Throughout your real estate career you have no doubt heard the phrase, "The standard of care." Whether in continuing education courses or perhaps in conversations with a real estate lawyer. The concept of complying with the standard of care continuously comes up as a paramount subject in dealing with claims of negligent conduct by a real estate professional. So, what is the, "standard of care?" When must a real estate professional comply with the standard of care? How does one accused of failing to meet the standard of care defend against such claims and how does a real estate professional conduct his or her real estate business in order to not only increase the likelihood of compliance with the standard of care, but also increase the likelihood of proving compliance in the face of accusations of a breach? This article will briefly touch on each of these questions in a general fashion, considering general concepts of law, not specific to any particular state's laws.
The term the, "standard of care" is a legal concept that is generally applied to the conduct of any professional. A physician must meet the standard of care in her treatment of patients. Failure to do so is likely medical malpractice. An accountant must meet the standard of care in carrying out his practice. The concept equally applies to escrow agents in dealing with the parties to the escrow, insurance professionals to their policyholders, attorneys, and yes, real estate professionals.
The definition of the standard of care is purposefully broad on its face. In California, the concept is best defined in a form jury instruction that is read to juries deciding a professional negligence case:
"A real estate professional is negligent if he fails to use the skill and care that a reasonably careful real estate professional would have used in similar circumstances. This level of skill, knowledge, and care is sometimes referred to as "the standard of care." You must determine the level of skill and care that a reasonably careful real estate professional would use in similar circumstances based only on the testimony of the expert witnesses who have testified in this case." CACI 600 as modified for use in real estate cases.
When a real estate professional is accused of negligence in fulfilling his duties in a transaction, his actions will be judged against the, "reasonable careful" agent in the same or similar circumstances in the particular locale where the transaction took place. You're not expected to deliver perfection; but you are expected to deliver services with reasonable competence, skill and care. So, how do we determine what the "reasonably careful" real estate professional would do? That's where the experts come in.
Each side in a litigated real estate dispute will consult with and retain one or more expert witnesses to testify at trial. In the case of an expert in the standard of care of real estate professionals, this will be an individual who, through training, education and experience has the qualifications to provide an opinion on what the standard of care is and whether the real estate professional met or exceeded that standard in carrying out the duties in question in the lawsuit. The more qualified, clear and persuasive the expert is, the more likely she is to persuade the jury that her opinion is the correct opinion.
That brings us to our last topic; how to minimize the chances of a negligence claim in the first place. No one needs 12 jurors with no qualifications other than being 18 and not a felon, deciding the propriety of your professional conduct. The following are general suggestions applicable to any U.S. jurisdiction.
- Know Your Real Estate Laws. Most states have varying laws on issues including disclosure obligations of both the seller and one or both agents in a transaction. These laws change regularly. Many cities have specific requirements that reports or inspections be obtained from the building department and given to buyers. Keep up with your continuing education and look to your state and local association of Realtors to keep you up to date on the law. No expert can convincingly assert that a violation of the law is nevertheless within the standard of care.
- Document Your File. Once a transaction is closed and an issue arises, if the event favorable to you is not in writing, I can almost guarantee that the accuser will say it didn't happen. Get all of your disclosures in writing and signed by the party. Follow up any verbal recommendations with an email, a text, or anything that can verify when and what you advised.
- Know Your Deadlines. So many issues in a real estate transaction are time-sensitive. Whether it's getting a deposit in escrow to avoid a threatened cancellation or sending out a requested cancellation notice once the other side misses a deadline, make sure these tasks are completed timely and with your client's express (and yes, written) consent. If your client does not want to send a cancellation notice on a missed deadline, follow up that decision with a written memorialization - such as an email.
- Be Responsive. First and foremost, be responsive to your clients. When issues come up in a transaction, be the first to reach out. Get back to your clients at the earliest possible time and keep them informed. They are looking to you for guidance. You are the professional. Even if you don't have an immediate answer for them, at least let them know you are searching for the answer. Be responsive to the remaining players in a transaction; other agents, escrow, title, inspectors.
- Seek Answers When Needed. One of the great things about the real estate industry is that no two transactions are ever the same. Everyone experiences unique issues in transactions. You don't have to know the answer to every issue; only that there is, in fact, an issue. As real estate professionals you have many resources to seek answers. As stated above, your local and state associations will almost certainly have a legal hotline. Your professional insurance carrier will likely have a hotline through which you can get advice from a real estate attorney well versed in your state and local real estate laws. Current or former colleagues that you trust can be an excellent source of guidance. Just reach out. People generally love to provide guidance and discuss their experiences.
In today's hyper litigious society no one can guaranty you won't be accused of professional negligence. But knowing how professional negligence is defined, how it is established and how to take steps to minimize the risk is a great way to stay on the outside of the courtroom doors.
Roger Honey is the owner and manager of the Law Offices of Roger G. Honey with offices in the Los Angeles and San Francisco areas. He obtained his Bachelors Degree from San Diego State University and his law degree from USC.
Roger’s 23 years of practice have focused on representing business and business professionals both in litigation and transactional work. For the last 15 years he has represented countless agents and brokers, typically through their errors and omissions insurer. He has taken over 20 cases through trial, with a strong record of defense verdicts.
In addition to practicing law, Roger has been a licensed real estate broker since 2002, was an adjunct professor of law at Menlo College for several years and has been an expert witness at trial in the fields of attorney standard of care and real estate agent standard of care.
The Landy Agency is a national leader in providing non-medical, professional liability and cybercrime insurance for accountants, attorneys, and real estate professionals. John Torvi can be reached at 781‐292‐5417 or johnt@landy.com. Visit www.landy.com for more information.
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