BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Post-Closing Check-Up to Reduce Claims
Q: I represented a buyer who closed escrow about two months ago. He called me this week to report that, after close of escrow, he experienced a number of small issues: a minor roof leak, the water heater failed, the chandelier in the dining room was defective. But the straw that has broken the proverbial camel’s back, and compelled my buyer to go to an attorney, was that the city has now come to the property, in reply to a permit application by buyer to do a minor remodel, and stated that some of the work done on the home was done without a permit.
None of these items, in and of themselves, was large but, cumulatively have caused buyer to go to a lawyer. How could this have been prevented?
A. Your question points up the importance of keeping in contact with your buyers after close of escrow to see how things are going. This is good customer service; it helps build future sales with this client; and it is good risk management.
Oftentimes, it is the little things left unaddressed that build the frustration that sends the buyer to an attorney. As soon as the buyer contacts the attorney, the attorney will completely and fully review the file to see if there were other liability and/or damage issues to raise, just to be sure than nothing is missed and, coincidentally, raising the dollar damage figure. This is just good lawyering to make sure that all claims are addressed at once.
The impetus on the buyer’s part is to “throw in the kitchen sink,” even items that may be questionable. After adding in several other items of claimed damage, the attorney will be writing a letter to seller, and the agent(s), demanding money for those items, plus reimbursement for attorney’s fees, or they may instead just commence mediation, followed by arbitration if necessary.
The result is that the claimed damages goes up and what could have been a home warranty issue, or a small claims court issue that might have been settled, is now a situation where seller has to retain counsel and go to mediation, and possibly arbitration or litigation. The result: more expense and time all around.
PRACTICE TIPS:
1. Make it a practice to call your buyers about a week or two after close of escrow to check in on how they like the home.
2. If there is a home warranty on the property, suggest that buyer check if any outstanding issues might be covered by that warranty policy.
3. Some items may also be covered by the homeowner’s insurance policy or, on new construction, by the limited one-year warranty, or other warranty provided by the builder/seller.
4. If there are issues that need addressing with the seller, suggest that buyer write to the seller (in care of the listing agent if the seller’s address is not known).
5. Remember, you have no legal duty to intervene to help resolve these types of issues, but often you will want to do so to keep the goodwill of your client. You can forward the buyer’s demand letter to the listing agent. You can also see if there is a way to resolve the issues through informal negotiations. Always keep your broker/manager apprised of what you are doing.
6. If your brokerage was a dual agent in the transaction, be sure to maintain neutrality at all times. You can assist the parties in their negotiations, but you cannot take a position in favor of one client to the detriment of the other without risking an allegation of breach of fiduciary duty.
7. Don’t just offer to pay for the items yourself (even if you feel you have no liability) just to build client good will, without first contacting your manager. After discussing with your manager, you may wish to contribute to the solution to keep the buyer happy, but be sure to get a release for you, seller and the other agent, so that there can be no claim later against you and your company.
FOR FURTHER INFORMATION: See related Weekly Practice Tips:
· Buyer and Seller Disputes after Close of Escrow
· New Construction Seller Warranty
· Waiver and Releases – When Needed
· Dual Agency Issues
· Dual Agency Supreme Court Decision
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.