The Primary Reason Real Estate Agents Face Lawsuits

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Introduction:

New real estate rules, effective August 17th, 2024, will significantly impact a home buyer's experience. 

The rule changes are in response to a class action lawsuit brought by home sellers against several large real estate brokerages and the National Association of Realtors. (NAR) 

The National Association of Exclusive Buyer Agents press release addressed the misconceptions regarding the settlement and its impact on home buyers. 

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Offers of compensation to the buyer’s agent will no longer be on the Multiple Listing Service. The MLS is the source of information for most listings. The cooperative commission, payment offered to the buyer’s agent by the listing brokerage and seller, is gone. 

Home sellers can offer a seller subsidy to offset the cost of the buyer’s agent and this would be shown on a listing brokerage website or other source. 

All buyers and buyer agents will be required to have signed buyer broker agreements before touring houses, virtually or in person. The buyer broker agreement must include terms of the agreement including the payment for the buyer agents services. The compensation must be a specific amount either a percentage of the sale or a flat fee for service. 

If a home seller does not offer a seller subsidy for buyer agent services, the home buyer will be responsible for paying their agent. 

Many home buyers may elect to communicate directly with a listing agent, forgoing full representation. This could be a costly mistake for several reasons.

1. Listing agents work for the sellers best interests in a transaction
2. To work directly with a listing agent, buyers would be required to sign a dual agency agreement.
3. Dual agency means limited services for you, the home buyer.
4. While legal in some states, dual agency is not allowed in many states because it’s not in the best interest of the consumer.

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Primary Reason Real Estate Agents Face Lawsuits

Real estate agents must complete continuing education classes to maintain their licenses. At the Greater Capital Area Association of Realtors (GCAAR), I attended an ethics class taught by a real estate attorney who shared insights from his experiences representing real estate agents in court.

Key Advice for Listing and Buyer Agents

The most common issue leading to lawsuits against real estate agents is the failure to disclose material facts. 

Disclosure vs. Disclaimer

If a seller opts to disclaim rather than disclose, they must still reveal any known latent defects—issues with the property that a thorough inspection might not uncover before the sale.

Accuracy in Property Descriptions

Agents should be precise when describing a property. Claims such as "excellent condition," "brand new roof," or "recently updated kitchen" must be accurate. Vague descriptions can lead to legal disputes.

A real estate attorney shared the following story.

A house listed as being in "excellent condition" was later found by the buyer's home inspector to have several issues, including a major defect. The buyer then requested the listing agent reimburse the inspection cost. When the agent refused, the buyer won a lawsuit, costing the agent significantly—all due to the misleading description of the property.

Neighborhood Descriptions

Real estate agents cannot suggest which neighborhoods might be right for a buyer, as this can violate the Fair Housing Act of 1968, which prohibits housing discrimination. Instead, agents can provide tools and resources to help buyers make informed decisions.

Advertising and Representation

Agents must ensure that all advertising and communications present an honest and accurate picture of the property. This includes clearly disclosing the broker’s name, company name, and office phone number on all correspondence, business cards, and newsletters.

Continuing education classes are required and essential for real estate professionals. Classes offer opportunities to reflect on whether the real estate agent or broker acts ethically, remains within their expertise, and prioritizes their clients' best interests.

For further guidance

National Association of Exclusive Buyer Agents Code of Ethics

National Association of Realtors Code of Ethics

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How can we help?

The exclusive buyer agents at HomeBuyer Brokerage specialize in serving home buyers. Please reach out with questions at info@homebuyerbrokerage.com.