Broker Risk Management LLP Logo

RISKS ASSOCIATED WITH WORKING WITH NON-ASSOCIATION AGENTS

by | Apr 26, 2024 | BRM Bay East Presentation 11.7, BRM Risk Management Webinar 11.30, Uncategorized

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

Broker Risk Management (“BRM”) recently received a number of inquiries regarding the risks of working with an agent who is not a member of a local association, California Association of REALTORS® and the National Association of REALTORS®.  The following addresses risks and concerns relating to these transactions.

 

SCENARIO NO. 1:  I am a listing agent.  I received a call from a local agent who is the brother of a buyer who wishes to write an offer on my listing.  The agent is not a Realtor, does not have access to CAR forms, and has asked me to provide him with forms.  How should I proceed?

 

RESPONSE:  While CAR forms are copyrighted, the position of CAR on this issue is that it is a permissible use of CAR forms when it is beneficial for the CAR member to assist the CAR member in completing their transaction.

 

There are a number of inherent risks in working with an agent who is not a Realtor.  If the buyer’s agent is inexperienced and does not sell real estate as a profession, it is likely that the agent is not well trained and has not kept current on laws affecting residential real estate.  Therefore, that agent is less likely to fulfill that agent’s legal standard of care than a Realtor who receives regular training and access to resources of a local Association of REALTORS®, CAR and NAR.  We have seen several instances where buyers’ agents are not Realtors and have not undertaken visual inspections of the property nor properly advised their buyers regarding the importance of inspections and investigation disclosures.  This lack of attention to, and understanding of, the standard of care due to a lack of training has led to lawsuits being filed against the seller and listing agent.  This is because, in many instances when the buyer’s agent has a relationship with the buyer, the buyer does not sue their agent even if their agent is the underlying cause of the buyer’s claims.

 

If CAR forms are being provided to a non-Realtor agent, which is not recommended, or to the seller or buyer on the other side of the transaction, the Realtor needs to ensure that the Realtor’s and their broker’s names identified on the forms are removed.  If the agent makes a mistake and provides a form with the Realtor’s name as being the originating party, that agent and their broker could face significant liability in the future.

 

SCENARIO NO. 2:  Realtor provides another agent with CAR forms.  Realtor forgets to remove Realtor’s name from one of the disclosure documents.  After the close of escrow, a lawsuit was filed by the buyer.  Both the buyer’s and seller’s attorneys have taken the position that the listing agent began representing the buyer, or at least assisting the buyer because the listing agent’s contact information was on the ZIP forms and therefore, it appears that the listing agent drafted the documents at issue.

 

Another issue to consider is the lack of insurance if a non-Realtor is sued.  Most agents who are not working within the industry and who are handling a “one off” transaction do not have sufficient errors and omissions insurance, if any.  If a claim is filed, that agent claims that they do not have sufficient resources to contribute to the resolution of the case.  Therefore, the listing agent who is properly insured will generally bear the extra burden and expense created by the non-Realtor agent’s errors.  While this appears to be an unfair outcome it, unfortunately, is a reality.

 

PRACTICE TIPS:

 

  1. If you receive a call from an agent who is not a Realtor, discuss the inquiry with your broker and the risks associated with transacting business with that agent.

 

  1. If the non-Realtor agent persists in writing an offer on behalf of their buyer client, educate the seller regarding your concerns about the agent’s involvement. If the seller chooses to move forward with a buyer’s offer from a non-Realtor, you will need to represent the seller in that transaction, as it would be a breach of fiduciary duty to decline the offer or impede the offer if the seller chooses to move forward given your concerns.  Ensure that you have put your concerns in writing to the seller.

 

  1. You may want to inquire from the other agent as to whether they have errors and omissions insurance. If not, you should advise your seller of that fact and educate your seller on the risks.

 

  1. If a non-Realtor needs a form and requests a copy from you, while technically CAR will generally permit you to provide that form, it is imperative that you ensure your and your broker’s names are removed on every page of those forms.

 

  1. If you provide forms directly to a seller or buyer on the other side of the transaction:

 

      1. Obtain the written permission of your client to do so.
      2. Send those forms with a statement that you do not represent that party, cannot give them any advice, are doing so solely for the benefit of your client.
      3. Also, ask that other party to sign and return the appropriate “Buyer Nonagency Agreement” (“BNA”) or “Seller Nonagency Agreement” (“SNA”) form confirming that you are not representing that party.

 

 

WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is an attorney-client privileged communication 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 LLP.  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