Every real estate transaction presents potential legal pitfalls for the real estate licensee. Buyers and sellers may bring suits against their brokers or agents, based on both statutory and common law causes of action, for a variety of issues of importance to buyers and sellers, including misrepresentation or non-disclosure of property conditions, breach of fiduciary duty, negligent referral and unlawful discrimination, to name a few. To help you avoid these pitfalls, Review magazine will present a series of articles reviewing the Top 10 types of claims in the real estate industry, based on statistics maintained by Employers Reinsurance Corporation, the endorsed carrier for the REALTOR® Guard Program sponsored by the National Association of REALTORS®. In this first article, the focus is on the number one cause of claims: misrepresentation.
Fifty-seven percent of all claims against Realtors® involve misrepresentation --
Licensees are most apt to incur legal liability for misrepresenting material facts regarding the condition of the subject property. In most states, "Caveat emptor" no longer applies to real estate transactions. Instead, it is the licensee who bears responsibility for making disclosure of all material facts of which he or she has knowledge.
Some interesting Misrepresentation Claims:
**Home was falsely advertised as having hardwood floors (broker's assistant told the
buyers and made a flyer showing hardwood floors in the home);
**Buyer bought house on understanding that home had maintenance-free vinyl siding; actually it had aluminum siding which would need continual painting;
**Alleged misrepresentation that home was "like new" when, in fact, the renovations were done poorly and with inferior materials;
**Salesperson stated in MLS that home was 60 years old; actually it was more than 103 years old;
**Buyers bought property without knowing about the faulty furnace; after three of the four family members died from carbon monoxide poisoning, the listing agent was sued for failure to disclose the furnace problems and for failure to recommend an inspection.
**The real estate broker sold a newly built home to a buyer, stating that there was "nothing wrong" with the house. Unknown to the broker, an improper fill had been placed on the land before it had been purchased by the seller, causing settling and eventual displacement of the house. The broker was found liable for misrepresentation, since the broker had said that there was "nothing wrong" with the house. The court held that the buyers could reasonably have interpreted that statement as an assertion that the broker had sufficient factual information to justify his general opinion about the quality of the house.
**Buyer was informed the land could be used for horses, but later was informed by a water engineer that it was illegal to water domestic animals from the well and they would need a permit to do so.
**Broker listed a home that seller said sat 14' above sea level, with annual flood insurance premiums totaling approximately $350.00. Having sold a few homes in the area, the broker was somewhat surprised by the seller's claim, but believing he only acted as a conduit of information, the broker advertised the house as the seller represented it. Buyers later learned that the house was only 4' above sea level, and that flood insurance ran $36,000 per year. The buyers filed suit, and the court held the broker jointly liable with the seller for the misrepresentation.
Reprinted with permission from Letter of the Law, National Association of REALTORS®.