers’ agent double-checked the details and confirmed the terms of the offer in writing. Creating and following an internal “quality control” checklist will help mitigate the chances of a claim. Finally, be careful what you promise. Once the agent “promised” to replace the missing items, they created an agreement with the buyers that they would ultimately become obligated to fulfill.

Do you have a similar story involving a forgotten contingencies or verbal agreements 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.