As a real estate agent, you may be accustomed to going the extra mile to get your deals across the finish line. So, when your client asks to grant you with power of attorney (POA) to sign transaction documents on their behalf, your first inclination might be to say “yes.” However, just because you’re willing and able to do something, it doesn’t mean you should. This was a lesson that one of our insured real estate agents learned the hard way when they signed closing documents on behalf of their seller client who turned out to be a fraudster.
POA risk factors
According to the Virginia Land Title Association, issues with a POA are one of the most common reasons for closing hiccups and delays, even without the complication of a client designating you as their authorized agent on the POA.
A POA is a legal construct that allows someone else, known as the authorized agent or attorney-in-fact, to act on behalf of another person, known as the grantor or principal. You may need a POA for your transaction if one of the parties involved is unable to participate for reasons such as illness, incapacity, or unavailability due to overseas service or other travel.
It’s important to ensure that a POA will work for your specific situation. Check with the closing agent to make sure that the POA’s validity, scope, and duration are suitable for your particular transaction before closing. This allows for any potential issues to be addressed in advance. Additionally, make sure that relevant parties are aware that a POA will be used to sign transaction documents. For example, lenders and settlement companies may need to know ahead of time to inform you of any restrictions or additional requirements that may apply. Prior proper notice and planning can help ensure a smoother transaction for you and your clients.
Agents should not be designated as the authorized agent on a POA for their clients
Many brokers discourage their real estate agents from acting as an authorized agent on a POA for their clients. The reasons for this vary and may include, but are not limited to, the following:
- Heightened standard of care: When you are given the POA by your client, you become legally empowered to act on their behalf as outlined and authorized in the POA agreement. This creates a fiduciary relationship between you and your client and can impose a heightened duty to act in the client’s best interests with the utmost loyalty. This increases your risk of claims in the event of a dispute or a disgruntled client.
- Conflict of interest: Since you’ll be receiving a commission from the transaction, conflict-of-interest concerns can arise and result in greater exposure to allegations that you failed to act in the client’s best interest. For instance, if a client feels in hindsight that they could have received a better deal on the transaction or they discover a feature of the property that makes it less undesirable to them, your client may question your role in the transaction with greater scrutiny.
- Licensing or ethical violations: Consider how signing documents on behalf of your client pursuant to a POA could raise licensing and ethical requirements. For instance, depending on your jurisdiction, informed consent or specific disclosure forms may be required before you can act as the authorized agent for your client.
- Lack of legal expertise: Unless you are both a real estate agent and attorney, you may not fully understand the legal implications of the decisions you make on behalf of your client, which can result in inadvertent mistakes or oversights. When your decisions result in a financial loss or legal issues for the client, the client could seek to hold you liable for their losses or dissatisfaction.
- Coverage concerns: Errors and omissions policies may have exclusions for claims arising out of transactions when the insured agent is a principal party to the transaction (e.g., buyer, seller, lessor, or developer). Clarify whether any such exclusions apply when an insured real estate agent is involved in the transaction pursuant to a POA.
Managing risks
If a client asks you to act as their authorized agent under a POA, here are some things to consider:
- Seek professional guidance: Seek guidance from your broker and a legal professional to ensure you act in compliance with any laws, ethical requirements, and firm policies that may apply, such as securing informed consent forms that may be required.
- Recommend other representatives: Discuss alternative individuals your client can designate as their authorized agent to represent them in the transaction (e.g., a family member or a trusted advisor, such as an attorney). These individuals may be more suited for the role due to the closer nature of their relationship with the client or their legal expertise.
- Explore alternatives: Depending on the situation, designating an authorized agent to sign on your client’s behalf may not be the only viable option. Your broker or settlement company may be able to help you identify other potential solutions, such as allowing your client to sign their documents via a remote online notary (RON). For clients who are located abroad at the time of the transaction, such as military personnel, there may be an option to sign documents in front of a notary at the closest US embassy. