RISK MANAGEMENT
WEEKLY PRACTICE TIP
AVOID RISKS IN REFERRING VENDORS
It is common practice for agents to refer clients to other professionals, such as inspectors, engineers, attorneys, contractors, accountants, surveyors, during the course of listing and selling property. However, there can be risk associated with those referrals. For example, what if the professional makes a mistake? For example, what if a structural engineer misses a crack in the foundation leading to a complete failure of the foundation system? Can the parties hold the agent who made the referral liable?
Civil Code section 1102.4 states that real estate agents cannot be held liable for the errors and omissions of other professionals. Therefore, that statute provides protection to referring agents. But, there are exceptions if the professional is not qualified or if there are red flags affiliated with that professional.
Professionals may be considered unqualified if they are not licensed or do not maintain appropriate insurance. For example, if a contractor’s license is suspended or if there are complaints pending against him, he might be considered unqualified. Likewise, if the contractor does not have liability and worker’s compensation insurance, she may be considered unprofessional.
Red flags regarding other professionals include complaints about their performance by other parties. If the professional has been sued for negligence or if the professional is facing charges by their licensing board, a referring agent may not be protected from liability if that agent refers that person and that person makes an error.
It is recommended that before agents refer other professionals, the undertake a vetting process to minimize the risk. That investigation should include, at a minimum, ensuring the referred party is appropriately licensed and insured. If the agent receives a complaint about the referral, the agent should consider removing the vendor from the referral list.
Regarding the referral of handymen, agents should not refer handymen for projects valued at more than $1,000 as the California Contractor’s Board requires a license for construction work valued at $1,000 or more. Also, the referring agents should clearly state to the receiving party that the handyman is not licensed for the work to be performed.
PRACTICE TIPS:
- Agents should not recommend vendors to clients without vetting them and ensuring the vendors are properly licensed and insured;
- Agents should remove vendors from their lists if they receive complaints from other clients or other reliable persons about those vendors.
- Agents are encouraged to use the attached Disclosure and Release when recommending vendors to their clients.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.