25 Ways to Avoid a Lawsuit

By
Thomas N. Jacobson
The Law Offices of Thomas N. Jacobson

During the past year the real estate industry has experienced a significant increase in claims by buyers and sellers suing their agents and the agents of the other parties. Experts attribute several reasons to this sudden and dramatic upswing in lawsuits, but all too many of these lawsuits are caused by poor communication and less than current acceptable office practices. This article will only try to highlight 25 areas that offices should consider when attempting to establish policies to avoid unnecessary and costly litigation. The list is not comprehensive, and many offices will employ substantially more policies to properly serve their clients and avoid litigation.

Training: There is no substitute for good training. There are many ways to obtain a real estate license and there are many courses that will give the student everything they need just to get by. In this highly complex and difficult market brokers and salesperson face, this is not enough. Licensees not only need to have memorized the correct answer on the exam, but licensees also need to know why they are filling out forms and what the significance of every event encountered in a real estate transaction. As licensees go through the process from listing to close of escrow, the licensee needs to know why something is filled out or being done and they need to be able to explain the significance of disclosures and title reports. In other words, a licensee needs to be trained so they can explain the reasons for the forms and volumes of paper the buyer receives during a transaction.

Training: There is no substitute for good training. There are many ways to obtain a real estate license and there are many courses that will give the student everything they need just to get by. In this highly complex and difficult market brokers and salesperson face, this is not enough. Licensees not only need to have memorized the correct answer on the exam, but licensees also need to know why they are filling out forms and what the significance of every event encountered in a real estate transaction. As licensees go through the process from listing to close of escrow, the licensee needs to know why something is filled out or being done and they need to be able to explain the significance of disclosures and title reports. In other words, a licensee needs to be trained so they can explain the reasons for the forms and volumes of paper the buyer receives during a transaction.

Put It In Writing: One of the all-to-typical scenarios in litigation is the plaintiff telling the story of what the agent told them. This is obviously disputed by the agent and the jury must then decide who to believe. This problem is avoided if the agent takes the time to put things in writing. This can include a letter or memo format that reviews for the client important matters discussed. If the memo covers most of the important events of the transaction it will make it difficult for the client to later have credibility that the agent made a statement that is not reflected in writing. The file should contain adequate notes and memos authored by the agent setting forth each time the agent and client got together and what was discussed, what documents were reviewed and the time spent doing each item. There is no better protection than a well-kept file.

Know When To Say "NO": The hardest thing in the world is to turn down the opportunity to make money. Unfortunately, some so-called "opportunities" are nothing less than a lawsuit waiting to happen. Clients having used several agents previously on the same transaction carry a red flag above their head that should be a warning that they are difficult. Clients that tell you how many bad transactions they have had and how many agents they have sued invite you to be their next victim. If you practice in residential real estate, there is no reason to take on a commercial venture unless you have the requisite training and experience. Understand when you are too busy to give a client adequate attention because clients not receiving proper attention tend to be ones that quickly run to a lawyer.

Work Only In Areas You Know: Agents have a tendency to take on anything that walks through the door. Commercial agents should not attempt to list and sell residential property. Residential agents should not attempt to sell commercial property. Agents from one side of town should not take listings in a part of town they normally will not accept listings, and agents should not attempt to represent buyers in areas the agent has no familiarity. It is amazing how many problems arise from agents working outside the areas of their expertise. Real estate is not a homogenous profession allowing agents to work in the mountains, desert and urban areas and possess the local knowledge to properly serve the clients wanting to buy and sell in those areas.

Return Phone Calls: This is a simple task, yet it is one of the areas causing problems between agents and clients. In this day and age there really is no excuse for a phone call not being returned. Cellular technology has made it possible for calls to be returned no matter where the agent may be when the call is received. If the agent is away on a vacation where there are no cell sites, the agent should make arrangements with another agent to cover files and assure the covering agent has authority to resolve issues. The agent should not surprise the clients with a vacation but properly advise the clients and keep them informed so there are no surprises.

Document: There is no substitute for good documentation. This differs slightly from the practice of "Put It In Writing" in that this includes file maintenance. The file should always be in a condition that it can be reviewed by the most critical third party and be able to support everything that was done during the transaction. This also includes observations by the agent regarding condition of the property, timeliness of clients in getting materials to the agent, discussions with escrow and the other agent and properly completing all forms.

