As a real estate expert, sellers and buyers trust your knowledge. Yet, you also rely on specialists, such as building and pest inspectors. If a report has an issue, are you safeguarded against claims related to arranging that report?
We discuss the potential issues that can arise when it comes to pre-purchase property inspections and how you can help minimise and mitigate those risks for yourself and your real estate firm.
What are the risks that present themselves with pre-purchase property inspections?
It is common for real estate agents to refer specialist contractors to complete property valuations, pest inspections and pre-purchase building inspections. Unfortunately, this potentially exposes real estate agents to liability if there are problems or issues within the reports.
Misrepresentation
A claim of misrepresentation may see you facing a multimillion-dollar lawsuit. If, while selling a property, you make a statement that turns out to be false, you may be found liable — the more valuable the property, the larger the potential claim.
In many cases, the buyer must research and conduct inspections to ensure the property is to their liking. However, if the buyer proceeds with a property purchase based on a report that was issued or run through your agency, you may be liable for misrepresentation.
In many real estate legal cases, even if you aren’t found liable, the legal costs can be very high as the case can potentially drag on for years.
Conflict of interest
For a real estate agent, a conflict of interest is where they have a personal interest in their advice or services given or the interest of one agent’s client comes into challenge with the interest of another of their clients.
An existing professional relationship with a particular valuer or inspector potentially leaves the real estate firm open to a conflict-of-interest liability should there be discrepancies in the reports or misleading information.
Non-disclosure of property details
If a real estate agent fails to report a defect in a property, in most cases, the buyers are responsible for performing their due diligence. Still, if the agent is aware of something that can affect the outcome of the sale of property, the agent must communicate it as soon as the information arises, or face being deemed liable for any issues.
For example, if the agent was aware of an issue with susceptibility to mould in a particular room of a home, however, failed to mention this to a client (or the report that they helped provide failed to disclose it), the real estate agent may potentially be liable.
How to help protect against liability with pre-purchase inspections.
Risk management is crucial in helping protect all the exposures faced in the real estate industry. Agents must understand the terms and conditions of their policy. Commonly, many policies will exclude agents from directly providing reports such as pest, valuation, and pre-purchase inspection reports to prospective buyers, instead insisting on an independent, ‘arm’s-length’ relationship with contractors.
To ensure that you can continue acting in a buyer’s best interest while protecting yourself against potential liability, consider utilising the specialist risk management and insurance services of Barrack Broking. Book a free policy review, or talk with our team about your coverage requirements today
