Love Letters Are For Romance, Not Real Estate
The housing market is one sector that has seen tremendous activity, and in most cases growth, over the last year despite the pandemic. Especially in hot markets with low inventory, we are seeing bidding wars force buyers to compete in nontraditional ways. One such method that has gained popularity is buyer love letters. It is not against the law for a buyer to write a letter to a seller. However, such a practice can lead to an increased risk of a claim for real estate professionals.
To entice a seller to choose their offer, buyers will write a love letter to describe the many reasons why the seller should choose their offer over others. Buyers feel if they appeal to the emotions of the seller, who may be leaving a home with sentimental value, they will have a better chance their offer will stand out and be accepted. While this may seem harmless, these letters could expose real estate professionals and their clients to a higher risk of fair housing violations.
Buyer love letters often contain personal information about the buyer and reveal characteristics, such as race, religion, or familial status, which could then be used, knowingly or through unconscious bias, as an unlawful basis for a seller’s decision to accept or reject an offer. Seemingly harmless, these letters actually raise very real fair housing concerns.
In an effort to play on the emotions of a seller, consider if a potential buyer paints a picture in a love letter of their children running down the stairs on Christmas morning to gather around the fireplace and open presents in their wonderful new home for years to come. This seemingly pastoral statement not only reveals the potential buyer’s familial status but also their religion, both of which are protected characteristics under fair housing laws.
Using protected characteristics as a basis to accept or reject an offer, as opposed to price and terms, violates the Fair Housing Act. The U.S. Department of Housing and Urban Development (HUD) has received funding to investigate discriminatory practices through controlled testing. If HUD testers find unconscious or blatant bias due to the use of love letters, real estate professionals could be fined up to $50,000 for discriminatory practices. In these cases, a HUD fine or penalty would not be covered by E&O insurance.
The National Association of REALTORS® (NAR) has made recommendations to protect real estate professionals and their clients from the potential liability related to buyer love letters. Consider these best practices:
- Educate your clients about fair housing laws and the pitfalls of buyer love letters.
- Inform your clients you will not deliver buyer love letters, and advise others that no buyer love letters will be accepted as part of the MLS listing.
- Remind your clients their decision to accept or reject an offer should be based on objective criteria only.
- If your client insists on writing a buyer love letter, do not help your client draft or deliver it.
- Avoid reading any love letter drafted or received by your client.
- Document all offers received and the seller’s objective reason for accepting or rejecting an offer.
The bottom line is that real estate professionals should not recommend buyers write love letters and remind sellers that offers should be based and evaluated on their own merits.
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.