Be Cautious Concerning Duties Beyond Your Scope as a Real Estate Professional
You want to close deals as quickly as possible and sometimes you may do a little extra work to make that happen. However, offering services outside your scope of expertise can expose you to a higher level of risk. It may seem expedient at the time, but in the long-run you are placing your career and your business on the line.
Here’s an actual scenario demonstrating how easily communication and expectations can run off the rails.
An agent listed a single-family home for rent, confirming the landlord wanted a tenant with a verified employment history and a minimum credit score. The landlord provided the agent with a standard rental application and requested to review all completed applications.
The agent showed the property to several prospective tenants, secured applications, and ran credit score reports. In addition, the agent submitted the names of the prospective tenants (with their consent) to a tenant screening service and all reports indicated “no prior evictions.” The landlord reviewed all applications, including the reports from the tenant screening service, and selected a tenant. The tenant signed the lease, and paid the first month’s rent and security deposit.
The tenant defaulted and failed to pay any further rent. The landlord learned the tenant was evicted one month prior to completing the rental application. The eviction was not noted on the tenant screening service report due to a time lag with electronic public records. The tenant was judgment proof, or financially insolvent, having no income or property that could be seized in a settlement.
By providing information from the tenant screening service, the agent was subject to potential liability for negligence for not ensuring the accuracy of information and misrepresenting the tenant’s qualifications. The landlord relied upon the report and interpreted it as the agent’s own representation concerning the qualifications of the prospective tenant.
The landlord sued the agent for negligence and for violations of the Consumer Fraud Act claiming the agent misrepresented the qualifications of the tenant. The landlord requested damages for lost rent and treble damages, or triple the amount of actual damages awarded, plus counsel fees.
The claim was settled after discovery confirmed the listing agreement did not provide any specific agreement for the agent to screen tenants and the landlord was involved in the screening process. The agent argued he merely provided information to the landlord and made no statements concerning the tenant’s qualifications or the accuracy of the content of the screening report.
The agent could have advised the landlord to perform his own screening and provided the landlord with the names of (ideally three) tenant screening services. Alternatively, the agent could have presented a written disclaimer for the landlord to sign stating the report from the tenant screening service was information provided by the service; that by providing the report, the agent was not making any guarantee or recommendations; that the information from the service was not a substitute for independent investigation; that the landlord acknowledged the risk of renting; and, that a tenant’s circumstances can change at any time.
Moving a deal along can be accomplished in ways that don’t make you vulnerable to potential liability claims. Keeping your scope of expertise in mind as you engage in new deals is a good filter for decision-making. A standard disclaimer that can be tailored to different situations can also be helpful to have in your files. Don’t overlook the fact that prevention goes a long way in keeping your premiums low and your business intact.
This article was produced in conjunction with AXA XL and is not to be taken as legal advice.