WASHINGTON, D.C. — Misrepresentation claims continue to be the largest source of legal troubles for real estate brokers, accounting for about two-thirds of all litigation, said Laurie Janik, general counsel for the National Association of Realtors trade group. Real estate agency laws, antitrust laws, and the federal Fair Housing Act and Real Estate Settlement Procedures Act are also a potential source for lawsuits.
Janik, speaking today during a risk management and license law session at an annual Realtor conference in Washington, D.C., also noted that most lawsuits against brokers are brought by buyers. Real estate brokers prevail in about two-thirds of the cases brought against them that go to trial, Janik said, according to association statistics for the past decade. And successful lawsuits against brokers relating to Fair Housing Act violations, breach of fiduciary duties and antitrust violations typically rack up the largest damage amounts.
There are three types of misrepresentations: fraudulent, negligent and innocent. While state laws can vary, brokers generally have less liability when they unknowingly misrepresent something about a property they are working to sell for their client. In Wisconsin and Washington, D.C., though, brokers can be held for innocent misrepresentation, Janik said.
A misrepresentation must involve a material fact, not just an opinion, Janik said. And failure to disclose facts about the condition of a property is a close cousin to misrepresentation, she said. “When in doubt, disclose.” Seller disclosure forms should be filled out completely by home sellers, she said, and should not be a guessing game.
It’s not always enough for listing agents and brokers to simply rely on information they receive from sellers, though. In California, for example, listing agents must perform a visual inspection of their clients’ properties themselves to help ensure their clients do not omit or misrepresent the condition.
Agents and brokers should not make any statements about future market conditions, Janik also said. “Don’t say anything like, ‘This well will never run dry.’ It’s a sure recipe for disaster,” she said.
Listing brokers can sometimes be dismissed from lawsuits brought by buyers in a transaction because they do not owe fiduciary duties to buyers, and brokers representing buyers should take note of their potential liability as it relates to the duties they owe their clients, she said. “This is the start of a trend … the buyer’s agent may see some increased liability.”
While real estate agents are supposed to describe real estate agency laws and explain the nature of their representation to clients, Janik said that the association’s own study shows that a high percentage of consumers don’t recall receiving any form of agency disclosure from their agents. “I’m not saying they weren’t made. Clearly they weren’t memorable. It’s very important that buyers know who is representing them in a transaction, especially if dealing with a listing agent or listing agent’s office.”
The volume of Fair Housing Act-related claims against real estate brokers increased 8 percent in 2005 compared to the prior year, Janik said, and 38 percent of cases involved charges of racial discrimination while 40 percent were related to disabilities. Janik cited a case involving language in rules at a multi-family complex that was found to discriminate against families with children.
The Realtor group amended one of the standards of practice in its ethics code this year to state that, “when involved in the sale or lease of a residence, Realtors shall not volunteer information regarding the racial, religious or ethnic composition of any neighborhood nor shall they engage in any activity which may result in panic selling, however, Realtors may provide other demographic information.”
If a client asks a Realtor to find a home in a racially diverse neighborhood, for example, Realtors are not required by law to identify a racially diverse neighborhood for their clients, Janik said.
On the topic of antitrust law, Janik said that any agreements between competitors that produce unreasonable restraints of trade is an antitrust violation, and any price-fixing agreement is also illegal. “You must act independently. I would hope that the independent business decisions that you’re making are consistent with your own best business interests,” she said. An agreement among competitors not to do business with a new company in town based on its pricing, business model or other factors is also an antitrust violation.
With RESPA (the Real Estate Settlement and Procedures Act), a federal law that restricts real estate brokers from giving or receiving any form of gift or special compensation for referrals from settlement services companies, brokers must be careful not to accept or give anything of value that could be viewed as payment for received or expected referral business, Janik said. Likewise, payment for service that exceeds the fair market value of the service “is going to be viewed as a kickback,” she said.
When a real estate brokerage is affiliated with other real estate-related companies, brokers must disclose that relationship to consumers and make it clear to consumers that they are not required to use these affiliated services.
Also during the conference session, Bob Myroniuk, president of the Association of Real Estate License Law Officials, discussed common types of complaints that real estate regulators receive.
Complaints about a broker’s failure to disclose the correct square footage, lot size or age of improvements at a property are not uncommon, he said. Some consumers also complain that they weren’t aware of pending zoning changes or street widening projects, for example, when they bought their homes.
Disputes have also arisen over the delivery of a verbal price offer by an agent rather than delivering the offer by hand or by fax, he said.
And he agreed that consumers don’t always realize the role of their agents in a transaction. “It’s just a matter of taking the extra time to make sure that clients understand your role in the transaction. Communication is probably the way to resolve many of these issues, Myroniuk said.
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