While real estate agents have many responsibilities, there are some things that should not be addressed by agents during the buying and selling process, as they can lead to costly claims and lawsuits. Disclosures or representations made by the agent based on their own experience or knowledge of a property, and not taken directly from the seller is a particularly important example.
Let’s take a look at one of our recent claims for an example of improperly-handled disclosures in real estate transactions.
In the late spring of 2017, the Buyers purchased their first home (“the Property”) from the Listing Agent (a longtime friend of the Seller and her family), located in South Carolina. Prior to the purchase, the Listing Agent informed the Buyers that the Property, based on her own personal knowledge, had never been affected by flood waters in the past. The Buyers and the Buyer’s Agent further asked through their agent whether the home had ever been flooded, and the Listing Agent stated that the home had never been flooded, even during notable storms such as Hurricane Hugo and the 1,000-year flood.
In September of 2017, Hurricane Irma struck. The Property experienced significant damage; in addition to flooding, the Property’s HVAC unit was destroyed, mold and sewage affected the residence, and the Property’s crawlspace received additional damage.
Since Hurricane Irma, the Buyers have learned from neighbors who have resided near the Property for years that the Property had been significantly affected by water damage in the past. The Property was damaged during Hurricane Hugo, Hurricane Matthew, and the 1,000-year flood of 2016.
In addition, the Listing Agent, who acknowledged during the selling process that she has had a close and long-lasting personal relationship with the Seller and her family and a considerable knowledge about the Property, represented that the Property was built in 1969 by the Seller’s family and had been cared for and maintained in its original condition until the Buyers purchased it. However, the Property underwent extensive renovations in 1990 after the aforementioned flood damage, to the point of nearly being rebuilt altogether. The Buyers were told that the Property had never experienced flood damage, and did not expect that the Property would have undergone this level of reconstruction.
The Buyers’ total damages from the situation exceeded $100,000, but they have offered to settle for $75,000.
Lessons from the Claim
In this claim, the Listing Agent knew the Seller and her family well, and felt that she could make certain representations about the property from her own personal knowledge/experience. Failure to disclose water damage is indeed one of the most frequent causes of errors & omissions (E&O) claims in the real estate process, but though water damage had occurred and rebuilding had been done, the agent should not have been the one to provide any affirmations to the Buyers. Even if a listing agent knows the property and the seller well, as in this claim, it’s important that agents not make their own representations about the condition or history of the property that aren’t directly provided by the seller.
Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.