Maintaining a solid reputation contributes to your business success. Here are key steps to help you stay on the right side of the law and the Code of Ethics.<\/p>\n\n\n\n
The measures agents and brokers need to take to avoid legal trouble can feel onerous at times, but dealing with a lawsuit can be much worse. Legal action by a buyer or seller, a fair housing complaint, or an alleged violation of the National Association of REALTORS\u00ae Code of Ethics could result in a fine, penalty, or judgment for damages, not to mention lasting damage to a professional\u2019s reputation.<\/p>\n\n\n\n
In today\u2019s litigious environment, agents and brokers need to mitigate the risk of liability\u2014being held legally responsible for conduct that results in a loss or injury to another person. That\u2019s especially important as 2020 saw a spike in reported errors and omissions claims, continuing a year-over-year trend of increased litigation against REALTORS\u00ae.<\/p>\n\n\n\n
Allegations of negligence and nondisclosure continue to be the most commonly reported claim types, according to Zach Vollmer, real estate E&O program manager with Victor Insurance Managers Inc.<\/a>, a REALTOR Benefits\u00ae partner. \u201cLosses pertaining to online services, such as virtual home tours and home staging, are becoming more commonplace,\u201d he says. \u201cLooking forward, we expect to see an increase in losses alleging fair housing violations and wrongful eviction stemming from the ongoing economic impact of the COVID-19 pandemic.\u201d<\/p>\n\n\n\n Broadly speaking, to reduce liability risks at any stage of their business dealings, agents should educate clients about every stage of a transaction, disclose all relevant information, and treat everyone in the same professional manner, says Bob Arnold, an agent who leads the M2M Team at Realty Executives Integrity in Milwaukee. \u201cIf agents make decisions for clients without discussing the options, they can get in trouble,\u201d he says.<\/p>\n\n\n\n Deanne Rymarowicz, NAR associate counsel, takes that idea one step further. \u201cAgents need to be careful about serving their clients and avoid overstepping their role,\u201d Rymarowicz says. \u201cIf a legal issue arises during a transaction, agents should talk to their broker, call their association\u2019s legal hotline, or refer the client to a lawyer.\u201d<\/p>\n\n\n\n It\u2019s a smart practice to stick to the facts rather than giving opinions when discussing matters with clients, says Robert Ransome, broker-owner with Ransome Realty Group in Richmond, Va. In addition, \u201cYou should document your advice and conversations in emails, texts, and notes. That can be very helpful later on if a liability issue arises that is related to the transaction.\u201d<\/p>\n\n\n\n Here are some of the seven issues that have legal or ethical pitfalls for agents and brokers.<\/p>\n\n\n\n Buyer and seller agents need to handle multiple-offer situations carefully to avoid accusations of negligence or preferential treatment that violates federal, state, or local fair housing laws or ordinances.<\/p>\n\n\n\n \u201cMultiple offers have become the norm in our market,\u201d says Arnold, \u201cso it\u2019s very important to make sure the buyers under- stand the best-case and worst-case scenarios when submitting an offer and to document that conversation.\u201d<\/p>\n\n\n\n Brian Bartholomew, an agent with eXp Realty of California in San Ramon, Calif., says he recently received 28 offers on a home that sold quickly for $80,000 above the list price. To help the seller obtain the highest and best offer from each buyer, he advised sending out the same counteroffer to all the buyer\u2019s agents, requesting specifics in terms of timelines, pricing, and financing. Then he showed the offers to the seller on a spreadsheet without the names of the buyers or their agents.<\/p>\n\n\n\n Lisa Mack, an agent with Coldwell Banker Residential Brokerage in Chambersburg, Pa., advises a cautious approach to submitting \u201clove letters\u201d with a buyer\u2019s offer in hopes of winning a bidding war for a home. \u201cYou need to avoid any issues related to fair housing,\u201d she says. \u201cI am very careful to keep to the details and terms of the offers, rather than have the seller focus on the buyer.\u201d NAR attorneys advise that if a buyer insists on writing a letter, the agent should not help draft or deliver it.<\/p>\n\n\n\n Other issues can arise in multiple-offer situations, such as a buyer\u2019s agent who may be showing the same listing to multiple buyers. \u201cYou need to have a tactful conversation with each buyer and let them know you have other parties interested in the same property,\u201d says Ransome. \u201cThen you can give them the option of staying with you or referring them to someone else.\u201d<\/p>\n\n\n\n Agents and brokers need to follow their state laws and the Code of Ethics with regard to seller disclosures about the condition of a home. Bartholomew says he advises sellers to disclose any issues that come to mind when listing a property. \u201cIf a client tells you about a problem, it needs to be disclosed to buyers,\u201d he adds. \u201cBe honest with your clients so they can be honest with you.