As a real estate agent, you play a crucial role in helping clients achieve their housing goals. But navigating the complex legal landscape of the real estate industry can be challenging, especially for those new to the field. Ignoring these legalities can not only lead to costly mistakes but also damage your reputation.
With that in mind, arm yourself by getting acquainted with the five main reasons real estate agents end up in court.
#1—Breach of Contract
There are a number of ways to be in breach of contract:
- Failing to work for the seller during the listing agreement or sales agreement phase
- Failing to adhere to your communication contract to check in on your client and keep them informed of new developments
- Failing to comply with the time frame stated in the contract
- Negligence or failing to do what your client has a right to expect from you, either out of ignorance or out of laziness
Basically, if there’s something you’ve committed to doing for your client—in a signed contract—and you don’t do it, your client can sue you for breach of contract.
Sellers can also sue you if you fail to make reasonable efforts to sell their property, which can include any of the following:
- Listing the property through an MLS
- Advertising that the property is for sale—or making an effort to get the word out
- Discussing with the seller what can be done to make their property more attractive
- Explaining what happens if the property sells “as is”
- Explaining to the seller all the documents they need to sign
- Reviewing the settlement sheet to ensure every stipulation is met–and that both parties are in agreement
- Working with the buyer and inspectors to provide access to the property
- Assisting the seller during the listing and sales processes—every step of the way
- Work with the title clerk to ensure they have all necessary information about the property
Your duties to the seller don’t stop when a buyer signs the sale agreement. Know what your client has a right to expect of you. Then over-deliver.
#2—Misrepresentation and False Advertising
Misrepresentation is the number one reason why many real estate agents get sued. You have a duty to the client to help them sell their property. So, naturally, you want to make it stand out.
But any details found to be incorrect (or missing) can land you in court and do real damage to your credibility and, ultimately, your success as a real estate agent.
To avoid this, make sure anything you put out there to promote your client’s property is 100% truthful and leaves no room for misinterpretation.
Let’s say, for example, you use the square footage for a property that was on a previous MLS listing—or it was given to you by the seller. If this turns out to be inaccurate, you are responsible. Be sure to review all information when listing a property, and correct any mistakes as soon as possible.
Even if a lawsuit can be resolved through a minor settlement, any legal filing against you can do real and lasting damage to your career.
If you’ll knowingly fudge the details and defraud the buyer to get your commission, why should any prospective client trust you to be truthful with them in any other situation?
One of the most important laws in real estate is the Fair Housing Act of 1968. Yet a percentage of real estate agents still break this law. And it’s usually avoidable.
Essentially, the Fair Housing Act protects home buyers from discrimination. The types of discrimination that are illegal vary by state, which makes it easier for buyers to unwittingly break this law.
Hopefully, you don’t make a practice of allowing your personal beliefs (or your seller’s), whatever they are, to justify discriminating against clients or buyers. But in any case, you need to know the laws in your state to ensure you don’t violate this law (or any other).
Thanks to the uniqueness of every human being on the planet, all kinds of discrimination can get you into trouble, even if it has no relation to the Fair Housing Act—or isn’t explicitly forbidden in your state:
- Gender identity
- Sexual orientation
- Physical disability
- Poor or unkempt appearance
If a potential client or buyer decides to sue you for dismissing them on the basis of their appearance or because your beliefs are incompatible, don’t assume you’ll prevail because of your beliefs—or because you expect the other person’s appearance to diminish their credibility.
Be aware of any changes to this Act in your state—especially any new types of discrimination the Act prohibits.
Granted, there are legitimate grounds for deciding not to work with or for someone—say, for example, if they make unwelcome advances or they make threats against you or someone else. In these cases, document everything (insofar as possible).
And make double sure the law is on your side.
As an agent, you’ll be collecting information about each client. And you need to know the laws that govern the collection, storage, and protection of this information.
Unfortunately, there are hackers everywhere looking for this information. And if they succeed in obtaining it because you haven’t taken reasonable measures to ensure the safety of your client’s personal information, you’ll be the one paying the price.
Your clients have a reasonable expectation that you will protect any personal information they share with you—including any information hackers could use against them.
So, make sure you’re protecting every scrap of digital information pertaining to your clients. And if you use paperwork, ensure that you store all sensitive information in a secure location.
If you do everything right, and a hacker still succeeds in accessing your client’s information, let them know as soon as you do so they can take immediate action to protect themselves from identity fraud.
If you try to hide the evidence of your failure to protect your client’s information, you’re far more likely to pay the price—in more ways than one.
#5—Legal issues involving buyer or seller obligations
Sellers are supposed to be truthful in their answers to questions about the property—like the state of the plumbing, the condition of major appliances, and any renovation work that has increased or decreased their home’s value.
It’s a reasonable expectation that the seller disclose any material defects that are not easy to spot during a walk-through inspection of the property.
Sellers are also obligated to provide statutory disclosures—which could include environmental disclosures, any necessary disclosures for coastal properties, condo disclosures, and other required homeowner disclosures.
That said, if the seller is not truthful, and you relay their answers to the buyer without verifying them, the buyer could later sue you—as the seller’s representative—if they find any expensive issues with the property after the sale.
They can legally hold you responsible for any breach of the seller’s disclosure obligations.
Keep that in mind when talking to the seller and asking questions about the property. Ask the right questions and record every answer, word for word.
Also, encourage the buyer to conduct their own home inspection—especially if the property hasn’t already been carefully inspected by a neutral third party.
If the seller objects to an inspection, remind them of your obligation to provide access to the buyer and their home inspector, especially if a home inspection is part of the sales agreement.
Top takeaways for real estate agents
It’s your responsibility to make sure you’re conducting your business in accordance with the laws in the state or country in which you practice. Saying, “I didn’t know,” or “I’m new here,” won’t get you off the hook if a client or prospective buyer takes you to court.
As an agent, it’s your responsibility to keep learning and ensure you’re not breaking any laws—or doing anything that could make your client more vulnerable to attack—or a buyer more likely to regret their purchase.
Be the agent your clients and community can count on to be thoughtful, well-informed, and above-board in everything you do.