We all know about the importance of “location, location, location” in the world of real estate. The most desirable locations are those in prime spots, and the least desirable are not. However, regardless of where property is located, a real estate agent should always remember the mantra “document, document, document.”
An Agent listed a retail building that fronted a high-traffic road that the state planned on widening. The building, situated on a narrow piece of land, was acquired by an investor who intended to lease it to the operator of a restaurant. The agent was aware that the road was to be widened and verbally disclosed it to the Buyer prior to the closing. To his credit, the agent maintained good extemporaneous notes but neglected to communicate it to the Buyer in writing. By failing to disclose this material condition on the property in writing, the Buyer was able to make a strong argument that he did not know about the pending road project. The Buyer subsequently filed suit against the Seller, the Agent, and his Broker alleging negligence and breach of contract. Meanwhile, the Tenant threatened to terminate the lease agreement with the new owner when she realized that the number of parking spots in front of the restaurant would be reduced. In defense of the litigation the Seller argued that he informed the Agent of the pending road project – allegations that were indisputable. And, with the Buyer claiming to have no knowledge, the defense of the claim became a word versus word proposition, resulting in a financial settlement.
If the documents support your story of the transaction, odds are any claim made against you will be dismissed. Attorneys don’t want to fight irrefutable evidence. When transaction files are complete and contain clear, concise, and accurate information, you are better protected from frivolous claims. Written disclosure of material defects or potential changes in properties should be standard operating procedure when conducting real estate transactions. The claim may have been averted if the Agent disclosed the issue in writing and had the Buyer sign and acknowledge it. You will inevitably minimize your exposure to errors and omissions claims and allow more time to grow a profitable business.
Disclosure: The information presented is intended to provide guidance and is not intended as a legal interpretation of any federal, state or local laws, rules, or regulations applicable to your business. The risk management information provided is intended only to assist policyholders with recognizing possible exposures. In providing such information, Great American does not warrant that all potential exposures have been evaluated or can be controlled. It is not intended as an offer to write insurance for such exposures. The liability of Great American Insurance Group and its affiliated insurers (“Great American”) is limited to the terms, limits and conditions of the insurance policies underwritten by any of them. Scenarios are provided to illustrate possible exposures faced by your business. The facts of any situation which may actually arise, and the terms, conditions, exclusions, and limitations in any policy in effect at that time, are unique. Thus, no representation is made that any specific insurance coverage applies to the above claims scenarios.
Richard Monahan is a member of the Professional Liability Division at The Great American Insurance Group in Exton, PA.
The Landy Agency is a national leader in providing non-medical, professional liability and cybercrime insurance for accountants, attorneys, and real estate professionals. John can be reached at 781‐292‐5417 or johnt@landy.com. Visit www.landy.com for more information.
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