Every real estate transaction presents potential legal pitfalls for licensees. Buyers and sellers may bring suits against their brokers or agents, based on both statutory and common law, for a variety of reasons, including misrepresentation or nondisclosure of property conditions, breach of fiduciary duty, and unlawful discrimination, to name a few. Combine the strong housing market with an increasing litigious society, and you have the recipe for lawsuits. Yet, despite the growing number of suits, licensees are found not liable in almost 75 percent of the cases, according to a new report by NAR's Legal Affairs. To help your members avoid legal pitfalls, familiarize yourself with these top 10 types of claims in the real estate industry and the ways to avoid them.
Misrepresentation is by far the lawsuit that members face the most.
For a broker to be sued for misrepresentation, the misstatement has to involve a material fact and not just the broker's opinion. Material facts are those that a reasonable purchaser would rely on in making a purchase. The courts have told us that brokers may rely on statements that the seller makes to them, unless the broker has reason to doubt the seller. Some states, such as California, require brokers not only to disclose what they know but also to conduct a reasonable visual inspection of the property and disclose what that reveals. Brokers should also document their sources of information and encourage the use of other professionals like inspectors and attorneys whenever appropriate.