One of the top five causes of lawsuits against real estate agents involves not disclosing defects in a property, according to ATG Title Company. If you’re an agent, the obvious solution to this problem is to know all the defects of the property and disclose them. The only issue with this method is that it may require skills the average real estate professional does not possess, including x-ray vision and psychic ability. So, for those agents who have not yet developed these skills, what is the best way to avoid lawsuits for property defects?
If you overstep your role as the buyer’s agent and make a bold statement like “this place is in great condition, and absolutely does not need a mold inspection,” then understand that you have now taken on responsibility for any mold that is later found in the home. Any statement you make with certainty could create massive liability for you later on, so it’s best not to make definitive statements like this. Though avoiding definite statements can be awkward on one level, it also sounds great, right? All you have to do is put a lot of effort into knowing nothing whatsoever about the property, and you won’t get sued. If the best way to avoid lawsuits is to simply not know anything, then why inspect the property at all?
The reason for this, of course, is that if there are observable signs of problems, and you do not recommend the appropriate inspections, then you can easily be sued for negligence. The famous California case Easton v. Strassburger involved some real estate agents who were extremely eager to do nothing whatsoever for their buyer; though they acknowledged having noticed signs of soil instability, cracks in the walls, and warped doorways, they did not recommend any soil inspections or alert the buyer to soil instability, or to any problems with the property at all. These agents were forced to pay almost $200,000 in damages in 1984, which would now amount to over a million dollars after adjusting for inflation.
The level of professional expertise to which a real estate agent is held is somewhat vague, and suggests that an agent’s role is something akin to an inspection enthusiast, or an inspection concierge. If you see signs of mold, flooding, soil instability, etc., you should definitely recommend the appropriate inspection. However, if you do not see signs of problems, don’t tell your client “you don’t need an inspection.” If any problems arise later that an inspection could have uncovered, you can easily be blamed.
Clients often want you to provide them with certainty, so being vague can frustrate them. However, it can be helpful to clarify for these clients that you must avoid suggesting that you have expertise that you do not have, since this can harm the client (and you as well). If your client is concerned about the stability of the soil, but you think it looks fine, don’t act like you’ve performed a special soil inspection; simply tell them that they should get an inspection if they have concerns. If you don’t see signs of soil instability, then don’t proactively recommend a soil inspection, but do not discourage it.
You are expected to have a basic understanding of property condition red flags, but you should never suggest that you are a specialist; you are the jack of all trades, master of none. Thus, positive definitive statements are a bad idea because they close the door to knowledge by discouraging inspections. If you observe something negative about property condition, sharing this with your client opens the door to further knowledge and inspection, and it also allows you to pass along the sweet gift of liability to another party.
When I read my first inspection report, I was frustrated by all the disclaimers regarding how little an inspector will actually be able to determine with certainty. Any decent inspector will have a lengthy page of disclaimers about how the inspection only pertains to that which is noticeable on a generally superficial level (without disassembling the property). Even inspectors limit their liability in this way; as long as they have performed their due diligence according to the standards of their industry, they are likely not liable for deeply hidden problems.
If you have a buyer who chooses to ignore your inspection advice, it can be helpful to have them sign a hold-harmless agreement. A friend of mine recently had wealthy clients who desperately wanted to buy a house with what he described as “literally thousands of red flags.” They wanted to offer on it despite these issues, so he explained that he’d be happy to write the offer if they acknowledged that they were doing so against his advice. They signed a hold-harmless agreement, and successfully purchased the property.
Protecting yourself from liability can seem like an uncomfortable balancing act. However, it helps to remember that you’re not avoiding making certain statements in order to trick the client; you’re avoiding certain statements so that you don’t deceive them. Of course, you can say “I like this house; it’s pretty.” However, making statements about property condition that are overly confident, positive, and definitive should be avoided; if you have something critical to say, share it; if you have something nice to say, don’t say anything at all.
https://law.justia.com/cases/california/court-of-appeal/3d/152/90.html
https://atgtitle.com/7-reasons-real-estate-agents-get-sued-how-to-avoid-it/
