Here are five relatively painless ways to reduce your liability when listing and selling real estate.

Require the Use of Buyer Representation Agreements When Representing Buyers.

If you do not have written authorization from both buyer and seller, you cannot qualify for the protection of intermediary status. Listing agreements and buyer representation agreements typically contain provisions allowing a broker to serve as an intermediary. To my knowledge, there is no officially promulgated form which contains permission from the buyer and seller for a broker to serve as an intermediary. If you do not get a buyer representation agreement signed, you almost certainly do not have written permission from the buyer to serve as an intermediary. 

If you do not have the written authority from the buyer and seller to serve as an intermediary, a broker cannot allow the company’s agents to show the company’s listings to prospective buyers without the risk of becoming a dual agent and subjecting both agent and broker to liability for breach of fiduciary duties.

We realize there is still substantial resistance to the use of a buyer representation agreement. We have a one page agreement on our website here. It is short, simple and easy to understand. It specifies that the broker will be paid only from the commission paid by the seller. Our preference is for brokers and agents to use the officially promulgated buyer representation agreements but if you are not going to use those forms, try our short form.

Take Special Care with First Time Home Buyers.

First time home buyers are often young and inexperienced. They require special care to make sure they follow through on their obligations in the buying process and to make sure they understand the process.

If they lose their deal because they did not understand what they were to do, their anger will often be focused on you as a broker or sales associate.

Be cautious in serving as an intermediary when representing a first time buyer. Serving as an intermediary limits your ability to provide some of the counseling and hand-holding that you might otherwise be able to do.

Require a Written Agreement When Showing FSBO Property.

When showing a FSBO (for sale by owner) property to a prospective buyer, you should have two primary concerns: getting paid and insuring that the agency relationship with the seller is clearly defined.

There are two forms which can help with both of these issues: the Non-Exclusive Listing Agreement and the Right to Show Property Agreement. Both of these agreements should include provisions clarifying the agency relationship allowing the broker to either serve as a representative of the buyer only or, in certain rate occasions, allowing intermediary status. Both of these documents are on our website here and here.

The Non-Exclusive Listing Agreement is more appropriate if you expect to show the property to multiple parties over an indefinite period of time in an attempt to sell it. This agreement provides most of the protections of a standard exclusive listing agreement. However, it is a non-exclusive agreement which means the owner can list with other brokers or sell to other parties and have no obligation to you. The Right To Show Agreement is typically a right to show the property to only one prospective buyer. Both of these agreements are terminable at will.

If you are unable to get the seller to sign either agreement, you will have to rely upon provisions in the sales contract to establish which party will pay the commission and to establish your agency relationship with the seller.

As always, you can best assure your fee by getting a buyer representation agreement signed with your buyer before you show a FSBO property. If you have no buyer representation agreement or a written fee agreement with the seller, you have no basis for claiming a commission. You may be the procuring cause of the sale, but without a written fee agreement, there is no legal basis for collecting your commission.

Take Special Care When Selling Defective Property

Selling defective property can obviously present special liability issues for a broker/associate. Be proactive in attempting to determine the condition of the property. Ask the seller to complete a seller disclosure statement at the time of listing. Then review the disclosure. Don’t wait until after you spend time and effort in marketing the property before you become aware of potential issues.

If you are concerned about the condition of the property, consider requiring an inspection by an expert before listing or marketing.

It is much easier not to take a listing than to terminate a listing. If you cannot get comfortable with the property condition or the willingness of the seller to make full disclosure, consider not taking the listing.

If you have taken a listing and cannot get the seller agree to make or allow you to make required disclosures, negotiate a termination of the listing. Inform the seller that the licensing act requires that you make full disclosure and that you cannot market the property if you are not going to be allowed to make the disclosures.

Once you have a fiduciary duty to the seller that may not terminate just because you have terminated the listing. Always remain aware of the duty of confidentiality even after the listing is terminated.

Be Careful When Using Creative Financing Which Violates Due on Sale Provisions

Selling property with wraparound financing which violates an underlying due on sale provision in the seller’s mortgage presents additional risk to the broker/associate.

To minimize the risk always:

  1. Insure that you understand the transaction you are leading your client into.
  2. Make sure that your client understands the risks associated with the transaction.
  3. Be aware of the limitations imposed on financing by the Dodd-Frank Act.
  4. Recommend that your client seek independent legal counsel.
  5. Ask your client to release you from liability if they elect to proceed with the transaction.