Mitigating the Risk of Liability

2020 saw a spike in reported errors and omissions claims, continuing a year-over-year trend of increased litigation against Realtors® .

By Richard Westlund

The measures agents and brokers need to take to avoid legal trouble can feel onerous at times, but dealing with a lawsuit can be much worse. Legal action by a buyer or seller, a fair housing complaint, or an alleged violation of the National Association of Realtors® Code of Ethics could result in a fine, penalty, or judgment for damages, not to mention lasting damage to a professional’s reputation. In today’s litigious environment, agents and brokers need to mitigate the risk of liability— being held legally responsible for conduct that results in a loss or injury to another person. That’s especially important as 2020 saw a spike in reported errors and omissions claims, continuing a year-over-year trend of increased litigation against Realtors® . Allegations of negligence and nondisclosure continue to be the most commonly reported claim types, according to Zach Vollmer, real estate E&O program manager with Victor Insurance Managers Inc., a Realtor Benefits® partner. “Losses pertaining to online services, such as virtual home tours and home staging, are becoming more commonplace,” he said. “Looking forward, we expect to see an increase in losses alleging fair housing violations and wrongful eviction stemming from the ongoing economic impact of the COVID-19 pandemic.” Broadly speaking, to reduce liability risks at any stage of their business dealings, agents should educate clients about every stage of a transaction, disclose all relevant information, and treat everyone in the same professional manner, said Bob Arnold, an agent who leads the M2M Team at Realty Executives Integrity in Milwaukee. “If agents make decisions for clients without discussing the options, they can get in trouble.” Deanne Rymarowicz, NAR associate counsel, takes that idea one step further. “Agents need to be careful about serving their clients and avoid overstepping their role,” she said. “If a legal issue arises during a transaction, agents should talk to their broker, call their association’s legal hotline, or refer the client to a lawyer.”

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It’s a smart practice to stick to the facts rather than giving opinions when discussing matters with clients, said Robert Ransome, broker-owner with Ransome Realty Group in Richmond, Va. In addition, “You should document your advice and conversations in emails, texts, and notes. That can be very helpful later if a liability issue arises that is related to the transaction.” Here are some of the seven issues that have legal or ethical pitfalls for agents and brokers.

1. Multiple Offers

Buyer and seller agents need to handle multipleoffer situations carefully to avoid accusations of negligence or preferential treatment that violates federal, state, or local fair housing laws or ordinances. “Multiple offers have become the norm in our market,” said Arnold, “so it’s very important to make sure the buyers under- stand the best-case and worst-case scenarios when submitting an offer and to document that conversation.” Brian Bartholomew, an agent with eXp Realty of California in San Ramon, Calif., said he recently received 28 offers on a home that sold quickly for $80,000 above the list price. To help the seller obtain the highest and best offer from each buyer, he advised sending out the same counteroffer to all the buyer’s agents, requesting specifics in terms of timelines, pricing, and financing. Then he showed the offers to the seller on a spreadsheet without the names of the buyers or their agents. Lisa Mack, an agent with Coldwell Banker Residential Brokerage in Chambersburg, Pa., advised a cautious approach to submitting “love letters” with a buyer’s offer in hopes of winning a bidding war for a home. “You need to avoid any issues related to fair housing,” she said. “I am very careful to keep to the details and terms of the offers, rather than have the seller focus on the buyer.” NAR attorneys advise that if a buyer insists on writing a letter, the agent should not help draft or deliver it. Other issues can arise in multiple-offer situations, such as a buyer’s agent who may be showing the same listing to multiple buyers. “You need to have a tactful conversation with each buyer and let them know you have other parties interested in the same property,” said Ransome. “Then you can give them the option of staying with you or referring them to someone else.”

2. Seller Disclosures

Agents and brokers need to follow their state laws and the Code of Ethics with regard to seller disclosures about the condition of a home. Bartholomew said he advises sellers to disclose any issues that come to mind when listing a property. “If a client tells you about a problem, it needs to be disclosed to buyers. Be honest with your clients so they can be honest with you.” From the buyer’s standpoint, Arnold suggested going over the disclosure form and pointing out issues without giving an opinion on whether a problem can be remedied easily or not. “We simply say, ‘This is what the seller has disclosed.” Buyers should always pay close attention to the seller disclosures, said Mack. “In a tight market with bidding wars for properties, a buyer might want to waive an inspection,” she said. “But you need to be sure they understand the consequences if they include a waiver in their offer.”

3. Fair Housing

Fair housing issues can arise whenever buyers feel they’ve faced discrimination because of race, ethnicity, gender, age, disability, religion, or other protected classes. “This is a very timely issue now,” said Rymarowicz, citing a pending Massachusetts case where the seller saw the buyer’s name on an offer and asked the listing agent whether the buyer was Black. “The agent did the right thing and terminated the relationship.” (continued on page 30)