Don’t pretend to have all the answers: It could come back to bite you!

Don’t pretend to have all the answers: It could come back to bite you!

Providing clients bad information could lead to a lawsuit or state regulatory agency complaint

By John Giffen

As published in Inman News on January 26, 2020

As real estate professionals, we want clients to turn to us for answers to all of their questions. We don’t want to look unprofessional if we don’t know the answers or have the information they need. We should be the primary source of information for a client, right?

Wrong! I have seen lawsuits and regulatory complaints arise from something an agent said to a client about matters that were clearly out of their area of expertise. When an agent begins working with a seller or buyer client, they should provide their clients with a written statement explaining what an agent can and cannot do in a real estate transaction. This statement should be a formal disclaimer outlining the importance of utilizing other professionals for certain aspects of the sale or purchase of the client’s property. We are not home inspectors, structural engineers, roofing contractors, electricians, plumbers, city planners, surveyors, or appraisers. We are licensed real estate agents who have the education and experience to assist buyers and sellers in purchasing or selling real estate.

When you start working with a client, you need to discuss with them the scope of your expertise as well as the boundaries in which you must operate. If you have established a good rapport with your client and a strong relationship forms, often they will turn to you for advice. Sometimes their request for counsel or information might be very specific and complex.

Early in my real estate career, I was friends with a very experienced agent, Cliff (not his real name) who worked for a real estate brokerage in a small rural town near Nashville, who found himself in big trouble because of misinformation he shared with a client. Cliff showed a property to his buyers who fell in love with a house on a large one-acre lot. Located directly behind the row of pine trees in the backyard was a large parcel of vacant land. Cliff’s clients ask him if that particular piece of property was ever going to be developed.

He was not sure how to answer their question, but he did say that he heard the land was put in a land trust and would not be developed. Later that afternoon, Cliff’s buyers elected to make an offer on the property. The offer was accepted, and the transaction closed forty-five days later. One of the reasons they wanted the home was because it backed up to a large, undeveloped piece of property.

Fast-forward one year when Cliff got a voicemail from those buyers. They were extremely upset. They informed Cliff they just learned the city commission had approved a large outdoor family entertainment center with go-carts, miniature golf, and two waterslides. Construction of the facility was to begin within a month. They reminded him of their conversation when he told them the property behind the house was in a land trust and would never be developed.

Cliff had to sit down as he began feeling faint. Two weeks later he and his broker were served with a $2 million lawsuit accusing Cliff of misrepresentation and not using reasonable skill and care as a licensed real estate agent. The next day Cliff received a complaint for misrepresentation from the state real estate commission filed by the buyers.

What should Cliff have done to avoid a lawsuit and a real estate commission complaint?

The answer is straightforward. When the buyers asked him about the vacant property behind their future home, he should have said he did not know if it was going to be developed or not, but the city planning and zoning commission probably could answer their question. If Cliff had encouraged them to call the city planning department to seek out any information on any future development plans for the property, he’d avoid being the source of the information and, instead, become the “source of the source” for information.

Agents can jeopardize themselves by “being the source” or coming across as an expert on a particular topic. Many times, to gain a client’s trust, real estate agents will come across as being knowledgeable on everything asked of them by their clients. They do not want their clients and prospects to doubt their expertise and not turn to them for answers to their questions. They know their clients are more likely to use their services again and make referrals to agents they trust.

Unfortunately, when we step outside the bounds of our licensure, we put ourselves at significant risk by causing severe harm to our clients with incorrect information or indigent counsel. Also, we can lose our real estate license through disciplinary action by the state and be subject to civil lawsuits with large monetary requests.

Cliff’s errors and omissions insurance carrier eventually settled out of court with the buyers for an undisclosed amount of money. The state real estate commission heard the buyers’ complaint against Cliff, and he had to pay a $1,000 fine and attend several continuing education classes on contracts and real estate ethics.  I am confident his managing broker probably participated in Cliff’s lawsuit as a co-defendant and may have been disciplined for improper broker supervision by the state’s real estate commission. 

As a broker, and now as “the broker of the brokers” in my company, I always stress the importance in classes and company-wide meetings of the dangers of misrepresentation.  Our agents know they must be very careful what is said to a prospect or client when asked about something outside their expertise.  Yes, we want to always have the answers, but the wrong answer to a buyer or seller’s question might come back and haunt us…and our wallets!

John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Franklin, Tennessee.  He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”

Leave a Reply

Your email address will not be published. Required fields are marked *