In this article, we explore real estate negligence and malpractice, what constitutes a violation of the statutory duty imposed on agents and brokers, what information should be included in a negligence claim against an agent or broker, and how real estate professionals can avoid a lawsuit for negligence.
The real estate profession is not without its legal pitfalls. Most clients don’t see or appreciate everything that goes on behind the scenes when buying or selling a house. Real estate professionals are often managing a business, representing multiple clients and properties, evaluating contracts, running open houses, marketing, and managing employees. Issues are bound to arise, most unintentional, but malicious or not, mistakes can cost both the client and the real estate professional time, money and possible legal recourse.
What is Negligence in Real Estate?
Negligence can be considered a type of malpractice in real estate and is different from fraud. Negligence supposes that the cause of action (the thing the agent or broker did that the client felt was negligent) was unintentional and a result of the agent not doing proper due diligence, versus fraud which supposes the agent willfully misled or deceived the client. Even if an agent acts in good faith, carelessness, failure to act, taking the wrong action, or a simple error in judgment can result in a lawsuit for negligence.
Common Reasons for a Negligence Claim in Illinois Real Estate
The Illinois Real Estate License Act describes a number of scenarios that would warrant a negligence claim. A majority of claims come from an alleged failure to disclose pertinent information, which could affect the perceived value of a property causing a client to pay a price they wouldn’t otherwise. Other examples of possible negligence under the Illinois Real Estate License Act include:
- Failure to perform under the terms set forth in the broker-client agreement;
- Failure to secure the appropriate price and terms as stated in the brokerage agreement or the price and terms as deemed acceptable by the client;
- The agent or broker fails to communicate all potential offers to and from the client, unless the client has directed otherwise;
- The agent or broker fails to disclose all material facts regarding the sale, purchase, or other type of transaction to the client that the agent should have actual knowledge of, unless the knowledge was confidential;
- Failure to account for, in a timely manner, all money, property, and information received that is of interest to the client
- Failure to follow and/or act on explicit directions, written or delivered orally, that are otherwise not unreasonable, and contrary to the law;
- Putting the agent’s, broker’s or another person’s best interests before the client’s;
- Acting with wanton disregard towards the client and failure to exercise reasonable skill and care under the direction of the contract;
- Failure to keep confidential information confidential;
- Failure to comply with the stipulations set forth in the Illinois Real Estate License Act;
- An agent knowingly or negligently gives the client false information and has a history of not treating all clients fairly
- Failure to provide the minimum services as directed under the Illinois Real Estate License Act, including communicating offers and counteroffers, working with the client on developing offers and counteroffers, and educating and assisting the client in the development of offers and counteroffers, contingencies, etc.
What Information Should Be Included In a Negligence Claim?
If applicable the following should be included in a negligence claim against a real estate agent or broker:
- The location or address associated with the negligence claim;
- The jurisdictional facts associated with the negligence claim;
- Proof of a contractual agency and/or representative agreement between the plaintiff and the defendant;
- The date, time and place where the alleged negligence took place;
- The statutory duty associated with the negligence and a description of how that duty was neglected or violated;
- A description of the damages and/or losses sustained due to the allege negligence; and
- A request for relief
How a Real Estate Agent or Broker Can Avoid a Lawsuit for Negligence
Unfortunately, just keeping up with due diligence and staying on top of every listing and transaction isn’t always enough to avoid a lawsuit; this is why real estate malpractice insurance exists. However, there are a number of good practices, which if done consistently, can keep you out of the courtroom and in your client’s good graces.
- Keep open, transparent communication with all clients and document all discussions, directions and consents;
- Disclose any and all information and material defects that could affect the value of a property;
- If a client asks you a question about a property and you don’t know the answer or it’s not your area of expertise, be truthful with the client and let them know you’ll find someone who can get the information for them;
- Educate and encourage the client to do their own due diligence, especially when it comes to property inspections;
- Assume that no matter how diligent you are you may end up the target of a negligence claim, so be sure to have good protection, including a rock-solid errors and omissions policy in place.