When the seller is also a real estate professional, buyers often rely on advertised claims without giving them the customary scrutiny that they may give to an otherwise “non-real estate related” owner. It is easy to be enticed by advertising that promises a home that has been “completely remodeled,” “stripped down to the bare wall,” or “priced below comparable homes in the area.”
Overzealous sellers can exaggerate or make misleading claims about a property’s amenities in an effort to make a quick sale. Daren Blomquist, senior vice president of Realty Trac, a provider of housing data and analysis based in Irvine, Calif., said most flippers “want to turn a property in three to six months.” RealtyTrac considers any repeat home sale that takes place within a year as a flip.
Eye-catching claims like “safe neighborhood,” “growing area” or “easy commute to work” can be easily verified by city or state statistics. But other statements, such as “ample parking in the back of the property” may be more difficult to confirm — and a visual inspection of the property may not be enough.
Under normal circumstances — where the seller is not a real estate professional — the buyer may want to contact a real estate attorney to intervene and help to either initiate a claim or take the necessary steps to obtain title to the portion of the property that was not included in the deed.
However, when the seller is also a Realtor, buyers may want to try an alternative approach before they resort to legal action.
A good place to start is to schedule a meeting with the seller’s/Realtor’s broker. Ask if the broker would be willing to step in to either help solve the problem or offer mediation assistance. According to Maggie Knauss, a claims supervisor with Rice Insurance Services Company in Louisville, the largest provider for states that require errors and omission insurance for Realtors, “Negligence is the most frequent claim made against real estate licensees. Often, when the agent is also the seller, the agent relies on information provided by the previous owner or a professional [who was] involved when the agent purchased the property, such as a home inspector or appraiser, without thoroughly verifying the accuracy of the data. When the agent/seller passes along incorrect information, it may not be intentional [and therefore not a basis for fraud], but rather considered a “negligent act” and may be insured under the E & O insurance policy.”
Knauss added that many E & O insurance policies “have exclusions that preclude coverage if the agent has a personal interest in the property. Others may provide coverage in the event certain conditions are met.”
If the agent’s broker cannot provide answers, buyers can contact the local, state or national Realtor associations — such as the Greater Capital Area Association of Realtors (GCAAR), or the National Association of Realtors (NAR) — and ask if they offer dispute resolution or other less costly solutions.
Licensed real estate professionals — who are members of the NAR or a local or state association — pledge to abide by a standard of behavior or code of ethics somewhat similar to other client-based professions — such as in the legal or medical field. According to the GCAAR, an “avoidance of misrepresentation and concealment of pertinent facts to clients and fellow brokers” and an admonition to “portray a true picture in advertising” are included in the basic principles of the code.
When buyers or others believe that there has been an act of unethical behavior, they may file a claim with the association. Typically, ethics complaints need to be filed within 180 days from the time the complainant knew the unethical behavior took place. The complaint will be reviewed by the local board or association’s grievance committee, and if it is determined to be valid, it will be forwarded to a hearing committee. According to the NAR, “claimants have the ultimate responsibility to prove their case and should be prepared to clearly demonstrate what happened and how they believe the Code of Ethics was violated.” If found guilty of an ethics violation, the Realtor could face a reprimand, fine or other penalty, but the board will not award money or punitive damages to the claimant.
When the Realtor/seller pleads innocence or refuses to cooperate, a real estate attorney may be the only alternative. Title claims can be difficult for a layperson to correct, especially if they involve a deed that dates back many years, and/or the heirs may be deceased. A new survey would have shown the lack of parking on the property, unless there had been a fault in the title that dated back many years and was never detected. In most cases, a competent attorney and a reputable title company generally would be able to resolve the issue.
A claim for fraud could be made, but often an element of “intent” will be involved in that type of action and a subsequent lawsuit could end up costing more and taking longer than the alternative “title-based” solution.
“While flipping has increased 20 percent over the last quarter of 2016, and over six and a half percent of homes are flipped properties,” Blomquist said, “buyers still need to be prudent and take the normal precautions before buying any piece of real estate.”
Sandy Gadow, author of “The Complete Guide to Your Real Estate Closing,” is a former title officer and licensed real estate agent with more than 20 years of experience. Contact her at email@example.com.