The expression “no good deed goes unpunished” is a skeptically humorous comment when acts of kindness backfire on those that offer them. Its origin may not date back to the early days of transactional real estate, but the profession is replete with examples of agents offering to do a little too much for their clients while unknowingly creating liability exposure for the brokerage.
A real estate agent was working with a prospective buyer who was searching for a home that was “maintenance-free” because he lacked the time to devote to improvement projects since his job required extensive travel. The agent showed her buyer several properties before he decided to submit an offer on a home that appeared to be in excellent condition. However, it had a history of settlement problems that compromised the structural integrity of the foundation. It was also located in a state that did not mandate a seller’s property disclosure statement, leaving the buyer to determine whether any defective conditions existed through the engagement of experts. Since the buyer would be traveling during the due diligence period, the agent volunteered to hire a home inspector and attend the inspection on his behalf. During the inspection the inspector found substantial evidence that the foundation had experienced settlement damage and informed the agent, who, unfortunately, underestimated the true severity of the problem and verbally informed her buyer that “normal settlement cracks” were found. The agent received a copy of the report detailing the problems thereafter, but neither read it nor provided a copy to the buyer until the day of the closing. Shortly after moving into the property, the buyer sat down and read the report which recommended a structural engineer to investigate the cause of the settlement issues. After learning how costly the repairs would be, the buyer proceeded to sue the seller and the listing agent for failing to disclose the defects and his agent for intentional and negligent misrepresentation.
An agent should never put him or herself in the shoes of a buyer by ordering or attending an inspection on their behalf. Although it is best to be present during the inspection, an agent should avoid becoming actively involved in the conversation between the buyer and his inspector.
In other words, the agent should be on hand should the client seek assistance but should not be put in a position to make an interpretation of any recommendation. Moreover, the report should be sent directly to the buyer because it is the buyer who commissions the report – not the agent. If the buyer wants to review the results with you as the agent, then do so. But it is not necessary for the agent to receive a copy because the agent would likely be held accountable for failing to address something pointed out in the report. In this situation, the agent compounded the problem by misunderstanding the inspector’s findings and by failing to provide the report to her client in advance of the closing.
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 Insurance 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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