Be Clear on Your Fiduciary Duties

Real estate practitioners who boast that they’ve never been sued because they’ve never done anything that could be construed as unethical or in bad faith may be deluding themselves about why lawsuits are filed.

“Lawsuits can be started even when the claim is meritless,” explained Scott Kossove, a partner specializing in professional liability litigation with the law firm LBC&C, which has offices in New York and New Jersey. “They are a cost of doing business. Plaintiffs get emotional and often just need someone to blame regardless of who or if anyone was at fault,” he noted at the Risk Management and License Law Forum at the NAR Midyear Meetings and Expo on Wednesday.

About 90 percent of suits against real estate practitioners are brought by buyers or prospective buyers. The strong emotions attached to the major purchase of a home can lead to feelings of anger and betrayal by a buyer when something as small as a broken toilet comes to light after a home purchase, Kossove said. “They look to you as someone they trusted, regardless of what went wrong.”

Panelist JP Endres-Fein, manager with Better Homes and Garden Rand Realty in White Plains, N.Y. said that brokerages should develop tools that institutionalize good practices. Her brokerage offers packets of material to buyers, sellers, and renters that clearly spell out the steps that go into a real estate transaction. This information will reduce the risk of misunderstandings about fiduciary duties that could lead to lawsuits. “There’s not a piece of the transaction that you can’t pin on fiduciary duty,” she said.

The session offered tips for avoiding breaches of fiduciary duties and other lawsuits, including:
• Never refuse to permit a buyer’s home inspector to inspect a property in the hope of facilitating a sale. If something wrong is found later, your efforts to block the inspection could make you liable for that action. Also, avoid making disparaging remarks about a home inspector.
• Regarding seller’s disclosure forms, agents should opt not to be involved in helping a seller complete the form. If something goes wrong and a seller is sued, the buyer can file a cross claim again the agent.
• It is imperative when working with a buyer who is not a client that an agency disclosure form be presented and signed by buyers to make it clear that a listing agent has no fiduciary duty to a buyer. For greater protection, the document should be signed by the buyer at the time the buyer first expresses substantive interest, rather than when an offer is made or a contract of sale is executed.
• As a matter of office policy, notes, e-mails, and phone call logs should be maintained to document the thoroughness of all interactions between clients and agents.
• Broker-owners and managers should not let agents take on tasks beyond the scope of their authority such as property management. When getting involved in a new area of the business, agents should also obtain proper insurance coverage before accepting these extra duties.

–Wendy Cole, REALTOR® Magazine