For real estate professionals, it is a legal, ethical, and courteous practice to fully disclose all facts that directly affect the value of a property, particularly any details that influence a buyer’s perspective. Agents must be careful in communicating particulars because clients can sue for misperceptions even when they make no mistakes. It follows that outright lying about pertinent details makes an E&O claim a near certainty.
An out-of-state buyer residing in New York sought to purchase a home in Florida, to relocate to the state. He hired a local agent to help him find a property. The agent found a house and submitted it for consideration. The buyer relied on the seller’s agent and agency to provide him with accurate information to make an informed purchase decision.
The buyer bought the property based on the advertising, MLS listing, and claims from the seller and his agent that his property included access to a boat ramp and private lake located within the community. The seller’s agency publicly advertised the property as a boater’s dream with a half-acre easement providing access to a private 28-acre lake. The Multiple Listing Service (“MLS”) listing also contained the following representations:
● Water Extras: Boat Ramp
● Private Water Access: Lake
After purchasing the property remotely and completing his relocation, the new owner realized he had no boat ramp nor access to the private lake. Essentially, the buyer was misled by a web of systemic lying about this issue from the seller and agents regarding lake and boat ramp access.
The seller knew his representations were false because there was common knowledge from the neighbors who advised him about the false claims, advertisements, and data in the MLS. Furthermore, it was common knowledge within the community that the easement and lake access did not exist. Additionally, the seller’s agents propagated false claims about the desirable boating features in their advertising and representations.
Given the extent of the misrepresentation, it is not surprising that the buyer’s attorneys filed a lawsuit for the following six counts:
1. Breach of Contract
2. Misleading Advertisement
3. Negligent Misrepresentation
4. Fraudulent Misrepresentation
5. Fraud in the Inducement
6. Violation of Florida State Law
The lawsuit named the seller, the seller’s agent, and the agent’s real estate agency as defendants with a judgment demand for interest, costs, attorney’s fees, and such other relief that the court would find just and proper in each count.
What Went Wrong
The seller signed the contract stating he knew of no facts that would materially affect the value of his property that are not readily observable and have not been disclosed to the buyer. The seller and most likely his real estate agents knew he was intentionally lying about the property’s water access. Specifically, the seller and his real estate agents repeated these false claims in-person, when showing the property to the buyer’s agent and in written communication via his agent’s MLS listings. Essentially, the property was marketed and purchased based on advertising claims of desirable but non-existent property characteristics.
Even if the seller’s agents were unaware of the misrepresentation, it does not absolve them. It is not uncommon to find lawsuits claiming misrepresentation brought even though sellers or agents make no mistakes. Agents cannot allow their clients to provide misleading information that boosts a property’s value and desirability. Therefore, it is their responsibility to know the truthfulness of their seller’s claims and the advertising information they use to attract buyers.
Potential problems of negligent and fraudulent misrepresentation exacerbate when a remote buyer cannot view a property personally and must rely on the accuracy of the information provided by the seller and his agents to make a purchase decision. However, the facts of this case seem to favor the buyer. And should the plaintiff prevail, the estimate of the total cost to the defendants is $50,000 or 20% of the purchase price.
This case is a prime example of how real estate professionals face consistent exposure to lawsuits resulting in substantial legal and settlement fees. As such, it is prudent to shield themselves and their businesses from financial ruin with the protection of a high-quality E&O insurance policy. Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.