Dianna Brouthers is an educational consultant for RealNet Learning Services, Rock Hill, S.C., specializing in agency issues and risk reduction. She was honored as the Real Estate Educators Association's 1998 Educator of the Year and has served her state REALTOR® organization as regional vice president and state treasurer. She can be reached at email@example.com.
The Law & You: How buyer's reps can reduce their legal risks
January 1, 1999
A recent NATIONAL ASSOCIATION OF REALTORS® survey found that approximately 40 percent of U.S. buyers involved in a residential transaction were represented. A few states have even made buyer agency a default position, requiring that a licensee working with a buyer automatically represent the buyer.
I was stunned to hear that 67 percent of the lawsuits against real estate practitioners were brought by buyers, many against their own representatives. Buyer's representatives who spoke without knowing or who failed to discover facts critical to their client's transaction were found guilty of constructive fraud, passive misrepresentation, or professional negligence.
Clearly, when we enter the buyer agency relationship, the buyer clients rely on us to tell them what they need to know, even if they don’t know they need to know it.
Since we’re judged by the standard of the “competent professional” by both our peers and the courts, we must take action to protect ourselves from potential misrepresentation and negligence charges.
Here are some tips for increasing diligence and reducing risk as a buyer's representative:
- Begin diligence early. Often an inexperienced buyer's representative will overpromise and then be forced to renege. Don't advertise impossible promises such as “Guaranteed to save you money,” “No cost to the buyer,” or “Best home at the lowest price.”
- Avoid using sweeping generalizations. Words like all, every, and never can cause problems. Buyers tend to be literal; practitioners tend to puff. Clients may sue for “misrepresentation of services” if you're unable to deliver.
- Discuss your fees openly. Many practitioners are reluctant to discuss fees, giving buyers the fantasy of a free ride. Failure to discuss fees puts you at risk of receiving nothing.
- Use diligence in locating suitable properties for the buyer client. Using only the MLS, for example, limits the number of properties the buyer is exposed to. Any limitations should be discussed and documented to prevent misunderstandings.
- Diligence is critical in determining property deficiencies for a buyer. Of course, material defects are disclosed to your buyer clients—even buyer customers get that service. In some states, however, your diligence level as a buyer's representative encompasses the duty of discovery. Your property disclosures, then, actually become 3D: diligently discover and disclose. Develop diligence checklists that will reduce your risk under your jurisdiction's duty of discovery.
- Brainstorm at your sales meetings to identify areas of potential liability. Determine what can be done under the diligence level of the competent professional and where specific information can be found.
- Develop a habit of creating transaction notes immediately after contact with clients, other licensees, and service providers. The notes could be the difference between winning or losing a lawsuit.
Buyer agency offers tremendous opportunities to clear up implied agency issues, develop loyalty from the buyer client, and protect your fee. Your reward will be smoother closings, increased income, and reduced risk.
Remember to let your buyer clients know what they need to know, even if they don’t know they need to know it. That, along with documentation and a strong paper trail, will surely reduce your risk and increase your rewards as a buyer's representative.
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