While the real estate market in the Raleigh-Durham area is a little crazy at the moment, the legal issues that brokerages, agents and customers are finding themselves in are no different than they've been for many years. In fact, real estate and legal issues go hand in hand considering that even when you stay on top of your real estate continuing education requirements, the laws surrounding the industry are both tricky and can change. Fortunately, we find that staying on top of local, state and federal laws is rather simple. When you can understand the guidelines that define the real estate market, you can often avoid any legal issues. That said, today we'll discuss some of the top legal issues found in real estate right now.
One of the most common legal issues found in real estate for agents and brokerage firms is misrepresentation. Misrepresentation refers to the act of misstating key details or facts about a property. These might include claiming that the foundation is in excellent shape or stating that the property is cleared for something (such as being able to put in a pool) that it's not.
Real estate agents commonly use tactics to sell a home which may present a home in better "light" than really exists. By perpetuating false information, either purposefully or not, a legal issue could arise. We commonly see misrepresentation cases presented to us with regard to boundary lines, the quality of an existing roof or structure, or pest control issues.
Luckily, cases of misrepresentation can be avoided and much of real estate continuing education courses actually focus on this point. Oftentimes, agents do not realize they've even cross the line when it comes to selling a property versus mispresenting key details. The seller disclosure form as well as home inspections conducted by a third party are critical to establishing the facts.
Misrepresentation is one thing; non-disclosure of unfavorable conditions at a property are quite different, but is often seen at our practice. Typically an agent is asked to list a home by sellers who know that there are issues with their home. While no one wants to admit that their property has a problem, you may be surprised what some buyers are willing to tolerate, especially in today's market.
Rather than document all issues up front to present to a potential buyer in the form of a seller disclosure form, the agent may purposefully not reveal any information. This includes issues related to unpermitted renovations to the home, easements, environmental concerns, etc.
To avoid this legal issue, real estate agents must use the seller disclosure form and provide any evidence available to the buyer so that the buyer can make an educated decision about purchasing the property.
False or Misleading Advertisements
Similar to misrepresentation and non-disclosure, another legal issue found in real estate is that of false or misleading advertisements.
Have you ever read a real estate listing that seemed too good to be true, only to schedule a viewing and be disappointed? Real estate agents walk a fine line when it comes to presenting a listing or advertisement (in hard copy or virtually) that is appealing to potential buyers, but also factual and accurate. The real estate commission does not allow an agent to mislead (or catfish) a potential buyer with the intent to view a property that they'd otherwise not be interested in.
This legal issue is particularly tricky when a buyer is unable to view the property before purchasing (overseas, across the country, etc). While legally, it may still fall under misrepresentation, we find that the best way to avoid any false advertising is to comply with our state licensing laws as well as the Code of Ethics taken by all real estate agents.
Discrimination, while protected by fair housing laws, can still occur at various points during the real estate process. For example, when an agent is writing a listing, they may state in the listing, "this home would be ideal for a couple without children." While this statement might be exactly what a potential buyer needs to hear in order to direct their search, it can be considered discrimination. Furthermore, the cost associated with these types of cases can be devastating.
The best way to avoid this legal issue is for real estate agents to keep up with their continuing education requirements, specifically with regard to fair housing laws and discrimination.
Finally (and again, related to previous points), failure to address specific environmental issues or hazards such as the home containing lead paint, asbestos or contaminated water can lead to a lawsuit directed at a brokerage firm. These are not the types of issues that can be swept under the rug and require specific language to disclose the situation.
One way to prevent this issue from going to court is to encourage your buyers to make the purchase of their home contingent upon results of a formal home inspection, rather than push the sale based up on antidotal evidence.