Real Estate Broker Liability

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 What Liabilities Can Real Estate Brokers Face?

Real estate brokers play a crucial role in the real estate process and must complete an education program and pass a state license test to perform complex real estate tasks. Each state has its own licensing requirements, and a broker licensed in one state cannot conduct broker functions in another.

Brokers can represent buyers, sellers, or both in a transaction and are different from real estate agents, although they share some responsibilities and both earn a commission from a sale.

Agents typically bring parties together by listing and showing houses, while brokers may handle solo transactions or employ agents with more experience, education, and training.

Brokers are responsible for more complicated aspects of the sale, such as negotiations, document preparation, and showing properties to prospective buyers. Brokers risk suspension or license revocation if they breach their duty to clients.

What Is a Real Estate Broker’s Role?

Brokers are licensed real estate professionals who can fulfill various roles during the real estate process. They may work independently or have a team of agents and brokers working on their behalf.

A broker’s duties may include administrative, supervisory, and technical tasks and representing either party during a transaction.

If a real estate broker represents a seller, their responsibilities may include:

  • Listing the property on multiple platforms, adhering to current market values.
  • Managing and updating the property listings regularly.
  • Acting as the intermediary between the seller and potential buyers.
  • Creating sales documents.
  • Negotiating during the offer process.

On the other hand, if a real estate broker represents a buyer, their responsibilities may include:

  • Searching for and identifying potential properties for purchase.
  • Scheduling property tours for the buyer.
  • Creating and submitting offers.
  • Resolving any disputes that arise from the sale to the closing date.
  • Negotiating on behalf of the buyer.

A broker may have agents working for them, and they may delegate or share some of the tasks mentioned above. The broker will also need to supervise and review the agent’s work.

In some states, a lawyer’s involvement in the closing process may be necessary, so the broker may need to collaborate with them to complete the sale. The lawyer’s involvement in the closing process can add a layer of protection for both the buyer and the seller. They can review and explain the terms of the purchase agreement, identify potential legal issues, and ensure that all necessary documentation is complete and accurate.

What Actions Can a Real Estate Broker Have Liability For During a Transaction?

A broker is expected to uphold several ethical and legal duties during a real estate transaction, regardless of which party they represent.

These responsibilities are often referred to as the broker’s fiduciary duties to the client and typically include the following:

  • Keeping client matters confidential: Brokers must keep any confidential information about their client, such as the lowest offer their client will accept during negotiations, confidential unless authorized by the client to disclose.
  • Remaining loyal to the client: Brokers should remain loyal to their clients and avoid any conflicts of interest that may arise during the transaction.
  • Disclosing all relevant information: Brokers should disclose all relevant information to their clients that could impact the property value or any other aspect of the transaction.
  • Acting with care during the transaction: Brokers should act with due care and diligently investigate any defects or issues with the property.
  • Safeguarding any money or valuable documents: Brokers should safeguard any money or other valuable documents they possess during the transaction.

These may not be the only duties a broker needs to fulfill. Depending on the jurisdiction, state law or the licensing board may require additional obligations. These are just common examples of how a broker may face liability during a real estate transaction.

A broker failing to maintain the above duties could result in a breach of contract action or another civil lawsuit. The broker may be required to compensate their client or the opposing party for any damages caused. Additionally, a breach of fiduciary duties could lead to license suspension or termination and loss of their brokerage firm.

What Defenses Does a Real Estate Broker Have?

Real estate brokers may face legal action from clients or other parties involved in a real estate transaction. However, there are defenses that a broker may use to protect themselves from legal liability.

Here are some common defenses that real estate brokers may use:

Lack of Negligence

Brokers may argue that they were not negligent in their actions and that they did not breach any of their legal or ethical duties.

Suppose a real estate broker is representing a seller in a property sale. During the transaction, the buyer discovers that there is a significant structural issue with the property that the broker failed to disclose.

The buyer sues the broker for breach of fiduciary duty and negligence, arguing that the broker failed to disclose the structural issue and did not act with due care during the transaction.

In response, the broker could argue that they were not negligent in their actions and did not breach their legal or ethical duties. The broker may present evidence that they conducted a reasonable inspection of the property and did not detect any structural issues at the time of the sale. The broker may also argue that they acted in good faith and provided all available information to the buyer to the best of their knowledge.

In this case, the broker’s defense may be to argue that they fulfilled their legal and ethical obligations and were not negligent in their duties.

Statute of Limitations

There is a limit on how long a person has to file a lawsuit after the incident. Brokers may argue that the statute of limitations has expired, so the claim is no longer valid.

Assumption of Risk

Clients may assume certain risks when participating in a real estate transaction, such as buying property in a flood zone. Brokers may argue that the client was aware of these risks and, therefore, they should not be held liable for any negative outcomes.

Contributory or Comparative Negligence

In some cases, the client’s own actions or inaction may contribute to the negative outcome of the transaction. Brokers may argue that the client was partially responsible for any negative consequences.

Suppose a real estate broker represents a buyer interested in purchasing a property. The broker informs the buyer of the property’s known issues, such as a leaking roof and outdated plumbing, and recommends that they get a home inspection before finalizing the sale.

However, the buyer decides to skip the inspection to save money and instead relies solely on the broker’s disclosures about the property’s condition. After closing on the property, the buyer discovers additional issues with the property that the broker did not disclose.

The buyer sues the broker for failing to disclose all relevant information about the property, alleging breach of fiduciary duty and negligence.

In response, the broker could argue that the buyer was partially responsible for the negative outcome of the transaction because they chose to forgo the home inspection. The broker may argue that if the buyer had inspected as recommended, they would have discovered the additional issues and could have factored them into their decision to purchase the property.

In this scenario, the broker’s defense may be to argue that the buyer’s actions contributed to the negative outcome of the transaction, and therefore, they should not be held solely responsible for any damages or losses.

Do I Need to Contact a Lawyer?

If you’re a party to a real estate transaction and have any issues with your broker or the other party’s broker, contact a local real estate lawyer to discuss your case. A lawyer can review your claim and help determine if any legal remedies may be available.

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