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Why real estate sales reps get sued

Q: What’s the biggest fear most professionals have?

A: Getting sued by a client. We all fear lawsuits because of what a lawsuit implies: Poor customer service; lack of knowledge; and overall failure to do what’s right and ethical.

Q: What’s a growing trend?

A: Clients suing.

Agents are faced with managing numerous details, multiple parties and valuable assets. These hurdles become grueling mountains to climb when you throw in rushed time lines, emotions and fear of losing the deal. It’s no wonder mistakes happen and clients sue.  Having said that, lawsuits are not inevitable if you know the most likely reasons you’ll get sued and how to keep yourself from making fatal mistakes.

Here are the top three reasons why you’ll get sued.

1. Failure to disclose property defects

Yes, we all want to get a deal done quickly, as well as make sure our clients are happy with the price and expediency. But, a great price and a quick close won’t necessarily bar you from facing angry clients. Especially if you forget to fully disclosure all latent defects.

The numbers don’t lie: you’ll be the first to get served with legal papers after a deal closes if your client or the other party discovers defects. Defects range from improvements without permits to noises, stigmatized properties or nuisances.

“But, I didn’t know, so I’m not responsible!”, you’ll claim. Sorry, that’s not a defence. The threshold to prove that you were negligent isn’t that you did know, but that you should have known. After all, aren’t you supposed to be a real estate professional?

2. Breach of duty and negligence

If you’re an agent who “dabbles” in different asset classes or locations, be warned. You might be breaching your duty to your client and exposing yourself to claims of negligence.

Here’s why: your client places a high level of trust in you. They believe that you have the expertise you claim and “suggest” by taking on the deal. And if you don’t and if you make a negligent mistake –- even if your intentions were good — then be prepared for a fight in the courtroom. The problem with negligence claims is that it’s difficult to determine if you’ve acted reasonably. This means that, even if you weren’t negligent, you’ll still face a lawsuit and be left with a soiled reputation.

3. Giving quasi-legal advice

Every deal requires legal advice, especially since we’re moving away from non-binding offers to binding leases masquerading as offers. Not to mention, our increasingly litigious society calling for an extra “layer” of protection by way of a legal review.

Despite the real risk facing agents – and the fact that agents are signing up their clients to binding agreements without proper advice – agents don’t want to get lawyers involved. They fear that lawyers will kill the deal and slow the process.  So, the agents offer some general advice and don’t encourage their clients to get a quick legal review. After all, you’ve been doing this for years and you know more than lawyers.

Such an approach is not only problematic for the agent’s reputation, but also his commission. I’ve witnessed many deals dying because buyers, sellers, landlords and prospective tenants use the “we didn’t get legal advice” excuse to get out of deals. And some unscrupulous clients then point the finger at the agent, claiming that they never advised them to get the advice they need.

What can you do to protect yourself?

The most common cause of lawsuits is assuming you know everything and subtly putting your interests ahead of others.

There are three simple panaceas to this litigation cause:

  • You can’t learn what you already know: Remain humble. Neither you nor I know it all. The most dangerous people are those who think what they learned in the past holds true today. It simply doesn’t: laws change, clients change, communication standards change and the product changes.
  • Don’t stop learning: Agents must constantly educate themselves if they want to call themselves experts. Their knowledge should not only be about local rates and sale prices, but also the potential issues that may arise, such as structural and potential legal threats. Various bodies such as your real estate board, the Real Estate Institute of Canada and Institute of Real Estate Management, the Urban Land Institute (ULI) and the Society of Industrial and Office Realtors (SIOR), offer excellent programs and designations to stay on top of all of the changes in your industry.
  • Get a professional involved early: always recommend that professionals get involved early, before anything is “firm” and make this recommendation in writing. Getting the professionals involved early will ensure that you avoid wasting your time negotiating certain points that simple won’t work from a legal, financial or logistical perspective. My experience shows that advice on sticky issues early in the process always helps to close the deal faster because everyone is working in tandem and major headaches are anticipated and prevented.

These solutions are so simple, yet rarely followed. If you don’t take a moment to protect everyone’s interests -– including yours –- then you’ll likely face a disgruntled client and a lawsuit. After all, it’s always better to have no deal, than a lawsuit and no deal.