The Agent Who Helped Too Much: A Mostly True Tale

By Lisa Scoble posted 01-28-2021 10:58 AM

  

The Agent Who Helped Too Much: A Mostly True Tale


The fairy tales most of us grew up with may have been peppered with fantastical creatures and haunted castles, but there was always a grain of truth to be shared once the last page was turned. We’ve put together our own modern-day tale with dedicated real estate professionals, expert contractors, and crafty clients. Our tale is based on real events with a few editorial flourishes. Make sure you read through to the very end. Of course, there is a moral to our story.

SITUATION
Once upon a time, there was a dedicated real estate professional who wanted to be the best in the business. She treated clients and other agents with respect. She was prompt in answering emails and phone calls. She followed through on her promises. She kept her sellers up to date on activity on their listings and helped her buyers find the best homes for their family’s needs. She kept excellent notes and her recordkeeping was clear and well-organized. In many ways, she was the perfect real estate professional.
PROBLEM
However, in one small—one might even say insignificant—transaction, she went too far. Our real estate professional became too involved, too helpful—basically too everything this time. In a blink of an eye, and almost imperceptibly, she crossed the line from a dutiful and diligent professional—this is the scary part—to a co-defendant in a civil lawsuit. Assistance, helpfulness, and insights quickly became the basis of misrepresentation and accusations of fraud. “But how did this happen,” you might ask?
MISTAKE
Well, there is no doubt our perfect real estate professional had her finger on the pulse of the real estate market in her community. Like most agents, she offered advice and suggestions on how to price or what to pay for a home. She provided valuable insights on which improvements would make a positive difference, and how a little attention to “curb appeal” now could pay off later. She gathered information on properties that had recently sold and how they compared with other properties already on the market. But going beyond real estate advice can lead to unintended trouble. Read on as the tale continues.

Our real estate professional represented a homeowner trying to sell a vacant house that had been a rental property for over 10 years. The house had failed to sell on two different occasions because it failed inspection. So, our professional sat down with her client and went through the inspection reports and noticed a pattern. Both reports mentioned a leaking roof and foundation cracks. The house was built in the 1990s and likely still had the original roof. And the foundation had shifted over time, causing cracks to appear in the unfinished part of the basement.

Our ever-helpful professional recommended a company for the roof repairs and a structural engineer for an inspection of the foundation. The homeowner was busy when the roofer was available to do the evaluation, so our agent went instead. The roofer estimated it would cost $30,000 for a new roof and offered to prepare a formal quote. When the homeowner heard the estimated cost of the roof, she told our professional to skip the estimate and dismiss the roofer. Our agent was the one who let the structural engineer into the house as well. The engineer said cracks in the foundation were a concern, and left unattended, could become hazardous. The engineer also offered to prepare an estimate. Again, the homeowner refused an estimate for the work, and advised our agent to communicate that message to the structural engineer.
RESULT
Spoiler alert: It’s not a happy ending. The house did eventually sell, but the issues identified by the roofer and the structural engineer were not disclosed by the homeowner. It was the homeowner’s position that the condition of the roof and the foundation walls were open to reasonable inspection. However, prior to the sale, the homeowner had a “friend” cover up the sagging rafters in the roof and the cracks in the unfinished basement walls so they were not as visible.

While our real estate professional did not participate in any of these “cover up” activities, or even know about them until after the fact, she was nonetheless named in the lawsuit by the buyers of the house. After the buyers moved in, they found the “repairs” when they tore the roof off. And as luck would have it, they used the same roofing company who did the initial inspection of the roof for the seller. The roofer informed the buyers that the agent knew about the problems with the sagging rafters. The buyers concluded the agent must have been part of the conspiracy to hide the facts. The same was true with the structural engineer. When the name of the engineer was produced in discovery, the buyers learned yet again that the agent was told about the cracks in the foundation and instructed the engineer not to draft a report (based on the instructions of the homeowner).

Was any of this true? No.

Our real estate professional was not part of any cover up. However, by inserting herself into the transactions with the roofer and with the structural engineer, she became a key part of the conspiracy theory advanced by the buyers. The claims against the agent are still pending. And even if she is able to be released on summary judgment, she has spent countless hours away from the office defending herself when all she wanted to be was helpful.

By participating in the process of evaluating the condition of the property, she made herself the intermediary between the experts and the homeowner. Then by becoming part of the negotiations, her knowledge could be imputed to the homeowner—which made her a target in the lawsuit.
PREVENTION
What is the moral of our tale, you may ask? Our real estate professional was correct to guide the homeowner back to the two inspection reports which may have provided a clue why the first two prospective buyers walked away. But she should not have been involved in either (a) the decision of what in those reports was reasonable, necessary, or appropriate to address, or (b) the process of having the home inspected by experts to evaluate any of those issues. By placing herself in the middle of those events, she was no longer just an agent, but part of the fact pattern because of what she said and to whom. It was not a simple matter to extricate her from the case once she was named as an additional defendant. Clients can sue for any reason, or no reason. However, you don’t want to unwittingly make yourself a target by overstepping boundaries while helping your clients.

THE END.

For more information about E&O coverage and other risk management topics, visit pearlinsurance.com.
This article was produced in conjunction with AXA XL and is not to be taken as legal advice.
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