The real estate industry is generally thriving, and most good agents can carve out a pretty good living helping clients obtain their goal of buying or selling a home. When an agent receives a listing, they need to find out as much information about the property in order to properly represent what it is they’re involved with. By taking part in the sale or purchase of a property that may have undisclosed issues concerning the health of the property, or even issues related to say, a tragic event taking place on the property, you can see how this can easily lead to a professional liability claim.
For instance, real estate professionals have been faced with litigation for the alleged failure to disclose an “unusual defect” relating to a house that they were representing. Imagine a buyer’s surprise when they discover, months after purchasing their new home, that a murder took place there. Misrepresentation is perhaps the most common basis of lawsuits against agents and brokers, hence the need to carry insurance for real estate agents to help defend against such allegations.
Misrepresentations come in three types: innocent, negligent, and fraudulent. Negligent misrepresentations, which are covered by insurance for errors and omissions, include failure to disclose significant property flaws due to ignorance. Most commonly misrepresented are the foundation and structural features of the house. Other cases involving misrepresentations stem from property boundaries, the condition of the roof, or any existing termite problems.
A fraudulent misrepresentation is considered purposefully hiding a property flaw to make the sale more attractive. In order to be sued for misrepresentation, the misstatement has to involve a material fact and not just the opinion of the buyer. Material facts are those that a reasonable purchaser would rely on in determining whether or not to make a purchase. If the purchaser cannot prove that a realtor deliberately deceived them it makes their case more difficult to prove. An innocent misrepresentation occurs when the real estate agent actually believes that what they are telling the buyer is the truth.
The buyer may further claim that you, as the real estate agent, failed to protect them from false claims made by the seller. While you may be responsible, the difference can determine the actual liability in misrepresentation. Having insurance for real estate agents in place can be a major help when having to defend claims of this nature.