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

BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW | OF COUNSEL

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.

C.A.R.’s Jordan Le Vine on Market Data for Local Associations

At a time when member engagement is made difficult by the pandemic, and the real estate markets throughout California are incredibly hot, you need market information to push out to your members. Jordan Levine, C.A.R. Vice President and Chief Economist, brings customizable, shareable, and interactive online market data to local associations. Jordan takes you through car.org and highlights the tools that C.A.R. provides so that you can customize them and share them with your members and community. As a bonus, he gives a brief Market Update and also touches on some of the concepts that are currently in development so you have inside knowledge about future tools and reports. Great information for AEs, Communication Directors, and Social Media staff!

Courtside Newsletter: Non-Contingent Offers

BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW | OF COUNSEL

In this market, many buyers find themselves in bidding wars with other potential buyers. In order to sweeten offers, in the multiple-offer situations, many buyers are waiving all or most of the contingencies set forth in the standard C.A.R. Residential Purchase Agreement (RPA). While this practice is perfectly legal, there are a number of potential concerns to be aware of.

“What is a contingency?”

Simply defined, a contingency is a condition precedent to a buyer’s duty to fully perform. Assuming the buyer acts in good faith, a buyer will have the time allotted in the RPA (generally 17 days) to either satisfy and remove the contingency or cancel the Contract. (It should be noted that the RPA provides that the time to resolve those contingencies could be extended if the seller does not demand their removal by providing a Notice to Buyer to Perform) Simply stated, the buyer does not default, and contingencies remain to protect the deposit.

“Why is this important?”

Generally, the buyer will deposit a certain amount to assure performance (usually up to 3% of the purchase price) and agrees that if they fail to perform and default the seller gets to keep the deposit as “Liquidated Damages.” If the contingencies are removed, or are waived in the first place, the seller is entitled to the deposit under most circumstances where

the buyer cannot close on time. (It should also be noted that for every rule there are exceptions. DO NOT practice law by giving your opinions as to the seller’s rights to the deposit. There are too many legal issues. Let the lawyers interpret!)

Types of contingencies.

While the RPA provides for as many as nine (9) preparation contingencies, there are three (3) that may be critical: The Loan Contingency, The Appraisal Contingency, and The Inspection Contingency. Each contingency deserves its own Courtside Real Estate newsletter. However, by waiving these contingencies, the buyers could lose their deposit if the Liquidated Damages clause is part of the RPA and they cannot perform.

Risk Management Tips

• Make sure the buyer understands the risk of losing their deposit if they cannot perform and the reasons the contingencies they are waiving exist.
• If they are waiving the appraisal contingency in the fluctuating market, they may still cancel but will most likely lose their deposit.
• Get as much done as you can before the term period for cancelling provided by a Transfer Disclosure Statement expires. That “Right of Recission” is statutory and cannot be waived.
• Make sure you carefully document your files and, whenever possible, get the buyers acknowledgement. Write professionally.
• If you are the listing agent, do not guaranty the seller’s right to the deposit. Things can always go wrong.

Next Month: An analysis of new and revised C.A.R. forms due in June.

What is the Clear Cooperation Policy?

The Clear Cooperation Policy is a NAR-mandated policy that governs the public marketing of listings and their entry into the multiple listing service. Within one (1) business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.

Stay up to date with Clear Cooperation Policy updates at https://go.crmls.org/clear-cooperation-policy/

ADDITIONAL LISTING MEASURES

• Days Not Active (DNA): The days in any status other than Active, Active Under Contract or Pending.

• Days on Market (DOM): The days Active or Active Under Contract without that deal closing.

• Days in Pending (DIP): The days in Pending or Active Under Contract not in DOM.

• Days Listed (DL): List Contract Date until List Finalization. No days removed for any status or condition. DL = DNA + DOM + DIP

RULE 9.3 – SHOWINGS 9.3 Availability to Show or Inspect. Listing Brokers shall not misrepresent the availability of access to show or inspect a listed property. For any property in which Listing Broker selected a status of Coming Soon or Hold, Listing Broker represents that the property shall have no showings or tours, by Listing Broker or otherwise, until such a time as the Property is placed in the Active or Active Under Contract status.

Rule 10.1 – COMING SOON A valid listing contract exists, and no offer has been accepted. The Listing Broker is in possession of a seller signed instruction to submit the listing as “Coming Soon”. Marketing and Advertising as defined in Rule 7.9 is permitted and shall include language that property is “Coming Soon” and shall include the date for which property will become Active. The property is not available for showings consistent with Rule 9.3

COMING SOON IN MATRIX The Status tab has been updated to include Coming Soon as an option. The new field, Start Showing Date, under the Office/MLS tab will appear if Coming Soon is chosen. The date must be within 21 days of the listing input date. COMING SOON FORM The Coming Soon form is also available for download at: crmls.org/clear-cooperation-policy

 Rule 10.1 – HOLD (H): The Listing Broker is in possession of a seller written instruction to submit the listing as “Hold”. Marketing and Advertising as defined in Rule 7.9 is permitted. The property is not available for showings consistent with Rule 9.3.  

CITATION POLICY Citation Fine for violation of 7.8, 7.9, 7.9.1, 9.3 is in the amount of: 1% of the list price or $500 whichever is greater not to exceed the amount of $2,500. Each Violation will receive a WARNING and opportunity to correct before any fine is issued.

To learn more about the Clear Cooperation Policy, please visit https://go.crmls.org/clear-cooperation-policy/