Termites. That word alone is enough to make any homeowner cringe, let alone anyone involved with the sale of a house. Most agents know all too well the unforeseeable damage termites leave in their path, and the difficulty of measuring the severity of the problem. Recently, a listing agent was sued in connection with her role in the sale of a house with termite damage. Also brought into the suit were the seller, a home inspector hired by the buyer, and the seller's contractor. The cost of the claim against the agent totaled almost $100,000. But this came after both an initial inspection that revealed the damage and a follow-up inspection confirming that the damages had been repaired. Why, then, was the agent held at fault when the inspection and the repairs were the responsibility of the seller, inspector, and contractor?
The facts
Termite damage was discovered by the buyer's home inspector. The seller agreed to hire a contractor to make the necessary repairs. There was no agreement specifying what work would be done. The seller hired her son-in-law, an unlicensed and uninsured contractor, to do the work. When the work was finished, the inspector performed a brief second inspection and confirmed that the repairs were completed. In addition, the listing agent verbally informed the buyers that the repairs were done. The sale closed, and the buyers began renovations after moving in. They discovered that the repair work consisted of sistering the damaged wood, reinforcing the damaged wood with other boards rather than jacking up the house and replacing the damaged wood.
The buyers brought suit naming the listing agent and the firm she represented as co-defendants along with the seller, the inspector and the contractor in a lawsuit alleging negligence, fraud, violations of the deceptive trade practices act, and breach of contract. The primary target was the inspection firm for having failed to identify unrepaired structural damage in the second inspection. The complaint alleged that the contractor performed the work improperly. Finally, the buyers alleged that the agent had misrepresented that the repairs were completed properly when she spoke to them.
The result
The uninsured contractor filed for bankruptcy in an effort to avoid liability. The inspection firm also had no insurance. The seller was elderly and had no assets other than her residence. The listing agent became the "deep pocket" target defendant. Despite a vigorous defense arguing that the agent was simply relaying information conveyed by the seller and had neither observed the repairs nor had any responsibility to do so or to evaluate repair quality, the jury still awarded more than $40,000 in damages to the buyers. With legal costs, the total cost of the claim approached $100,000.
Risk factors
Risk factor #1
The seller took responsibility for having the home repaired. In this case, after the damages were discovered, the seller could have obtained 3 different quotes from licensed and insured professionals and used these estimates to develop an offset to the purchase price of the home. The buyers could have then implemented the repairs after taking possession using a contractor of their choosing.
Risk factor #2
The details on how the repairs were to be done were not specified in writing and signed off by both parties. A real estate agent is not a specialist in house repairs. Agents may recommend that both sides work with home repair specialists and have their attorneys to draw up a suitable resolution plan.
Risk factor #3
The contractor was uninsured. Agents should consider recommending that their clients use insured contractors. Also, the seller should be aware that hiring a friend or relative to do repairs may look suspicious to a jury. In cases such as these, sellers should avoid hiring contractors who may appear to have a bias in favor of the seller.
Risk factor #4
By relaying the message that the repairs had been completed, the agent exposed herself to the allegation that misrepresentations had been made about the repairs. It's good risk management practice to convey all representations about property conditions in a written statement signed by the seller. This can be done via either email or regular mail, attaching a cover note explaining that the agent is simply passing this information along, and that the agent disclaims any responsibility for the accuracy of the information. Another risk management technique is to avoid getting involved altogether. Let the sellers communicate with the buyers on these matters through their attorney, and let the inspection report speak for itself.
*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.
