Staying Out of Court Is Simple: Think Like a Buyer
Daily Real Estate News | November 16, 2007
There are so many ways real estate professionals can get snagged by a lawsuit that it’s hard to keep track of everything that poses a risk. But by looking at each transaction through the eyes of the buyer, you can protect yourself, trainer and author Barbara Nichols said at the 2007 NAR Conference & Expo in Las Vegas.
Did the house once have a structural problem that’s since been fixed? Does it have mold or another environmental problem, or did it have such a problem at one time? Was there a murder in the house years ago? Did someone unqualified to do the work once fix the plumbing or wiring?
Even if the problem has been repaired, you should disclose the home’s repair history. Otherwise, buyers will feel misled and be more inclined to sue if they discover a problem later, said Nichols, a real estate broker and licensed general contractor in Los Angeles.
Nichols has testified as an expert witness in hundreds of court cases and is author of The NoLawsuit Guide to Real Estate Transactions (McGraw-Hill, 2007).
No Shortcuts Allowed
Environmental lawsuits continue to be on the rise, including mold cases, so don’t take any shortcuts if you have reason to believe a house has had water damage, warned Nichols. And the last thing you want to do is recommend an unqualified inspector to look for mold or other environmental damage.
You’ll risk getting hit with a “negligent referral” lawsuit, she said. Home inspectors who have added environmental inspections to their list of services are unlikely to be the providers you want to recommend, she added.
Nichols said she testified in one case where the sales associate simply asked clients to pick an inspector from a stack of cards he had collected. “That is no way to make a referral,” she said.
Dealing With Stigmas
Stigmatized houses are another common source of dispute. People tend to think of psychological issues when they think of stigmas (a past murder or irrational rumors of ghosts, for example) but physical issues can cause a stigma, too.
If the house sits next to a property that once shifted on its foundation because of a mud slide, for example, the house can be stigmatized by the buyer out of a fear that it, too, will shift in a future mud slide, said Nichols.
Even if the buyer isn’t aware of the stigma, you should disclose it because you can bet that the stigma will be one of the first things neighbors will talk to the buyer about once the deal closes. And the next thing that buyer will do is call you.
If You Don’t Disclose, You’re Asking for It
In a separate session at the conference, attorney Oliver E. Frascona warned that a failure to disclose what you know about a property is tantamount to auditioning for the role of defendant in a lawsuit.
“Whatever property information you have, share it with no filters,” said Frascona. “The way to protect yourself from a lawsuit is to tell customers what you know, not what someone else has told you.” For example, he says, if you measure a home at 1,600 square feet and county records say 1,500, use your figure.
After all, you’re supposed to know your business, so why wouldn’t you trust your own conclusions? “Every time you thin out information with someone else’s data, you up your liability risk,” he said.
Adequate disclosure of property defects is especially critical, since some 65 percent of lawsuits against real estate salespeople focus on that topic, says Frascona. You’re an easy target for a suit because you have insurance.
“People sue whomever they can find and whomever has money,” said Frascona. “Just remember what a judge once said to one of my real estate brokerage clients, ‘A lawsuit is an Easter egg hunt, and you’re the chocolate bunny.’”
Don’t make the mistake of thinking that disclosing what you know means seeking out information, however. “Your job is to be a list taker of issues and a salesperson, not an investigator,” Frascona chided.
Don’t Play the Role of Inspector
When you start looking for problems, you make yourself responsible for finding them all — a hopeless task, said Frascona. “There’s always something wrong with every house, and there’s always something you, and a home inspector, won’t notice.”
Even if you do see a problem, try to steer the inspector or the client and let them discover it themselves before you disclose it, he suggested. That way, you’re not involved. Likewise, don’t try to be the expert in everything. Let the attorney, the title company, the mortgage broker, and the home inspector do their jobs, whether it’s reviewing the mortgage and the contract or reporting to the client about home defects. You stick to yours, which is to sell the property.
— REALTOR® Magazine Online