Often times during the sale of a home, there are upgrades that require either exclusion from the contract or a separate agreement (e.g. selling furniture with a home side deal). There is potential for disclosure problems for both homeowners and realtors when dealing with such upgrades.
A couple found a home they liked and made a successful offer to purchase the $1.25 million property. The house has an expensive “smart-home” system that controls security and convenience features and appliances throughout the residence. The buyers agreed to the sale’s conditions with the understanding that the smart home’s features and devices were included in the sale price.
It was only after the buyers had put down a $15,000 earnest fee- in addition to a $30,000 due diligence fee – that the seller revealed that some of the smart-home features would not convey to the buyers unless they paid an additional $15,000 for the system to be operable as expected. The sellers balked and exercised their right to cancel the sale. The buyers expected the $15,000 earnest fee and $30,000 due diligence fees to be returned to them promptly.
The earnest money deposit was refunded; however, the due diligence fee was not. The seller stopped communicating with the buyers, and, as a result, the buyers retained counsel. The seller was put on notice to reply and return the $30,000 due diligence within ten days or they would face legal action.
What Went Wrong
In marketing the home, the seller represented that the control for the smart-home system wasn’t upgraded and would convey with the deal. The seller’s marketing materials led buyers to believe everything needed to control the smart-home system was included in the contract, which did not exclude any part of the system. If the intent was to not include the upgraded smart-home controls, it should have been clearly articulated in the marketing materials and the contract.
After realizing the discrepancy, the buyers tried to resolve the situation. When unsuccessful, they exercised their right to terminate the contract based on the buyer’s misrepresentations and breach of contract.
The buyers have received their $15,000 earnest money deposit. However, they have retained legal counsel to assist them in recovering their $30,000 in due diligence fees because the seller is not communicating or cooperating with them to close this deal. Now, the seller is faced with paying both the buyer’s legal fees and the due diligence fees.
The realtors for both parties are at risk for exposure to professional liability claims. In our litigious society, it is not hard to imagine the buyer or seller suing realtors for errors and omissions in representing their clients.
Even when professionals take utmost care, a chance for real or perceived misunderstandings, errors, or omissions exists. And when real estate deals sour, agents are usually first in line to face costly court battles to defend themselves and their good name. Safeguarding your business from such procedures requires a broad E&O professional liability insurance policy that will protect you from paying potentially ruinous legal fees and settlement costs.
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