Answer Correspondence: A good rule of practice is to always answer correspondence, no matter how insignificant it may appear. There are some items of correspondence that serve only as transmittal letters and those do not always require an answer, however, notes and letters from clients should always be answered in writing. It is not good enough to answer by phone as the communication over the phone can be misunderstood. There is no substitute for a good file that responds to every inquiry in writing. When the response is in writing there is no question as to what the response contained.

Follow-up: Agents should be in a position to take the initiative on every aspect of the transaction. This includes following up on questions asked by the parties and assuring that escrow and other third parties have actually received communications from the agent. Just because a piece of paper was placed in the mail doesn't mean it arrived. Just because the home inspector said he would be over next Friday doesn't mean he should not be called on Thursday to reconfirm.

Continuing Education: Agents should take continuing education for two reasons: (1) its required, and (2) It will provide them with the tools to work with their clients in an ever changing real estate industry. It is not only contrary to the intent of the law requiring continuing education, but it is also detrimental to the performance of the agent if the agent and the broker view the continuing education requirement as just "checking the box". To get the most from continuing education, agents should select courses based on content and relevance to their area of practice. Cruises and other gimmicks may be a good method to obtain a tax free vacation but will do little to properly arm the agent in a marketplace requiring the utmost in knowledge and ability to manage transactions.

Anticipate Client Questions: One of the benefits of maintaining a current posture on community events, large construction projects affecting the community and current real estate issue is the agents can anticipate the concerns of the client. By becoming familiar with the location of schools, school construction projects, industry coming to the community and community concerns the agent will be able to promptly respond to questions by the client relating to everything from freeway construction to school reputations. The caveat to this practice tip mentioned elsewhere is "Don't Guess". If a client asks a question and the agent does not know the answer the agent must advise the client and seek to obtain the answer.

Spend Time With Clients: One of the complaints often heard during litigation was that the agent didn't give the clients enough time. The agent was always running off to other meetings or to personal business. Because the purchase of a home is an important life cycle event, it is important that the agent make the client feel as though they are the only client. This means allocating sufficient time to listen to all of the clients stories and finishing up every session with the question, "Is there anything else I can do for you today?

Do Something Nice for Clients: Many agents have a practice of giving the clients a small gift following the close of escrow. This small effort has diffused many a tense situation and the same practice may also reduce tensions during the course of a transaction. Remembering a birthday or anniversary is a good practice to make friends and make it difficult for the client to turn on the agent.

Never Tell A Lie: The fastest way to lose the confidence of the client is to be caught in a lie, no matter how trivial. Telling clients papers were delivered the night before when the agent is on the way to delivering the papers the next day may get the agent in a lot of trouble with the client, not because the papers are being delivered a day late, but because the agent lied. If an agent makes a mistake, the agent should be the first source of that mistake to the client. Even if the client finds out first the agent should admit the mistake and explain the circumstances. One of the problems of getting caught in a lie is that the agent's testimony in any litigation will be suspect and the jury has the right to discount it, if not ignore it. The solution is simple: Don't lie, and don't try to tell the client anything but the truth.

Always Pay for Lunch: There is an old saying, "There's no such thing as a free lunch". In the course of working with clients it sometimes becomes necessary to go to lunch or another meal. There should never be a discussion about this issue: The agent pays. Not only is it customary for the party doing the selling to pay, but it also means the client "owes you". This may not seem like anything important at the time, but people remember things like who paid for coffee or lunch and this is one more obstacle to the client becoming adverse to the agent.

Disclose, Disclose, Disclose: There are many that believe this should be all 25 ways to avoid a lawsuit. In many respects, this item is just an extension of never lying, never taking on deceptive clients and not working out of the agent's area of expertise. Nevertheless, this is one of the major areas fueling litigation. There is absolutely no advantage for an agent not to disclose everything the agent knows about the property and neighborhood. There are many forms requiring disclosures and this should make it clear to anyone in the industry that the failure to disclose has not been treated lightly in the courts. When in doubt, disclose.

Don't Volunteer to do Something You Won't Do: Agents are relied upon to do many tasks during the course of a transaction. Agents arrange for contractors to come into the property to make repairs. Agents arrange for pest control inspections. Agents carry documents to escrow. During the course of all of these errands and tasks, it sometimes is difficult to get everything done in the course of a day. The problem is that clients expect once they are told something will be done that it will be done. When it is not done, no matter what the reason, they become impatient with the agent. As a result one of the best practices is never volunteer for something unless you can do it. Disappointment leads to mistrust and that leads to litigation.

