Beware of Scope Creep
Avoid Going Outside Your Area of Expertise
The complexity of most real estate transactions is a key reason why documentation, clear communication, and attention to detail is so critical to a successful deal. The desire to please and be helpful to clients can sometimes get in the way of clear roles and responsibilities. Your expertise is real estate, not inspections, zoning, construction, or real estate law. The best way to limit risk is to operate within your role as a realtor and resist the temptation to assist in areas outside your scope of knowledge.
Learn how easily agents can cross the line, sometimes unknowingly or even mistakenly, in this real-world case study. Situation
A real estate agent listed a 10-acre tract of rural land next to a highway as a potential site for a small hotel. The seller had owned the property for decades,
and believed it to be zoned for commercial use. After the agent located a buyer, the buyer and seller agreed on a price and entered into a Purchase and Sale Agreement.Problem
Approximately seven acres of the property were restricted wetlands regulated under the Natural Resources and Environmental Protection Act, resulting in the inability to fully develop the parcel of land.Mistake
Even though the agent knew the buyer had development experience, he casually implied that he would investigate the “build-ability
” of the property before the parties executed the Purchase and Sale Agreement. The buyer, having previously worked with an agent who did perform these tasks for a similar project, proceeded to hire an architect and secured financing, fully expecting the agent to advise him if there were any problems with the proposed development. The agent did not investigate the zoning and assumed that the buyer would take care of the necessary approvals. When the buyer questioned the agent about the approval status as the close of escrow approached, only then did the buyer learn
of the wetland restrictions.Result
The buyer sued the agent alleging that he failed to disclose or otherwise discover the wetland restrictions. The damages claimed included loss of revenue, attorney fees, and other related costs. The agent argued that it was the buyer who should have performed due diligence on the property’s potential for development. The claim was settled after the seller testified that the agent did in fact
tell the buyer that he would investigate the “build-ability
” of the property.Prevention
The agent should have advised the buyer prior to the execution of the contract that it was the buyer’s duty to perform due diligence and gain the necessary approvals. Instead, he offered to act outside his scope of expertise as an agent. The agent may have thought the offer was only casually mentioned, and therefore not binding, but the buyer took it at face value.
Staying within the confines of your expertise as a realtor can help manage expectations and mitigate confusion. Offering recommendations to clients can be a good way to be helpful without putting yourself at risk. Always document your communication and recommendations to both buyers and sellers. This detailed recordkeeping can help prevent miscommunication during a deal and will also be a solid source of evidence in the event of a liability claim.
This article was produced in conjunction with AXA XL and is not to be taken as legal advice.