Your Agent Can Get You In Trouble
Originally appeared in Hills Publications, Oct. 29, 2004 and ANG Newspapers, Oct. 23, 2004
Always be alert to what your agent is or is not doing. Too many buyers and sellers are unaware of how the actions, or inaction, of their agent could lead to serious financial liabilities. There are numerous situations where unknowledgeable and/or unprofessional real estate salespeople put themselves and their clients in jeopardy. In order to protect yourself, never take anything for granted. As I have said many times in previous articles, choose your agent wisely.
Listing agents
Sellers are at higher risk to be sued than buyers. As prices continue climbing, the likelihood of future lawsuits increases. The best agents take steps to minimize legal issues down the road. Others, however, are involved mainly in selling.
I hear occasional stories of listing agents who stretch the truth on the number of offers coming in on a property. Recently, a real estate veteran told me she presented her offer to the seller’s agent and asked how many other contracts had been written. The agent hesitated before finally saying there had been only one other bid. Previously, she had indicated that there would be quite a few offers.
Only with much coaxing did the buyer’s agent get the name of the competitor, who, once asked, said she had never written a contract. When confronted with the fact that there were no other offers, the listing agent replied, “We don’t have to let the buyer know he was the only one.” Of course, the buyer’s agent told her client.
This unethical behavior could result in legal problems for both the seller’s agent and the seller. If escrow closed before the buyer discovered he overpaid because of fictitious competition, he could take action against both the listing agent and her seller, alleging that the seller was part of a scheme to defraud him.
Note that, although uncommon and not advisable, it is possible for a seller to instruct his agent not to disclose the number of offers or who wrote them. In that instance, buyers’ agents will not be told who else is bidding. It is imperative, however, that any information given out by a licensed salesperson be true, to the best of his knowledge.
There are whispers of some, overly aggressive, listing agents who threaten buyers’ agents that their offer will not be accepted if they use certain inspectors. Agents who do this may not realize they are setting themselves and their sellers up for possible buyer complaints and monetary penalties after close of escrow. Buyers have the right to use any inspectors of their choosing and should not be intimidated.
In another scenario, a house is about to fall out of contract. The listing agent asks the buyer’s agent not to provide him with the inspection reports and plans not to disclose to future buyers the existence of these previous inspections. This is a serious breach of an agent’s fiduciary duties and could result not only in disciplinary action, but monetary damages against the agent and his seller.
Buyers’ and sellers’ agents
A common mistake made by some listing agents is to tell competing buyers’ agents that a contract with no financing or inspection contingencies is best. Some agents advise their buyers to write non-contingent offers so as to be “more competitive.”
The problem is that most buyers need to get a loan. Having a valid pre-approval letter is no guarantee of a loan. If the financing does not go through, e.g., because an identity search determines there is a child support lien, both the buyer and seller could be harmed.
The seller might have made financial commitments with the anticipated funds because the contract was contingency-free. With no money forthcoming from the now failed escrow, this could result in large losses for him. The listing agent may not have cautioned the seller to wait until loan documents are in escrow before making irrevocable plans.
The buyer, conversely, may not have understood the ramifications of no loan contingency. If it was not fully explained to the buyer that he could be liable to the seller if he does not get a loan, the buyer might look to his agent for those damages.
Further, buyers are entitled to adequate time to inspect the property and research permits, neighborhood conditions, etc. Eliminating the inspection contingency creates the potential for a later legal challenge by the buyer against both agents and the seller. This is true even if the seller provided pre-sale reports.
Caution and care is most called for when there is dual agency—the same agent representing both buyer and seller. Not all agents have the capacity or experience to fulfill this role correctly.
As an example, sometimes the listing agent is a dual agent where there are multiple offers. If that agent writes a contract with no financing contingency and a very short inspection period, he could be putting both the buyer and seller in a vulnerable position. Suppose the buyer does not get the loan—the buyer and seller could be damaged, with the dual agent in the middle.
Similarly, if escrow closes and the buyer later encounters issues with the condition of the home, he may attribute this to pressure limiting his inspections and look to the agent and seller for compensation.
Later, it may be found that the risks of no loan contingency and too short an inspection contingency were not adequately explained to either the seller or buyer. In this instance, the agent’s liability would be vast.
Final Thoughts
Buyers and sellers are not expected to be real estate experts; licensed agents are. There are many excellent people in the business. Nevertheless, when salespeople act unethically or incompetently, they leave their buyers and/or sellers exposed.
Take the time to have an agent review with you his or her functions before committing. Pay attention to whether this individual emphasizes protecting you or simply making a sale. This may save you from becoming an unwitting victim of someone who was supposed to be representing your best interests.
Related Articles:
Understanding Agency
Pre-Approval Letters: Can You Count on Them?