Ask Questions: It is amazing how many agents take the attitude they know what is best for the client. This leads to conflict and often litigation. The agent should not be afraid to ask questions. Many people like to answer questions about themselves and their tastes. Asking the questions and getting into a dialogue also helps strengthen the bond between agent and client. Agents should not be afraid to ask questions regarding the clients' entertaining habits, desires to be near schools or playgrounds or other matters relating to desirability of property.

Don't Pretend to be an Expert: Agents that want to demonstrate to the client their talents have a habit of sounding like experts on a variety of subjects. They speak with such authority the client either believes the agent knows as much as contractors, lawyers or engineers, or feels compelled not to challenge the agent. The problem develops when the agent makes statements about the structural integrity of the home or the cracks in the sidewalk. If not correct the agent has made a misrepresentation. This could have been avoided by referring the client to real experts. Experienced real estate agents know that it is safe and usually in the best interest of the client to be prepared to say, "I don't know, but we can find an expert that may be able to answer your question".

Insurance: Every well-seasoned agent knows the value of insurance. It is there to help when sued. It provides some assurance of being able to meet the expense of a claim, irrespective of any wrongdoing on the part of the agent. More importantly, it has other benefits not always known by agents. Clients knowing you are insured know you care enough about the profession to purchase protection. Clients desiring to cause trouble will be advised there is an insurance company that will pick up the bills of defense and that the agent will not be easily intimidated. Importantly, agents carrying insurance get the benefit of the insurance carrier in providing risk management tools to reduce the chances of litigation.

Never Be Satisfied With the Office Practice: In a business world where the only constant is change the agent should never be satisfied with the current office practice. In this age the old saying, "We have been doing it this way for 50 years", isn't going to assure avoiding litigation. Agents and Brokers should always be aware of better ways to pursue a transaction and serve their clients. As transactions become more complex, new procedures need to be developed to address the new complexities of real estate today.

Stay Up With Technology: One of the excuses all too often heard by the MLS is that an agent doesn't want to buy a new computer and new software because this Commodore and my Windows 92 have been doing just fine all these years. There is a direct correlation between agents that get into trouble because they didn't give their clients enough information and the technology available to the agent. Agents should make it a priority to have good computer equipment, adequate cell phone technology, calendaring equipment and access to the current technology available to all agents through trade associations and private vendors.

Listen: Along with being able to ask good questions and being responsive to client needs is the long standing advice of listening. Taking the time to not only hear your clients, but also to listen, will spare many a communication breakdown. Communication is the essence of any relationship, and the failure of communication is the cause of many lawsuits. All too many times parties become engaged in litigation only to find out at the settlement conference that there was a failure on the part of one party to properly listen. Let your clients speak. Don't routinely cut them off because you are in a hurry or you know what's best for them. Sometimes in the emotion of buying or selling property it is important for the client to have an opportunity to speak. Sometimes you may actually learn something important to the transaction.

The Client is Right: One of the least productive activities in our society is arguing with clients or customers. It is not important to win every argument. It is not important you are always right. What is important is that you make your client feel they are right and that you have respect and confidence in them.

Settle: All too often attorneys are accused of being too soft or not aggressive because they suggest settling a dispute. The judicial process does not guarantee anyone they will win. Judges and juries have been known to deviate from past decisions. Appellate courts change their view on the law from time to time. Litigation takes time and distracts litigants from their businesses. There is no other activity undertaken in the business world that involves taking time out of a day that can be productive with new business or planning for the future to dwell on a past event. Settlement allows the litigants to move on, and also allows a resolution that is not dependent on the feelings of a third party, i.e., the judge.

Know a Good Lawyer: A good lawyer is not just the person that approaches you as though all they eat is raw meat and haven't eaten for days. A good lawyer will tell you when you don't have a case and need to settle. A good lawyer will guide your business through difficult issues, and won't be afraid to tell you when you are wrong. A good lawyer will know how the real estate industry functions and will know how to address the new issues on the horizon. A good lawyer is someone you trust and feel comfortable sharing your business issues. You need to like your lawyer because in many situations he will be your best friend.