In this episode, you’ll hear:
- Where Does a Real Estate Agent’s Responsibilities End?
- What Is Fraudulent Representation?
- Why Asset Protection Structures Protect Don’t Protect You in Mid-Transaction Disputes?
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Where Does a Real Estate Agent’s Responsibilities End?
Realtors owe duties to their clients AND the other party. For example, a Seller’s agent or broker has duties to the Buyer. If you’re a realtor you should look up your state ethic’s code for realtors. However, across the board, realtors owe a duty of truthfulness to all parties. That means not standing in front of potential defects or low-value features like in the situation with a broker standing in front of the virtual doorman.
Sometimes, realtors can point the finger at the Seller and the blame and liability can go to them! This is often in situations where the Seller relies on representations—either written or oral (check your state law here!)—when communicating to the other party or advertising the property.
What Is Fraudulent Representation?
Fraudulent representation in real estate sales can come in two different situations. The first is the failure to disclose defects. Some highly obvious defects may be exempt from disclosure, however it would be our recommendation to over-disclose (not under)! As a seller, you don’t want to assume a defect is obvious.
The other form of fraudulent representation is a lie. Here, the allegation is that the broker and seller lied by stating the property has a doorman when it only has a part-time doorman. We’ve also seen Seller’s commonly lie about the presence of permits and zoning.
Why Asset Protection Structures Protect Don’t Protect You in Mid-Transaction Disputes?
Mid-transaction lawsuits are especially risky for all parties because often the insurance and entities you are carrying don’t cover these types of disputes. In some cases, a realtor may be protected by their Errors and Ommissions insurance, however that doesn’t protect the Seller or the Buyer as individuals.
LLCs do not cover you unless the value of the lawsuit is in excess of the value of the assets. Furthermore, in lawsuits alleging fraud, your LLC won’t protect you at all. Why? Well, fraud isn’t a valid business activity so you don’t get the protection of a business!
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Resources Discussed in This Episode
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