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Excerpted from The Checklist Approach by Bridget McCrea, published in California Real Estate Magazine, April 2004



   “At a minimum, Bill Jansen, president of Broker Risk Management in Corte Madera, says transaction files must meet the state’s Department of Real Estate requirements.  Jansen assists mid-size residential real estate firms in California with risk management consulting services, and says good documentation is “crucial for avoiding claims or lawsuits in the first place.”


   Jansen says brokers are more concerned than ever about complete transaction files, based on the sheer increase in claims and lawsuits involving residential real estate in the state.  To avoid potential litigation and to prepare themselves should a lawsuit be filed against them, brokers and agents must maintain thorough records showing exactly what happens during the various stages of a transaction.


   That means retaining any contract document that’s signed by involved parties, such as contracts and disclosures.  “That’s the minimum,” says Jansen, who advises brokers to review documents for both signatures and dates when reviewing files.  “It doesn’t do much good in court if the document is signed with no date.”


   Having a manager or broker initial the files is not a Department of Real Estate requirement, says Jansen, but it is an added measure that should be taken to ensure completeness.  Also include any other contracts, addenda, counteroffers and disclosure statements related to the transaction, such as transmittal cover sheets that show when a document was delivered.  Because most buyers sue over either failure to disclose or breach of fiduciary duty, it’s also important that buy-side transaction files show the agent’s efforts to fulfill his or her duties and provide good customer service.  “Good customer service and effective risk management,” says Jansen, “are two sides of the same coin.”


   “Often during a lawsuit a buyer will see a critical document and say, “Gee, I never got that,” Jansen explains.  “Without a cover sheet, it’s hard to prove that it was actually delivered.”  He also likes to see confirmation logs clipped inside the left cover of the file itself.  There, agents can document critical events, decision points and meetings that went on during the transaction.   Also, print out important e-mail documents, he adds, since a computer that crashes will take with it evidence of communicant that could be crucial during a lawsuit.


   For sell-side transactions, the most important step is to collect all necessary, signed disclosures, says Jansen, and include all transmittal sheets and other documentation to support those documents. 


   If your own transaction files have grown in size over the last few years, brace yourself for the trend to continue, as most real estate experts, attorneys and professionals alike see even thicker transaction files around the corner