BROKER RISK MANAGEMENT
RISK MANAGEMENT TIP
QUESTION: I am an agent licensed with Real Estate Brokerage A. I have an agent friend who is licensed with Real Estate Brokerage B. I occasionally hold homes open for my friend at Brokerage B. My broker recently advised me that I could no longer do so. Why? What are the risks?
ANSWER: There are significant civil liability and licensing issues affiliated with holding homes open for an agent with another real estate brokerage. Consider the following situations:
SITUATION NO. 1: Agent from Brokerage A holds a home open for agent with Brokerage B. A potential buyer visits the property and slips and falls on wet pavers. She splits open her head, breaks her jaw, and loses several teeth. Her medical bills are well into the six figures. She retains an attorney and sues the owner, Brokerage A, and Brokerage B for negligence and the failure to warn about a dangerous condition. The owner likely has property insurance. Brokerage B will likely have insurance coverage because it is their listing. Brokerage A will likely have no insurance because the accident took place on a property for which they do not have the listing. The agent and/or broker from Brokerage A will need to retain an attorney to defend the case at their own expense. Any settlement or judgment will be at the agent’s and/or broker’s expense. It is estimated that the attorney’s fees, costs, and settlement attributed by the agent broker from Brokage A will be in excess of $100,000.00.
SITUATION NO. 2: Agent with Brokerage A is holding a home open for agent with Brokerage B. A neighbor visits and advises that there is a sex offender living three doors down. Agent A forgets to tell Agent B about the disclosure. Agent B sells the property to a third-party buyer. The neighbor advises the buyer that she made this disclosure to Agent A. The buyer is shocked as the disclosure was never made to the buyer. The buyer retains counsel and sues the seller, Agent A, and her brokerage, and Agent B, and her brokerage. Brokerage A and Agent A will likely have no errors and omissions insurance coverage for this matter given that the listing is not with their brokerage. Agent A and/or Brokerage A will need to defend the case, including payment of all attorney’s fees, costs, and any settlement or judgment. The potential cost could be well in excess of $200,000.00.
SITUATION NO. 3: The buyer in Situation no. 2 files a complaint with the Department of Real Estate (“DRE”) against both brokerages for the failure to disclose the sex offender living three doors from the property. The DRE begins an investigation. The DRE will likely charge both agents for participating in work without the supervision of their respective broker:
- Agent A was working on a property listed with Brokerage B, but Brokerage B could not supervise Agent A since she is not licensed with that broker. The DRE may or may not charge the broker of Agent A, depending on the knowledge of that broker. If the broker from Brokerage B had knowledge that agent was holding a home open for Brokerage B, or if that broker was knowingly allowing such activity to take place, the broker could be charged with participating in a violation of their duty to supervise the activities of all licensees under their license. Agent A will likely be charged with a failure to disclose and with undertaking licensed activities without the supervision of their broker.
- Agent B will likely be charged by the DRE with undertaking licensed activities or participating in allowing an agent to participate in licensed activities without the supervision of Agent B’s broker. The DRE may also charge the broker for Brokerage B for this same violation depending on the knowledge of that broker that this activity was occurring or that the broker had knowingly been allowing that activity to take place.
- Do not hold homes open for agents of other brokerages, and do not allow agents from other brokerages to hold open houses for your brokerage’s listing.
- When holding homes open for another agent within your brokerage, ensure that any information communicated to you by any party, including the sellers, neighbors, or any third parties, is properly documented and transmitted to the listing agent and broker, for disclosure to the ultimate buyer.
- Information provided by third parties should always be disclosed to buyers as follows: Attribute, disclaim, and advise. For example, “Neighbor reports that a sex offender lives 3 doors from the property. Agent has not and will not investigate or verify information from third parties. Buyer to investigate the issue.”
This Weekly Practice Tip is an attorney-client privileged document 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.