Residential Real Estate Professionals: Ten Tips to Decrease Your Chances of Getting Sued or Losing a Lawsuit

Posted on Sunday, November 2nd, 2014

Many real estate licensees share a common goal – don’t get sued. But licensees who work “by the book” can still get sued. In fact, I’ve known many great real estate professionals who have found themselves in the middle of disputes (some petty, some catastrophic).

To drive this point home, imagine two licensees.

The first licensee plays fast and loose with agency laws and fiduciary duties, cuts corners, misses deadlines, takes inappropriate actions (or inaction) to make sure he/she receives both sides of the commission on his/her own listings, and sometimes fails to disclose (or worse, hides) known defects. This licensee may also, for example: inappropriately tell a seller that a property will definitely sell for X, only to recommend a price reduction quickly after taking the listing, or obtain a listing based on verbal representations of unique marketing efforts only to provide the 3 P’s (put a sign on it, put out an ad or two, and put it in the MLS).

The second licensee attends continuing education regularly (even more than is required) and stays on top of changes in the industry. This professional takes his/her agency and fiduciary responsibilities seriously, is not looking to cut corners no matter how much time has passed since his/her last closing, and will refuse to work with any consumer that desires to “pull a fast one” on an unsuspecting victim.

You are better off being the second licensee. However, the reality is, even if you choose the path of the second licensee, you might still get sued.

Obviously, avoiding lawsuits is preferred. But, if sued, the important thing is that you don’t lose (i.e. you are not burdened with a judgment against you and/or your business entity issued by a court of law, or forced to settle for an uncomfortable amount).

Discussions regarding how to avoid being sued as a real estate licensee and best practices to avoid losing a lawsuit cannot be covered extensively in 700 words or less. But, real estate licensees should, at a minimum, consider these ten basic tips before getting surprised with a lawsuit:

  • Carry adequate E&O insurance. Does your broker handle your E&O coverage? If so, be certain coverage is adequate for your licensed real estate activities.
  • Do you communicate with consumers via text message or other less formal methods of communication? If so, upload, back-up, and save those communications.
  • Don’t help consumers buy sight unseen (unless they are very experienced investors and you have informed them of the risks). Generally, buyers should physically visit the property for themselves AND order a quality inspection (and other due diligence).
  • Don’t provide recommendations for vendors (e.g. inspectors, lenders, or other service providers) without giving at least three options for each type of vendor (and only provide names that you trust and know are competent).
  • Don’t play a role you were not hired for. For example, don’t play construction expert, tax counsel, or draft legal contract language (or use legal clauses or provisions from other deals – almost every real property transaction is unique).
  • Keep agency relationships clear (and preferably in writing). Provide the statutory agency disclosure form at the “first substantive contact” to every consumer as required by Minn. Stat. § 82.67. Make sure your agency disclosure form complies with current law and has the statutorily required language.  Did the consumer refuse to sign the agency disclosure form? Give the consumer a copy, then on another copy of the same agency disclosure form, write: “Copy provided to [insert consumer’s name here] on X date. Refused to sign.” Keep the copy with your notes for your records.
  • Always be familiar with your fiduciary duties, as applicable.
  • Know disclosure duties to all parties (even parties to which you don’t owe all fiduciary duties).
  • Educate sellers on the three most important aspects of selling (regarding disclosures), “disclose, disclose, disclose,” or said another way, “when in doubt, disclose.”
  • If you don’t know the answer, don’t guess. Instead, obtain and provide the answer quickly or direct the question to the proper professional.