What is the Liability of a Salesperson? Does s/he ever gets sued?

Question

I've tried looking up the potential liability of a Salesperson in the line of doing normal work.

There are a number of tricky things, especially here in NYC.

Just to give a clear example, let's say your client is a Buyer and you are showing him a Property built in 1960.

According to the the EPA, the Buyer should be presented with a Lead Paint Disclosure when purchasing any property built prior to 1978.

If a Buyer never receives this disclosure, buys the property, then later discovers there was Lead Paint, then sues.... who can he sue? Just the Broker or can he also sue the Salesperson as well?

If the Broker is sued, does he then sue the Salesperson to recover any amount lost from the suit?

Or is this not an issue for the Salesperson because he must be supervised by a Broker at all times?

I'm asking the question mainly because I am wondering if a Salesperson can also incorporate and use that Corporate Entity to be associated with the Brokerage.

Therefore, if the Brokerage gets sued, the Brokerage can only sue the Corp of the Salesperson.

Hopefully this is a non-issue where Sales Agents do not need to worry about potentially getting into a lawsuit, even at his own doing because he was not supervised correctly to prevent the liability in the first place.

Thanks for any replies in advance.

Wayne Brooks · Answer

Yes, I think you are being a bit over concerned. As a former agent, I never really saw any risk of it. Federal/state mandated disclosures are something your broker will have a checklist for. Mostt brokers have some type of cloud based system for storing documents, and their checks and balances would alert you to something required that is missing. Any actually in the case of the lead based paint disclosure, it is the Seller who is required to execute that, and would also be liable.

Of course, education and paying attention to what you are doing are your best prevention. There certainly are some incompetent/slacker/dishonest agents out there.....don't be one of these and you'll be fine. E&O insurance is typically provided to you by your broker, usually a fee per closed transaction, $50 or so.

Tyler Mullen · Answer

Ah, and how could I forget, the agent has to sign the LBP disclosure form which is required for the contract anyway so... any reputable brokers office would not release a contract to title/escrow without that form.

As previous posters said, you're worrying too much. Your broker is supervising but so it their compliance team and title and the other agents and their office...

Tyler Mullen · Answer

Even if disclosure is only strictly legally the sellers responsibility, what do you think most sellers are going to say about why they hired a selling agent?

https://portal.hud.gov/hudportal/HUD?src=/program_offices/healthy_homes/enforcement/disclosure

Irina Belkofer · Answer

You'll learn all that in your licensing course and it's not that dangerous as it seems. You will be working for your broker not by yourself and the broker is responsible for your mistakes (honest and intentional).

Your broker is supposed to train you properly to avoid these mistakes. If clients sue - it will be your broker, but the broker will get back to you for the damages.

Each state requires different things: for example, E&O Insurance is not even mandatory in state of Ohio. It might be in NY.

Agency disclosure is the mandatory paperwork which goes with the offer and both, buyer and seller, must sign it even if two different agents form different brokerages involved.

LBPD and the pamphlet are mandatory for houses built before 1978 and there is a lot of financial responsibility for skipping it.

Zoning for 3 and 4 units might be the same and it's not really the ground to litigation unless you're the seller and didn't know that and, as result, lost $350K on sale. Some agents look at the zoning and advice their clients about changing zoning but they don't have to disclose that to all the parties in the transaction - only to their client.

Anyway, there are plenty agents, who start from some experience in RE and still learn a lot about industry once they start helping other people. You will make mistakes as well and that's not a big deal. Everyone does - pay your dues and move on.

After all, it's the most exciting business in the world :)

Tyler Mullen · Answer

Hence the functioning of the industry. There are regulations to follow from the feds, state, county, city, the broker you work for and any MLS you belong to... Agents all the time say, "I don't know, you'd have to look into that yourself", precisely so they are not on the hook.

I know of a case in my area where an agent wrote on their marketing flyer that a vacant property was a "vacant lot". After the buyer found out he could not get the city / county to permit building on it, he sued and won. The agent also received a $5,000 fine from the MLS.

