Real Estate Agents: Avoiding Lawsuits During the Home Sale Process

Sellers can find themselves in hot water all too often for any number of reasons. The good news is there are common mistakes that can be avoided to minimize their exposure. Providing advice to your sellers to help protect them from liability is their first line of defense during the home sale process. Without the proper protective measures to protect yourself and your business, you could suffer damage both to your reputation and to your bottom line. It is in your best interest to secure superior insurance coverage designed specifically for real estate, and heed the following advice.

Not Disclosing Property Problems

Sellers are generally eager to sell their property, so they may not be as open as they should be regarding current issues. They seek to maximize the sale price and minimize negative information that could result in a price drop. However, it is the seller’s responsibility to disclose any material defects or problems that could affect the property’s desirability or value, and sellers need to be the ones completing the disclosure forms for the buyer. As a real estate professional, you represent your clients and should advise them as they complete their disclosures and help them fully understand their disclosure responsibilities during the home sale process.

Common defects or risks of hazards to disclose include:

  • Mold/water damage
  • Termite damage
  • Lead-based paint
  • Foundation issues
  • Leaks
  • Fire damage
  • Floods or earthquake

Determining What is a Fixture

Determining what is considered a fixture of a property is often a complex issue between buyer and seller. A seller must consider whether something is a fixture or not and be clear about what comes with the property and what doesn’t.

California law uses a variety of tests to determine what may be considered a fixture. The courts will examine the means of attachment if the item is an integral part of the home — such as flooring, the intention of the item being installed or attached, and the contracts regarding the existing fixtures and fittings.

Appliances like dishwashers, ovens, stovetops, and even microwaves, when they are built-in — will almost always go with the property. If an appliance is freestanding, it is more likely that the seller can take it, but this should be a highlight in the purchase contract to avoid confusion. Light fixtures, ceiling fans, and garden sheds also go with the house. It is always better to be safe than sorry, so be sure to advise your sellers to add specific exclusions to the contract if they plan to take items with them when they move, such as mounted flatscreen TVs that are attached to the wall.

Giving False Information/Being Misleading

Sellers can find themselves in significant lawsuits if they give buyers false information that buyers use to determine if they will purchase the property. Even a little comment regarding the neighborhood, renovations, or the suitability of the home that is incorrect could result in a problem, which is why it is so crucial for real estate agents to be the one to communicate with the buyers directly. It is not necessary or recommended for the sellers to speak with the buyers at all.

Sellers may be tempted to cover up certain things on the property so they aren’t as obvious when prospective buyers come to view the property, such as painting over imperfections or placing furniture over damaged walls or flooring, or paneling to cover termite damage. However, real estate agents should advise their sellers not to cover up defects, as this will put them in a bad light when the new owner realizes after the sale that they have been deceived. An agent can even get wrapped up in a lawsuit if they were aware of defects and didn’t disclose this knowledge to the buyers.

Failure to Disclose Neighborhood Issues

Disclosures pertain to defects within the property and any other issue that can materially affect the value or desirability of a property and how it is intended to be used. This can involve neighborhood issues, noise, school traffic, proximity to industrial activity, and many other factors.

It is best to ask your sellers to be completely transparent regarding property challenges in their disclosures, including anything there is to know about environmental factors and the neighborhood. If a seller’s knowledge has the possibility to impact a buyer’s decision to purchase, then it is crucial that this information is discussed to avoid lawsuits and future problems. To protect your business and your reputation during the entire home sale process, secure Texas E&O insurance so you are properly protected. 

About Transparity Insurance Services

Transparity Insurance Services was founded for the purpose of helping clients to ensure their property and assets with no hassle. We are committed to providing a simple, easy, efficient, and positive experience to all of our clients, and prioritize open and transparent communication with our clients. Through our excellent customer service and technology, we can help you to find the right insurance program at a competitive price. Contact us today at (855) 889-2037 to learn more about what we can do for you.