\u201d<\/p>\n\n\n\n From the buyer\u2019s standpoint, Arnold suggests going over the disclosure form and pointing out issues without giving an opinion on whether a problem can be remedied easily or not. \u201cWe simply say, \u2018This is what the seller has disclosed,\u2019\u201d he adds.<\/p>\n\n\n\n Buyers should always pay close attention to the seller disclosures, says Mack. \u201cIn a tight market with bidding wars for properties, a buyer might want to waive an inspection,\u201d she says. \u201cBut you need to be sure they understand the consequences if they include a waiver in their offer.\u201d<\/p>\n\n\n\n Liability concerns for brokers and agents can occur even after a transaction has closed if a client is experiencing buyer\u2019s remorse, says Ransome. \u201cBuyers often want everything to be perfect, especially if they feel they overpaid,\u201d he says. \u201cSo be sure to explain both the value and the limitations of home inspections and property surveys, and let them know there can be issues with any property.\u201d<\/p>\n\n\n\n Fair housing issues can arise whenever buyers feel they\u2019ve faced discrimination because of race, ethnicity, gender, age, disability, religion, or other protected classes.<\/p>\n\n\n\n \u201cThis is a very timely issue now,\u201d says Rymarowicz, citing a pending Massachusetts case where the seller saw the buyer\u2019s name on an offer and asked the listing agent whether the buyer was Black. \u201cThe agent did the right thing and terminated the relationship.\u201d<\/p>\n\n\n\n It\u2019s not just seeing a buyer\u2019s name that can lead to potential fair housing violations. Sellers can decide not to sell to certain individuals after looking at their social media posts or security videos when prospects tour the home. \u201cKeep sellers focused on the buyers\u2019 offers rather than the people,\u201d Ransome says.<\/p>\n\n\n\n Ed Forman, president of Watson Realty Corp. in Jacksonville, Fla., advises agents to be clear and transparent with buyer clients to be sure they feel they have been treated fairly\u2014and to document those conversations. \u201cIn one case, buyers we represented didn\u2019t understand why the seller accepted an offer that was $10,000 below their bid on their dream home,\u201d he says. \u201cI reviewed our agent\u2019s notes and saw their offer was contingent on the sale of their own home, making it less attractive to the seller. When I explained this to the buyers, they thanked me, saying, \u2018Now that I know what happened, this won\u2019t worry me for the rest of my life.\u2019\u201d<\/p>\n\n\n\n Agents and brokers need to guard against wire fraud scams that could cost a buyer or seller hundreds of thousands of dollars. \u201cWe put a warning on all our documentation not to accept any last-minute wiring instructions,\u201d says Forman. \u201cWe encourage title companies to speak directly to the buyer. However, we did catch one fraudulent transfer a few weeks ago and called the FBI. We were able to freeze the bank account and the buyers got their money back before it disappeared.\u201d<\/p>\n\n\n\n Bartholomew likewise tells his clients to call the escrow agent or title company directly at a known number to confirm the details before sending a wire transfer.<\/p>\n\n\n\n Rymarowicz cautions that the FBI\u2019s Internet Crime Complaint Center reports a growing number of wire fraud and other scams stemming from compromised business emails. \u201cWith everything being done virtually in the pandemic, it\u2019s likely the numbers will be even higher now.\u201d Brokers can obtain cyber liability protection through CyberPolicy<\/a>, a REALTOR Benefits\u00ae partner, offering enhanced coverage and premium credits for members.<\/p>\n\n\n\n Be very careful before posting to social media, says Forman. Avoid misleading or deceptive representations and comments that could violate fair housing principles. Be sure to follow state-required disclosures on advertisements, in keeping with NAR\u2019s policies. \u201cKeep your posts professional and talk about the home, rather than the buyer,\u201d says Mack. \u201cWe are accountable for our personal as well as our professional posts, so think twice and be sure you are not violating any laws or causing a potential backlash from anyone.\u201d<\/p>\n\n\n\n Last November NAR expanded the Code of Ethics to ban discriminatory hate speech and conduct directed at members of any class protected under Article 10. The change applies to all of a member\u2019s activities, not just those that are real estate\u2013 related. \u201cWe all represent the real estate industry, and must be careful to uphold those standards in all our posts,\u201d adds Forman.<\/p>\n\n\n\n1. Multiple Offers<\/h4>\n\n\n\n
2. Seller Disclosures<\/h4>\n\n\n\n
3. Fair Housing<\/h4>\n\n\n\n
4. Wire Fraud<\/h4>\n\n\n\n
5. Social Media<\/h4>\n\n\n\n
6. ADA Website Accessibility<\/h4>\n\n\n\n