Courtside Real Estate: Risk Management: 19 Tips to Avoid Agent Liability

Published: June 10, 2021


Identifying Negligence

As one can imagine, the Firm gets lots of calls relating to agent “liability.” Today we discuss the tort of negligence as it applies to real estate agents. This topic is a full semester in law school, so we are just going to hit some highlights.
There are four elements that must be proven in order to find negligence. They are: duty, breach, causation, and damages. There must be a legal duty or obligation the agent has to their client, the parties, or the public. The agent must then act in a manner that falls below the standard of care. This act, or failure to act, must be a substantial cause of monetary harm or damage – a financial issue.

Duties are imposed by statute, regulation, ethical obligations, case law, and common practice. For example, doing a reasonably competent diligent visual inspection of accessible areas of a residential property (1-4) and disclosing what is discovered in writing is a duty imposed by Statute in California Civil Code, Section 2079(a). Doing a poor job below the standards set by common practice in the area or improperly filling out an AVID form most agents use can create

“liability” which is defined as the “state of being responsible for something.”

Since there are so many possible duties, and so many opinions on what creates this “liability,” it is important to understand there are risks inherent with the job of a real estate agent but there are methods to manage the risk. If an agent acts in a manner that ignores the client’s best interest in order to promote their own profit, odds are there will be little that can be done to protect that agent. Failing to cooperate with other agents, failing to advise the Seller of offers, or failing to disclose known or discovered defects are ways to potentially create serious liability.

The following are some tips to avoid some of the pitfalls in discharging duties. It is one man’s opinion, not complete by any means, and is merely meant to highlight some areas where you can help yourself.

19 Tips to Avoid Liability

  • Review both the NAR Code of Ethics (a basis for California Law) and the MLS Rules;
  • Disclose actual knowledge of any material fact to the parties;
  • Disclose all material information to your own client;
  • Review the Preliminary Title Policy with your client and point out potential issues, but do not cross over the line and interpret facts or legal issues. Just disclose what you see, you are not lawyers, engineers, or surveyors;
  • What groups, such as governmental agencies, HOA’s, or utility companies have control over the property?
  • Are there public services nearby, such as airports, military installations, or train stations, that impact the property;
  • Choose your words carefully, especially in marketing. Be careful in how you describe the property;
  • Your visual inspection includes your eyes (what you see), your ears (what you hear), and your nose (what you smell);
  • Keep emotions and unreasonable expectations to a minimum;
  • Professionally document conversations, choose words carefully;
  • Stay away from adjectives, such as water stain or settlement crack. These interpretations as to the cause of what you see are for the experts;
  • Provide sources of information you convey, especially to your clients (eg. The inspector told me…). Do so in writing;
  • Stay away from numbers such as “there are six cracks.” There could be more you don’t see;
  • Avoid comments such as “except as noted the house looks in good shape.” The AVID is not a sales tool;
  • Document lack of cooperation by parties or other agents;
  • Do NOT give opinions as to who is entitled to the deposit or if someone has a right to cancel. These are legal issues;
  • Give your clients adequate time to review everything;
  • Understand Fair Housing issues;
  • Save correspondence, including texts.

There are hundreds of tips. These are just a few. Above all SLOW DOWN. Give yourself time to think, act, and communicate. Give your clients time to digest the information and ask questions.

Last modified: June 10, 2021 at 10:09 am | Originally published: June 10, 2021 at 10:09 am
Printed: May 28, 2024