Case Studies: Make Sure the Licenses Line Up

Don’t let history repeat itself.

You check your paperwork 10 times to make sure it’s accurate. You clear room in your schedule to answer clients’ questions. You’re thorough, and you work too hard to let a lawsuit threaten your real estate career. After all, there’s no such thing as taking too many precautions.

And that’s where we want to help. There are some great lessons we can learn from history. Let’s look at some real-life scenarios, and hope that in these cases, history doesn’t repeat itself.

Case Study 1: Agent Sued for Providing Legal Advice Without a License

The Scenario

A real estate agent was working on behalf of clients who were in the market for the purchase of a home in a wooded, suburban setting. The buyers were shown numerous properties, and they eventually entered into a purchase agreement in a subdivision subject to restrictive covenants, conditions, easements, and limitations. The property closed two months later.

The Problem

The homeowners’ association had restrictive covenants requiring written approval by the board for the removal of certain vegetation. However, after the buyers moved in, they immediately cut down a buffer of trees near the rear of the property to improve their view of the nearby mountain.

The Mistake

While reviewing the restrictive covenants with his clients prior to the sale, the agent misinterpreted the covenants and determined it would be okay to remove the trees.

The Result

The adjacent neighbors filed an emergency Motion for Temporary Injunction with the court asking to instruct the buyers to cease and desist from further removal of the trees, and declare they failed to comply with the restrictive covenants. The buyers sued the real estate agent in response, alleging he provided legal advice without a license and breached the standard of care owed by a real estate professional.

They also alleged that he failed to recommend a consultation with a real estate attorney. When the agent admitted to his broker that he committed an error in judgment, the lawsuit was resolved for the cost of replanting new trees and a payment to both his clients and neighbors who later claimed diminution of property value.

Prevention

Real estate agents or brokers who give legal advice will most likely be sued for their actions. While you may complete the blanks of a preprinted sales agreement, you may neither draft your own documents nor give legal advice.

To minimize legal liability, know the parameters of what you may and may not do in your state, and urge clients to seek the advice of legal counsel if they have questions. Real estate agents should never engage in activities constituting the unauthorized practice of law.

Case Study 2: Buyer Sues Agent for Hiring Unlicensed Home Inspector

The Scenario

A real estate agent was hired to represent a buyer in the purchase of a multi-million dollar home. Numerous structural and material defects were found following the purchase of the property. The buyer demanded the agent pay for the repairs.

The Problem

The agent recommended a local home inspector to inspect the home.

The Mistake

The agent didn’t provide a list of licensed home inspectors for the buyer to pick from, and the one he recommended wasn’t licensed.

The Result

Most of the damages incurred were related to construction defects, but the agent incurred high legal costs defending this matter. The buyer stated they would have never purchased the property if the construction and material defects were found during a proper home inspection.

Prevention

Always provide a list of licensed professionals/home inspectors for a buyer to hire for inspecting their home. If the buyer forgoes these inspections, document in writing and obtain a waiver. In this case, the agent never gave the buyer an option or choice. Some states are now requiring an agent to recommend licensed home inspectors.

This article was produced in conjunction with XL Catlin and is not to be taken as legal advice.

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