Navigating California Real Estate Laws
1. The importance of documenting your file - keep notes and records. Why is it so important? When you are sued by your clients possibly years after the transaction and they have "selective memory" -- you have documentation on the advice and counsel you gave them (admissible evidence). It also helps you remember what you did and what you said. Pride of authorship is the key. Use confirming letters, "chron logs" mobile phone logs, etc. Get key points in writing and do so before escrow closes. Treat your files "as if" you will get sued. Recognize that the statute of limitations for fraud is three years and is for years for breach of fiduciary duty; both from the date of discovery.
2. Learn to be comfortable with your uncertainty. Know what hat you are wearing. If you do not know, say so and then get the answer from a qualified authority.
3. Do not speak carelessly. As a professional, a real estate licensee must exercise a higher degree of skill and diligence than a non-professional. Negligent misrepresentation is a major cause of lawsuits. Specifically, the broker is charged with more than a layman's knowledge of the real estate business.
4. Recommend expert inspections from reputable and "qualified specialists." Recommending a "licensed inspector" is incorrect. Advise that the inspection company or other consultant have an E&O insurance. Provide choices for the client. Counsel your clients before the inspection. A home inspection is none of the following: appraisal, pest control certification, certification of any kind, FHA/VA inspection or a home warranty. A home inspection is a resource of clients to make decisions of two kinds: immediate and during course of ownership regarding maintenance. Urge the buyers to go on the inspection with the inspector. If the buyers waive inspections, get your recommendation and their waiver in writing.
5. Do not be greedy. Your fiduciary duty comes before closing the deal. The broker owes his principal the same obligations of diligent and faithful service that a trustee owes to the beneficiary of a trust. Specific fiduciary duties include: account for funds, undivided loyalty, good faith, full disclosure and explain and counsel. Note: once the fiduciary relationship is established and a breach by the fiduciary is alleged the burden shifts to the defendant broker to prove that the fiduciary duties were not violated.
6. You are required to make a reasonable, competent and diligent visual inspection of the "accessible" areas of the property and to disclose to prospective buyers all facts materially effecting the value and desirability of their property [...when the licensee has reason to believe that such facts are not known to, nor readily observable by a prospective purchaser]. In the TDS, do not volunteer conclusions as to the cause of anything you disclose; do not diagnose or characterize; just site factual observations.
7. Stay well informed. Employ determinative risk management and loss prevention tools from counsel experienced and real estate brokerage and sales law. Attend board/association seminars and read trade publications (e.g., C.A.R.'s, Legal Briefs and Q&A's, etc.) To assist in your understanding of the purchase contract, read C.A.R.'s legal review booklet entitled: Your Guide to the California Residential Purchase Agreement.
8. Do not jump the gun. Avoid situations that could lead to two contracts. Exercise the utmost care with multiple authors, backup offers and contingencies.
9. FSBO's, raise red flags. Is the seller doing something besides saving a commission? Have you unwittingly become the seller's agent?
10. Do not give legal advice, e.g., telling the buyer or seller that they should or should not initial the arbitration clause. Arbitration is a decision for the principal. Another example - don't attempt to explain the legal ramifications of the liquidated damages clause. The author of this article has risk management tools to eliminate both of these problem areas. Consider referring your client to an attorney where appropriate. Answering questions like "what does this mean?" carries liability.
11. Stick to your specialty. Even the best agents cannot be all-knowing about all properties. You will be considered to know more about the area that you farm.
12. Revue preliminary title reports carefully and as soon as possible.
13. Use standard forms and procedures. The supervising broker should be monitoring your contracts to ensure that what you have written is clear. An important general rule affecting any contract is that vagueness is construed against the party responsible for the ambiguity.
14. Disclose agency relationships, as soon as possible. The law requires disclosure, but you control the timing. Recognize that although dual agency is permitted by statute (Civil Code Section 1090) dual agency is one of the greatest magnets for liability in California courts. As one observer aptly put it: "Although the buyer and seller may acknowledge dual agency in writing, mere disclosure of this does not resolve the 'schizophrenic obligations' of a broker."
15. What to do if you become aware of a claim: Talk to your broker/attorney; get as much information from the claimant; attempt to resolve/settle early; avoid making admissions; do not write on original documents; do not panic, and provide a detailed narrative memorandum to your attorney and be candid about facts which show you were possibly at fault. Use mediation. Get advice. Make a prudent business decision - remember, "justice", whatever that means, is a very expensive commodity.
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Mark D. Stavros, Esq. is a Partner with Manning & Marder, Kass, Ellrod, Ramirez, LLP. He predominately represents real estate brokers and agents (residential and commerial) in trial/litigation, arbitration, mediation, D.R.E. Accustations/investigations, commission disputes and other matters.
Mr. Stavros has defended Realtors in nearly 500 litigation matters and well over 5,000 pre-lawsuit claims. Mr. Stavros is available at (619) 515-0269, on-line at [email protected],or at the above firm at 550 West "C" Street, Suite 1900, San Diego, California 92101.