In the fiduciary sales area we used an "As-is" addendum to every contract that would put you to sleep... we also only used bargain & sale deeds, that's two ways a sellers can protect themselves.

Tyler Mullen · Answer

On your specific question I'll follow the discussion to see what the attorneys out there will say, but the agent is the real estate license holder, as issued by the state, not their company if they incorporate... so I'd imagine that "pierces the vail".

But tangentially there's also the MLS rules for agents. In a situation like you described it's highly likely the agent would be sanctioned by the MLS if they received a complaint, investigated and issued their findings, could be a fine, could be more. (They also refer info to law enforcement and the licensing dept that issues RE licenses.) If you violate enough MLS rules, lawsuits or nay, they ban you, don't they?

David J. Davis · Answer

If I was the party suffering damages, I would sue the broker, the owner(s) of the brokerage firm individually and the individual agent. I've only been in a couple of lawsuits (non-real estate businesses), and the claims had both the individuals and corporation listed as parties to the suit.

Tyler Mullen · Answer

Respectfully to Irina, not sure I understand what you mean that you only have to tell your client and not a buyer? About what exactly?

"Zoning for 3 and 4 units might be the same and it's not really the ground to litigation unless you're the seller and didn't know that and, as result, lost $350K on sale. Some agents look at the zoning and advice their clients about changing zoning but they don't have to disclose that to all the parties in the transaction - only to their client."

Are you saying a sellers agent doesn't have to report the zoning to the buyer? Ok, but can they misrepresent it to a buyer?

If a sellers agent is aware of any material defect, they most certainly DO have to tell a buyer, even if the seller directs them not to disclose. If a seller agent is aware of zoning because they "looked into it" as you said, and then market a property as zoned something else, even only because the seller directed them to do so, rather than what they should do which is something like, "...zoning xyz per King County and City of Seattle, information deemed to be reliable but not a warranty..." blah blah blah we've all see the boilerplate... then I'd predict that agent is not going to last long in this industry. Agents are not rubber stamps for their clients.

Llewelyn A. · Answer

@Janett McWilliams

@David J. Davis

@Tyler Mullen

Thanks for all your comments.

I have to say the reason why I'm asking is because I'm a Real Estate Investor here in NYC for the last 2 decades. So I know what it is like as an Investor.

I decided to switch and become a Realtor as many of my friends and family are asking me for help getting them into an Investment. Getting the license makes a lot of sense now.

I will tell you that there has been a number of occasions where disclosures were not given to me, especially the Agency Disclosures.

In fact, one Broker was representing both the Seller and myself just recently and I never received the Dual Agency Disclosure.

Another problem I see is in the case of a building that I bought over 6 years ago which is past the Statue of Limitation for Real Estate lawsuits, the legal use of the property was mis-represented by ALL parties, including the Agent, the Broker, the Appraiser and the Attorneys. I bought it as a 3 Family but it was a legal 4 Family. There wasn't a Certificate of Occupancy available online, but I pulled it from the Dept of Buildings to make sure that I wasn't wrong.

Either case, when I purchased the building, I immediately re-appraised it as a 4 family so I can get a 2nd Mortgage. The re-appraisal added $350k above my purchase price.

There are so many issues like this that I feel if a Salesperson cannot incorporate, and can be named in the lawsuit, this becomes a big problem unless the Salesperson can pass on the liability to the Broker that was suppose to supervise him or if the E&O Insurance picks up the tab.

If the previous seller were to have sued the responsible party for the $350k, AND the Seller won, I am curious how much responsibility that would be placed on an Agent versus a Broker.

Just curious, how much does an E&O Insurance cover? Can an Agent ask the Broker for proof of the E&O policy or does this just never happens?

However, most likely, my pockets will be deeper than many of the Brokers.

OR....... am I being too Paranoid getting my Salesperson's License?

What is the Liability of a Salesperson? Does s/he ever gets sued?

What is the Liability of a Salesperson? Does s/he ever gets sued?

Most Popular Reply

10 Replies