Insulating Against A Law Suit

Generally most of my posts are adaptable to sales in any industry. Today I am specifically addressing real estate sales. If someone practices real estate very long, they will face legal issues; especially if they sell a lot of real estate. There is a very simple explanation for it too. It’s impossible to please everyone, and especially, if you represent both the buyer and the seller. In this type situation the buyer feels like the seller took advantage of them, while the seller feels like the buyer took advantage of them. As a Realtor® who is wedged between both parties thinking the agent showed partiality to the other party in the transaction. To complicate matters worse, in a typical real estate sales transaction there are numerous entities that have specific requirements and guidelines that must be followed.

Managing Your Risks

Generally most of my posts are adaptable to sales in any industry. Today I am specifically addressing real estate sales. If someone practices real estate very long, they will face legal issues; especially if they sell a lot of real estate. There is a very simple explanation for it too. It’s impossible to please everyone, and especially, if you represent both the buyer and the seller. In this type situation the buyer feels like the seller took advantage of them, while the seller feels like the buyer took advantage of them. As a Realtor® who is wedged between both parties thinking the agent showed partiality to the other party in the transaction. To complicate matters worse, in a typical real estate sales transaction there are numerous entities that have specific requirements and guidelines that must be followed.

In most real estate sale transactions there are two separate agencies involved. 

More times than not one agency will have the listing and represent the seller while the other agency will represent the buyer. Each agency has a qualifying broker who is held responsible to the consumer and to statutory laws; and is responsible for the actions of their agents. Additionally the agent is also held responsible to working within the framework of all state and federal laws while following the guidelines provided by their broker, and at the same time, fulfilling their fiduciary responsibilities to protect the consumer’s best financial interests. Many real estate purchases are the largest single investment a family ever makes and they may only go through the buying process a few times during their lifetime. Their lack of knowledge and a commitment to make large mortgage payment for 30 years makes them very cautious and distrusting. Since all communications about the transaction goes through their agent, it stands to reason that the consumer, whether a buyer or seller, will naturally blame their agent. Oh the web we may weave.

Manage your risks

You can see how complicated things can get in a hurry. Real estate agents have to stay on top of their risk management game at all times. We have to abide by state and federal laws, consumer protection guidelines, and one of the highest standards in Code of Ethics in this land. Managing risks begins with carefully thinking everything through before taking action. It is most important to speak clearly but be very careful what you say and how you say it. Sometimes the tone of our voice has more implication than the words we speak. We should practice asking ourselves how the things we are about to say will be perceived by the other person. I know that many times, in retrospect, I have wished I had said something differently, or not said it at all. Managing your risks through better conversations require practice.

Insist that a seller provide the buyer with a home warranty.

Another good insulation factor is during your initial consultation with an owner that wants to sell their home is to insist they provide the buyer with a home warranty. Show them the advantages of having a form of insurance for the buyer to rely on in case some issue arises after closing. This will eliminate the buyer coming back on the seller. The buyer will then go directly to home warranty company for satisfaction. Home warranties have prevented many potential law suits. The cost of a home warranty is much less than an attorney fee so I all but demand the seller purchases the home warranty out of the proceeds of the sale. It also makes a statement to the buyer that the seller has nothing to hide and that he knows the home is in good condition. 

Demand that a buyer have a home inspection by a professional.

The word “demand” is a harsh, strong word that probably shouldn’t be used by agents in most states. A better phrase might be, “I strongly encourage or I insist that you purchase a home inspection for your own protection.”However, agents in Alabama should consider demanding their buyer client purchase a home inspection. The reason for such a drastic step is Alabama is a caveat emptor state which places total responsibility on the purchaser to do their due diligence by thoroughly inspecting a property before closing the sale. If home inspections are not purchased by the buyer and an after closing deficiency arises, the buyer has no legal recourse against the seller, or anyone else. It is such a serious issue that I demand the buyer purchase a home inspection and if they refuse, I have them sign a prepared document stating I had disclosed that Alabama is a caveat emptor state which places the responsibility on the buyer to inspect the home for possible defects; and the buyer has refused to take my advice. Asking a buyer to sign this document will generally cause the buyer to understand the seriousness of a home inspection and they may change their mind. If they don’t, I definitely want a signed document in my file proving that I disclosed caveat emptor and its affects.

Always telling the truth helps manage your risks.

As a professional we are expected to be truthful. It is our fiduciary responsibility to always be truthful, honest, and protect our client’s best financial interests. Some people seem to believe that there are little white lies that don’t hurt anything and then there are bad lies. My belief is a lie is a lie and if lie we become a liar; and no one wants to be called a liar. Matter of fact that has started many fights. If we always tell the truth, we can tell stories over and over again and they will always be the same. Lot’s of times when someone tells a lie, they have to tell another one to cover up the first one and they seem to grow exponentially. Treat all your clients with the same respect and honesty and insulate yourself from liability.

Should you have specific questions concerning various issues, please let me know and I’ll research the answer for you. I also want to encourage you to subscribe to our “News & Updates” weekly report so you can stay abreast of issues that might affect you when buying or selling real estate. If you haven’t visited my website, please go to www.AlabamaRealEstateInstitute.com  and view previous articles.

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