Being a responsible real estate professional includes knowing where your expertise lies and when to seek help from a colleague. In this scenario, a real estate agent overestimated her abilities and ended up in litigation.
Situation
A residential real estate agent was working with potential buyers who were in search of a home with an in-law apartment. Knowing that the city had few properties that met their requirements, the buyers were open to the possibility of constructing an additional in-law apartment onto the home they ultimately decided to purchase.
Problem
The real estate agent was inexperienced and only practiced in an area with highly restrictive zoning regulations that would prevent construction on an existing property.
Mistake
The agent located a piece of property with an old carriage house she believed had the potential of being converted into the in-law apartment the buyers desired. She incorrectly assumed that the property’s zoning would allow such a conversion and strongly encouraged the buyers to purchase the property.
Result
About two months after the buyers closed on the property, the old carriage house was well underway to being transformed into an in-law apartment when the buyers received a “stop work order” from the city. This order informed the buyers that the project did not conform to zoning regulations. The buyers then submitted a request for a special permit to get around the regulations, but the city denied their request.
As a result, a lawsuit was brought against the real estate agent and her broker alleging negligence, breach of contract, and failure to supervise. The buyers’ alleged damages included costs incurred to convert the carriage house, attorney’s fees, moving expenses, and diminution of the property’s value.
Prevention
In this case, the agent and broker could have avoided litigation if pre-established office procedures were in place. The agent would have better served her client by seeking advice from the broker or another zoning expert and not considering herself an expert in areas that were unfamiliar to her. The broker may have also helped avoid litigation if he closely supervised the agent throughout the entire process of the transaction. In the end, the litigation was resolved after it became apparent that the agent and broker would likely be found liable if the case were ever tried.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.