You know what they say about assuming: it only creates problems. This is true in both your personal and professional life. Never assume that the buyers know something because it could lead to expensive claims and a damaged reputation.
Situation
A real estate agent was given the opportunity to list and sell a historic residence situated on a tourist road that linked the town center and an interstate highway. The property was surrounded by fields of wildflowers and picturesque views of a lake and mountain range. Once the home was advertised in the Multiple Listing Service (MLS), it garnered tremendous interest but no serious offers. However, the property was eventually sold to an out-of-state couple who planned to spend their retirement years there skiing in the winter and golfing in the summer. The couple believed they had found their ideal home in their ideal location.
Problem
It was well-known in the community that a local developer had plans to construct a 24-hour storage facility behind this property along with an access road that hugged the property's boundary line.
Mistake
Since the couple were frequent visitors to the area as tourists and had become friendly with the local merchants, especially those in the antique furniture business, the agent assumed the buyers knew about the proposed storage facility and access road. So, when showing the property to the buyers, the agent did not inform them about the local developer's plans.
Result
Approximately one year after closing, the developer began construction on the storage facility and access road. Within about three or four months, the fields of wildflowers were replaced with storage buildings and blacktops, and the once quiet evenings were interrupted with noisy trucks and blinding spotlights. The ideal location had turned to the couple's worst nightmare.
The buyers were quite unhappy and sued the real estate agent and seller alleging that they failed to disclose the proposed development, claiming it created both noise and light pollution that led to a diminution in value.
The seller followed a cross-claim against the agent alleging that the agent should have protected his interests with proper disclosure since the seller had never met the buyers until the closing. The case was resolved after the seller reluctantly agreed to buy back the property if the agent paid a six-figure settlement to be shared by the seller and the buyers.
Prevention
The agent's incorrect assumptions led to a rather significant settlement and substantial damage to his reputation. This case is a textbook example of where a claim could have been avoided if the agent had the seller disclose the proposed development in writing. Having written disclosures of material defects or potential changes in properties should be standard operating procedure when conducting real estate transactions. You will inevitably minimize your exposure to errors and omissions claims while protecting your good name and building a foundation for long-term success for yourself and your firm.
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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.