Top Legal Issues Real Estate Agents Should Know
Sellers hire brokers to help a buyer for their real estate. Brokers have numerous duties that they must meet in order to earn their fee. The standard brokerage fee is a percentage of the sales price which is paid when the property settlement takes place. While performing their real estate duties, brokers also need to understand what legal issues apply. Legal issues include acting as an agent for the broker, giving legal advice and not real estate advice, making misrepresentations to get the sale, acting negligently, and other matters.
Real estate brokers should obtain a license through proper training and certification. They are about by their organization’s code of ethics and professional standards.
The listing agreement
Real estate agents act on behalf of their principal – the seller. The standard listing agreement creates an agency relationship with the seller through a written contract. The listing agreement should identify:
- The amount the broker will be paid on completion of the sale – when the seller transfers title and is paid the sales price minus any relevant costs. A typical fee is around six percent of the sales price.
- The exclusive right to sell. Brokers generally don’t want to compete with other brokers. One of the key legal issues that may arise is when there are multiple sales agreement and the priority of the agreement has to be evaluated. The exclusive right to sell also generally means the seller can’t sell the property himself/herself – without having to pay the broker’s commission.
- The length of the listing agreement. A time frame is normally set. Brokers cannot claim a fee if the sales agreement is beyond the duration period of the listing agreement.
The broker’s duties
The duties of the broker should be detailed in the listing agreement. If a broker does not comply with these duties or complies in an unauthorized way, then the sell may be able to void the sale.
One, of many legal issues, in the listing agreement is how to handle disputes. Example remedies include arbitration, mediation, and trial.
Failing to disclose a property defect or property requirement
As a general rule, sellers of property must disclose material defects that are not readily visible. They must disclose a defect they know about – if they are asked a direct question such as “Are there any problems with the plumbing I/the buyer should know about,” the broker must answer the question truthfully. Buyers have a duty to conduct their own home inspection and should do so as a practical matter.
Sellers must also make certain statutory disclosures
These include environmental disclosures, necessary disclosures for coastal properties, condo disclosures, and homeowner’s disclosures. Florida statute, Florida Statute §720.401, for example, requires that the seller disclose that that if the seller lives in a homeowners’ association, that the buyer must become a member of that association and must pay the required dues.
Since the broker is the agent for buyer, the buyer may seek to hold the broker liable for a breach of any of the seller’s disclosure obligations.
Failing to work for the seller during the listing agreement phase
The broker must make reasonable efforts to sell the property. This generally includes listing the property through a multiple listing service, advertising that the property is for sale, reviewing with the seller what can be done to make the property look better, what common factors help buyers offer more, and other factors. The buyer should also explain, without giving legal advice, what happens if a property is offered for sale “as is.” A Florida real estate lawyer can give legal advice to sellers, buyers, and brokers.
Failing to work for the seller during the sales agreement phase
Many brokers think incorrectly that once the sales agreement is signed, that they can relax. That they can leave everything up to the title clerk and the seller’s lawyers. This is another of the legal issues that can get a broker into trouble. Brokers must assist the seller between the date of the sales agreement until the closing of the property. For example, buyers often want to inspect the property before the settlement. The right to inspect is often set forth in the sales agreement. Brokers must work with the buyer and the buyer’s inspectors to provide access to the property.
Additional sales agreement work
Brokers must also work with the title clerk if the title clerk needs any additional information about the property. If a seller does not have a lawyer at the settlement, then the broker should explain to the seller all the documents the seller needs to sign. The broker should then also review the settlement sheet.
Making false representations
Brokers cannot misrepresent the value of the property to get the seller to sign a listing agreement. They broker can show the seller similar properties and discuss how much those properties sold for. The broker is not an appraiser and can not make a direct representation as to the value of the property. The broker must honestly inform the seller about each offer even when offers are lower than the listing price.
Additional legal issues for brokers
Brokers may be liable for failing to keep their client’s data secure. They can be liable if they give legal advice or tax advice and that advice is incorrect and causes financial harm.
Actions against the broker
Legal issues brokers need to understand include who can file a claim against the broker and how. Generally, the seller can file a claim for breach of the listing agreement. Buyers can file a claim against the broker for acting as the seller’s agent when the seller breaches the sales agreement.
Actions can include breach of contract claims and negligence claims. Depending on the facts, the seller or buyer may even bring a claim for fraud.