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5 Legal Issues Brokers Face the Most

According to a new report by the NATIONAL ASSOCIATION OF REALTORS®’ Legal Affairs, despite the growing number of suits, licensees are found not liable in almost 75 percent of the cases. It pays to be familiar with the legal issues in the real estate industry. Here are the 5 common types of claims real estate brokers face:

Misrepresentation is the lawsuit that brokers face the most. In 1998, 57 percent of the lawsuits brought against practitioners were for misrepresentation and 12 percent were for the failure to disclose. Most commonly misrepresented are the foundation and structural features (20 percent of lawsuits). Commonly omitted disclosures include easements, renovating without a permit, environmental problems, and title problems.

False or misleading advertising. These lawsuits can also address affinity programs, For Sale sign bans, and Internet advertising—a hot topic now. Advertising must always comply with state license law or regulations as well as the REALTOR® Code of Ethics. Licensee laws frequently address requirements such as indicating the broker’s status as a licensee in each ad. The Code of Ethics (Article 12) mandates that REALTORS® be careful at all times to present a true picture in their ads.

Real Estate Settlement Procedures Act. These violations occur when mortgage brokers, lenders, title services, or real estate brokers give or receive anything of value in return for referrals. RESPA is designed to inform homebuyers about the costs of closing and eliminate kickbacks to settlement service providers for referrals. Although most referral fees are prohibited, the law expressly permits referral fees between two real estate brokers. You must disclose if you have ownership in another service provider, such as a lender or insurance company to which you’re referring a consumer.

Agency problems or breach of fiduciary duty. These cases account for about 10 percent of suits against salespeople and brokers. Many of the suits involve claims of undisclosed dual agency. NAR’s Code of Ethics mandates agency disclosure, but laws governing the method and timing are different in each state.

Fair housing. Violations account for only 1 percent to 2 percent of litigation but can result in costly judgments. This area is also tricky, since state and local laws can add protected classes to the federal discrimination laws. If sellers don’t want to sell to someone of a certain ethnic background or race, you can’t afford to take on that business. 

*Source: Realtor Magazine