The National Association of REALTORS® (NAR) Power Broker Roundtable this month discusses how to manage—and minimize—risk of litigation.
Robert Bailey, Broker/Owner, Bailey Properties, Santa Cruz, Calif.; Liaison for Large Residential Firms Relations, NAR
Jason Waugh, President, Berkshire Hathaway Home Services Northwest Real Estate, Portland, Ore.
Matt Deuitch, Designated Broker, DPR Realty, Scottsdale, Ariz.
Dan Elsea, President, Realty One, Southfield, Mich.
Nelson Zide, Vice President, ERA Key Realty Services, Framingham, Mass.
Robert Bailey: As brokers and agents, we are deeply committed to protecting the interests of our customers, and to managing our business in ways that are honest and fair to all. But despite a willingness to hold ourselves accountable, we live in an increasingly litigious society. Hence the rise of risk management: the strategies we use to identify, control and mitigate the risk of being sued or penalized for real or perceived injustices. In the absence of unanimous guidelines, and with laws and regulations differing from state to state, every broker develops best practices in terms of managing risk. Jason, what’s your approach?
Jason Waugh: Like most big brokerages, we give a lot of thought to risk management. We put time and energy into agent education, and we have multiple layers of compliance in place, beginning at the branch level and on up. It’s such a built-in part of our culture, in fact, that we have a full-time resource person on staff. He’s available to agents at any time as “iffy” issues come up, and he sits in on our training sessions to be sure we understand where risk comes from.
Matt Deuitch: Like Jason, we’ve embedded the issue of risk management into our company policy and we have systems in place for dealing with the issues—and we focus heavily on agent training and education to minimize the potential for risk. Also, the Arizona Association of REALTORS® has a legal hotline in place for agents.
Dan Elsea: Sad to say, we’re finding risk management a sort of “growth industry” in Michigan. So we’re doing more and more each year to help keep us more or less bulletproof. Mandatory agent training is a big part of our strategy, but we also have a vice president and an attorney on staff who do a great job of keeping us on track for minimizing risk.
Nelson Zide: The best way to avoid risk is just to be careful what you say. We do a lot of agent training in our company—including seminars with appraisers and inspectors—to help our agents identify and avoid the kind of misunderstandings that are often at the root of a complaint. But you can’t be sued for what you didn’t state. Our mantra is, “If you don’t know the answer, say ‘I don’t know, but I’ll find out.'”
RB: Are there any issues that stand out as the ones most frequently at the root of complaints or lawsuits?
MD: I’d say 70 percent of the complaints we hear about are based on non-disclosures by the seller.
DE: That’s about right—but on the other hand, those are also the issues that go away the fastest. A lot of the risk today comes from wire fraud issues, which are becoming rampant.
NZ: Part of the problem, at least as far as non-disclosure by the seller, is that disclosure forms are not mandatory in every state—and some issues, like undetected mold, may not be covered in Errors and Omission policies.
RB: Still, there are guidelines available, from NAR and from state and local associations, for taking steps to minimize liability—setting proper expectations, for example, keeping a log to record conversations, and using email to confirm verbal agreements.
JW: That’s true, and we use those points in our agent training. We did more than 10,000 transactions last year, and never had a single claim.
RB: NAR offers a number of risk management resources, forms and documents for brokerages, including the new publication Real Estate Brokerage Essentials: Navigating Legal Risks and Managing a Successful Brokerage, 4th Edition. See www.NAR.realtor/topics/risk-management for more.
For more information, please visit www.nar.realtor.
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