Brokers Beware – 7 Common Legal Mistakes to Avoid | Featured on PropertyShark

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Have you been watching too many episodes of “Million Dollar Listing?” The show depicts the life of a real estate broker to be effortless, but not every day is filled with the glitz and glam you see on television.

Real estate brokers (similar to attorneys and CPAs) have a code of ethics, duties, and responsibilities to adhere. All brokers should be aware of these requirements as well as any consequences that may come from their mistakes. As a new broker, one should review and learn the “Code of Ethics and Standards of Practice” published by the National Association of Realtors.

While not all have legal consequences, mistakes could cost a commission, or even worse, a relationship with a client. Here are 7 common broker mistakes:

Breach of Duty:

Many real estate brokers have a lot of experience in real estate transactions, resulting in exposure to different issues. Brokers with a lot of experience sometimes feel they have the knowledge to make assurances to their clients that are not always accurate. But at times, brokers lack the necessary expertise.

More than once, clients have come to us with an issue that they think their broker resolved for them; however, once the issue is presented to the attorneys, it is evident that the broker’s “solution” is not feasible. Real estate brokers should be very cautious in making promises to their clients.

Any assurances should be limited to the broker’s real estate expertise; other issues, such as the law, or taxes, should be handled by those experts. Sometimes a miscommunication, by any party involved in a transaction, could lead to a charge of broker negligence or liability, which could result in a lawsuit.

Breach of Contract:

Brokers should be realistic and honest with the services they provide to clients, and what their clients should expect.  A broker should never guarantee a sale price or closing date to a client, even if it seems achievable. Many brokers are eager to sign representation agreements with their client without first doing the research on accurate purchase price comparables.

A broker could potentially be sued for breach of contract if they do not live up to their agreement, and sell within the required time span. It’s always better to be safe than sorry regarding possible sales dates and purchase prices, by giving an attainable and varied range.

Be wary of who you refer:

Brokers play the part of the “middle man” standing between the seller and purchaser and other parties involved in the deal. Brokers are typically prepared with a list of contacts and referrals they could give to clients for mortgages, attorneys, and even accountants.

A broker’s biggest asset is their relationships, and the worst thing would be to lose a relationship you worked hard to establish. Always be sure you personally know or have real experiences with the person you are referring – you must be able to truly attest to their expertise. A small referral fee is not worth a disappointed client, potentially ruining your reputation.

Failure to maintain confidential information:

Brokers acquire a lot of personal information from their clients and therefore have a duty to maintain confidentiality. Brokers should have a method of storing this information, whether digital or physical, and never disclose confidential information to others without first informing the client and obtaining confirmation. A few good examples of protective measures are installing a secure system on your computer, changing passwords periodically, and never providing confidential information by email.

Damage to the property or the client:

When a broker is showing a property to a client, they could be responsible for damage done to the property and any injuries to the client while on the property. Brokers should be aware of all defects in the property and warn any visitors. A broker could be found liable for not disclosing the defects if their client is injured. They could also be found legally responsible for damage done to the property, even if it was due to their client’s actions. A possible exception to this is if the accident was caused by a defect that could not be visibly detected.

Notify purchasers of their rights to inspect the premises:

Buyers of residential properties have deadlines to inspect the property for termites, asbestos, as well as special things such as underground oil tanks. The contract of sale usually depicts such timeframes and deadlines, but it is the broker’s responsibility to remind the purchaser and help coordinate access to the premises for inspections. Clients might put blame on the broker for failure to notify them of such deadlines, especially when a big issue is revealed once the inspection deadline has passed.

Failure to Maintain a list of showings:

A broker is owed a commission as long as they were the one who originally showed the premises to the client. Some clients shop around with brokers and then go behind the broker’s back to purchase or rent a premise. In such instances, when a broker does not get paid for their services, they could sue the client for the commission.

It is crucial for a broker to maintain a list of clients and the properties that they show each client to refer to in such cases. Additionally, forming relationships with someone in management, or even a doorman of a building, could help a broker be notified should this occur.

Brokers should be aware of these common mistakes to protect themselves and prevent the need for legal action. As a real estate broker your relationships create your brand, so it is crucial to maintain these connections. Your brokerage business depends on it.


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