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Lessons in Liability: How to Avoid Unnecessary Headaches

Ned Blumenthal

August 2004

This article originally appeared in the August 2004 issue of Real Estate Magazine.

“Lets sue” has become the rallying cry to resolve any issue that doesn’t go a person’s way. Unfortunately, REALTORS® are not exempt from this new battle cry of our litigious society. While it is true that “anyone can sue anyone for anything,” there are a number of claims against real estate agents that pop up time after time. Many of these lawsuits could have been avoided if the agent had taken a few additional minutes to properly document their file or paid a little more attention to the voice whispering (or perhaps screaming) in the back of their head that this buyer or seller was trouble. 

Here are some of the most common signs of trouble and tips on ways to avoid the headaches associated with frivolous lawsuits: 

Inspections: Beware of buyers who refuse to have the property inspected or who say that they have an uncle or cousin who knows about real estate and will conduct the inspection for them. A buyer foregoing the right to an inspection of what is typically the most expensive purchase anyone makes is an uninformed consumer who may turn around and sue when the inevitable defect in the house reveals itself. A family member or friend may be well qualified to perform an inspection. However, both you and the buyer will be better off if a professional home inspector, preferably one who has errors and omissions insurance, has been retained. 

Sellers Property Disclosure Statements: Refuse to complete the Seller’s Property Disclosure Statement. . .no matter what. I cannot count the number of times claims have been made as a result of an agent filling out the Seller’s Property Disclosure Statement. Not surprisingly, sellers have a tendency to claim that the agent “heard me wrong” or “checked the wrong box” once a claim has been made. If your seller is out of state or otherwise not available, get the Disclosure Statement to them by fax, overnight delivery, or courier pigeon if necessary. Remember, it is a SELLER’S Disclosure Statement. Your pen should never touch the page. 

Earnest Money: I am truly amazed by the number of claims that arise concerning earnest money. Here are some simple rules to live by: Turn in all fully signed contracts and earnest money checks IMMEDIATELY to your broker or office manager. Deposit all earnest money checks within 5 banking days of the contract binding agreement date. Notify everyone immediately if the earnest money check is returned for any reason. Do not accept a contract that says you are holding the earnest money check if you are not actually holding the earnest money check. 

Special Stipulations: Always be sure that each special stipulation answers the following questions if applicable:

  • Who is going to be doing what?
  • What is referenced in the stipulation?
  • What is it they are going to be doing?
  • How is it going to be done?
  • When is it going to be done?
  • Where is it going to be done?
  • What happens if it is not done?

Most properly drafted special stipulations will take at least three lines of text in order to address these issues. Remember, you not only want to state clearly who is supposed to do what, but you also want to state when and how they are to do it and what happens if they do not. 

While real estate agents and brokers will never be able to completely avoid lawsuits, you do have some ability to limit your exposure to them. Help yourself avoid some of the headaches of litigation by limiting your liability during the sales process.

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