The facts
A real estate broker, Rachel, was having a very long dry spell so when Kellie enlisted her services to sell a hillside estate, Rachel was ecstatic. Rachel had previously received numerous inquiries about the estate so she knew it was a great sales opportunity even though it was in another state.
Since Kellie lived in a remote area, she communicated with Rachel only by mobile phone. She purchased the home years ago as part of a larger investment portfolio, but after suffering a few financial setbacks, she decided to sell the property.
Leads were few. After a month without any inquiries, Kellie grew impatient with the lack of sales activity, especially since she knew there was so much previous interest in the estate. Rachel was concerned that Kellie would switch agents so she increased her advertising efforts but still failed to generate interest.
A further two weeks passed until Bruce and Eleanor Griffin expressed interest in the property. Rachel arranged a viewing with Kellie's permission. The Griffin family were in search of a larger house with more land and upon their visit, they felt the view, size and privacy were a perfect fit.
After difficult negotiations where offers were made and countered several times, Kellie said she would agree to the last offer if Rachel would reduce her commission to bridge the difference. Since Rachel knew there were no other sales leads and that she would probably lose the listing if the sale fell through, she agreed to the reduction.
The following day, Kellie pressed Rachel to sign the sales contract for her saying she didn't have Wi-Fi access and didn't want to delay the sale. Rachel reluctantly agreed.
Four days later, Rachel received a call from Kellie saying she was no longer able to sell the house and that she would refund the Griffins' deposit. Rachel felt her heart sink as Kellie cut the conversation short. When Rachel called Mr. Griffin to explain the situation, he became outraged and refused to accept Kellie's refund offer. The Griffin family sued Kellie, seeking specific performance under the contract. Kellie filed a cross-claim against Rachel, alleging that she never agreed to the contract and sought indemnification.
The result
Litigation was messy! The Griffins' original demands exceeded $300,000. Rachel, having signed the contract without legal authority, was in a difficult position, especially since Kellie insisted she never authorized Rachel to sign the contract. The case moved to mediation. After the complications of pursuing the sale were explained, Bruce and Eleanor reluctantly withdrew their demand in exchange for reimbursement of legal fees. To settle, Kellie agreed to split these costs with Rachel. The combined defense and settlement costs incurred by Rachel's professional liability insurer exceeded $100,000.
Risk factors
Risk factor #1
When clients are not local, agents should send and retrieve all necessary documentation. Time frames should be established to complete tasks and communicated with the buyer and seller (or the other party's agent or attorney, if applicable). Agents should advise clients to have all documents reviewed by their attorneys, whether they meet the client in person or not.
Risk factor #2
Agents should never agree to sign a sale contract on behalf of a client. However, this situation happens more often than you may think because agents place trust in their clients, often without considering the professional liability risks. In this case, the agent weighed the client's request against the risk of losing a critical sale, but didn't consider what could happen if the sale fell through.
Risk factor #3
Agents should never agree to enter into oral or written contracts on behalf of a client. All arrangements between buyer and seller should be made, agreed to and memorialized in legally enforceable written agreements signed by both parties.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
