Here’s some risk-management advice that might surprise you: Real estate agents should not help sellers fill out the Seller’s Disclosure Notice. Agents who do increase their liability—and their broker’s liability—in lawsuits.
The majority of residential real estate lawsuits involve the buyer bringing a claim against the seller. Other participants who often get pulled into a buyer’s claim are the listing agent/broker, the buyer’s agent/broker, and the inspector. The claim often boils down to some form of misrepresentation about the condition of the property.
When buyers sue alleging fraud, they must prove all of the following:
- The seller made a material representation that was false.
- The seller knew it was false or made it recklessly as a positive assertion without any knowledge of its truth.
- The seller intended to induce the buyer to act upon the representation.
- The buyer relied on the representation that caused the injury.
In order to prevail in court, the buyer must prove the party made a material statement that was false. In layman’s terms, the buyers have to prove that they were lied to. The most frequent evidence on which buyers base their fraud claims are the Seller’s Disclosure Notice, agent marketing materials, and MLS statements.
The Seller’s Disclosure Notice is the document that contains most, if not all, of the seller’s representations about the property’s condition. For that reason, I encourage agents to think about the Seller’s Disclosure Notice as the Seller’s Representation List, because it is a list of representations from the seller, not the agent. Agents should not take any actions or make any statements that would allow anyone to argue that the Seller’s Disclosure Notice is the agent’s own disclosure—sellers must complete it on their own.
If you insist on helping the seller complete the notice, please understand you are taking on extra and unnecessary liability for you and your broker.
Reasonable minds can disagree on whether agents should check the notice for accuracy. I recommend checking for completeness, not accuracy, because checking for accuracy may increase the agent’s liability. One last point: Agents who list their own properties through their broker should check to see if their E&O policy covers agent-owned listings for claims of seller misrepresentation. A lot of policies exclude agent-owned listings from coverage.