The real estate business is remarkably litigious. Of course to brokers, realtors, and their staff that will come as no surprise, since they are faced with navigating liability coming from real estate transactions every day, but in fact, real estate may be THE most litigious field. According to a new survey conducted by the legal resource website FindLaw.com. In general, one in five Americans faced a legal issue within the last year…with real estate litigation topping the list, ahead of even personal injury and traffic violations.
According to their research, the top five legal issues were:
21% Real estate matters
17% Family law
12% Estate planning
11% Personal injury
8% Traffic violations
If it wasn’t already apparent that brokers faced huge liability for transactions – from both buyers and sellers – as well as property disputes, disclosure issues, and the like, it should be dawning on you now. Lawsuits and legal issues are a black hole for your time, energy, and therefore money. Whether you’re “in the wrong” or not (NAR reported that real estate licensees are found not liable in almost 75% of all cases,) legal disputes are something you want to avoid before they even happen.
So doing a little more digging, we found the top ten legal issues that get real estate brokers in hot water, according to the National Association of Realtor’s legal team.
NOTE: This is not to be construed as legal advice, just a basic summary. Consult an attorney for legal representation.
Legal issue #1: Misrepresentation issues
Definition: Stating some material fact about the property that comes under debate.
Key statistic(s): 57% of lawsuits filed against real estate professionals were for misrepresentation. Another 12% were for failure to disclose, a closely related matter. Most common are misrepresentation cases about foundations and structural damage (20%) or property boundaries, roofs, and termites and other pests. Agents most commonly (allegedly) failed to disclose relevant information about easements, additions or improvements without a permit, environmental issues, and clouds on title.
More information: There are three types of misrepresentation with escalating severities: innocent, negligent, and fraudulent.
To limit liability: If a realtor or broker gets information about a property from a third-party source like a home inspector, appraiser, other agent, and definitely the seller, make sure to attribute that information to that third party when passing it along to your client, the buyer. Stick to material facts – not opinions (and definitely never speculate about increasing values, etc. – and use the proper seller disclosure forms.
Legal issue #2: Breach of fiduciary duty or dual agency conflicts
Definition: Dual agency and failure to disclose per NAR’s Code of Ethics and state stipulations.
Key statistic(s): Breach of fiduciary duty accounts for about 10% of all suits against real estate agents and brokers.
More information: When a consumer first sits down with an attorney, their first question will be: “Who was representing you in the transaction?” If there was dual agency or some other conflicting financial arrangement, the attorney might pounce. But in fact, each state has different laws and rules for timing of disclosure and they are often so nebulous that it’s hard to find a clear path and many brokers and associations have lobbied for better-defined laws.
To limit liability: Your best resource to limit liability from dual agency complaints is to keep your realtors and staff up to date with continuing education, as well as mandating the use of agency disclosure forms.
Legal issue #3: Fair Housing complaints
Definition: Usually, this takes the form of a seller not wanting to see to someone of a certain race, religion, creed, class, or orientation, or real estate agents “steering” certain minorities from certain neighborhoods, but it can be any form of discrimination.
Key statistic(s): Fair housing disputes make up only 1-2% of all RE litigation but can be lengthy, arduous, and very costly to brokers.
More information: Even saying things like, “No children,” or “Families only,” can get you in hot water on listings or rentals.
To limit liability: Brokers need to be aware not only of federal laws but the state and local ordinances that add on or overlap. Continuing education about the Fair Housing Act and laws are paramount, as well as training agents what they shouldn’t say – in person or in print – and encouraging them to document everything to prove that every client gets equal treatment.
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In part two of this blog we cover the next seven legal issues that deal with antitrust, misleading ads, independent contractors, environmental disclosures, RESPA, dispensing legal advice, and the Americans With Disabilities Act, as well as give you some great resources to educate and protect yourself.