It may be easier to only deal with one person, but it is imperative to ensure everyone with a legal stake in the property is included in the negotiations. Learn from this broker’s situation how good communication could have helped them avoid legal action.
Situation
A real estate broker listed a commercial property on behalf of its owner, who planned to relocate his manufacturing business across town to accommodate future growth. Several months went by before a buyer emerged and submitted an offer through his own broker. After extensive negotiations, the parties decided to move forward and enter into a contractual agreement.
Problem
The property owner had a silent partner who was unaware the property was going to be sold.
Mistake
The broker allowed the owner to sign both the listing agreement and the purchase agreement on behalf of his silent partner.
Result
Following the execution of the sale agreement, the owner informed the silent partner that the property was being sold and asked him to attend the closing to sign the necessary documents. The partner refused to do so and let the real estate brokers know that the sale would not go forward. After the buyers were notified, they sued the sellers for specific performance under the contract. Then, the silent partner sued the listing broker alleging that the broker acted negligently by accepting forged signatures.
The case was ultimately settled when the owner and listing broker paid a settlement to the buyer to walk away from what was otherwise an invalid contract. Without this resolution, the buyer would have lost a significant amount of money paid to an architect for retrofitting the building’s interior.
Prevention
Many real estate errors and omissions claims could be avoided by simply exercising care to your clients. Obviously, getting the proper signatures or initials on all documents will help protect you and your clients while ensuring the transaction will proceed in a straightforward and legally binding fashion.
However, it is just as important to know who your clients are and properly communicate with every one of them. When speaking to each client, include information such as what the comparative market values are, what to expect during the listing period, and what happens after the property goes under contract. Good communication skills combined with other risk reduction methods will help avoid the need to pay costly attorney fees and settlements.
For more information about E&O coverage and other risk management topics, visit pearlinsurance.com.
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.