The Incredible Legal Liability Of Real Estate Brokers

One of the disadvantages of seeking a career as a real estate broker is that your chances of getting sued are quite high, due to the various forms of legal liability to which you will be exposed. Among these are:

(1) Contract Liability

The listing agreement between a real estate broker and a seller of real estate typically requires the broker to exercise her "best efforts" to find a "ready, willing and able" buyer for the seller. However, the term "best efforts" is notoriously ambiguous, and if the seller believes that a busy broker has not actually exercised her "best efforts" to locate a suitable buyer, she may be looking at a lawsuit seeking damages for the delay in selling the real estate that is attributable to her failure to exercise her best efforts. Even if she wins the lawsuit she may end up having to pay legal fees, and the time and worry investment alone could distract her from using her "best efforts" on deals with other clients.

(2) Licensing Regulations

As is the case with attorneys, real estate brokers are subject to certain professional standards of conduct, breach of which could subject the broker to liability. Many of these standards are imposed by statute (instead of rules made by, say, a real estate broker's association) and thus have the force of law. The critical difference between an association rule and a public statute is that if you violate a private rule you are often liable only to have your licensed revoked, while if you violate a statute you can be sued for damages suffered by a seller. Of course most of these standards are common sense obligations such as honesty, fair dealing, etc.

(3) Tort Liability: Negligence and Fraud

Anyone can be held liable for negligence in just about anything they do that involves a risk - for example, if you drive carelessly and cause an accident you could be sued for committing a "tort". But the critical difference in tort liability between laypersons and professionals is the "standard of care". As an ordinary driver you will be held to an ordinary (not perfect) standard of care, breach of which will subject you to liability for any damages caused by your carelessness. But real estate brokers are held to a particularly high standard of care (ordinary care is not enough) when it comes to their professional activities, and can be sued for malpractice if they fail to meet this standard.

Real estate agents can also be held liable under agency principles, but that is beyond the scope of this article.

DISCLAIMER: The foregoing is intended for reference purposes only and not as legal advice.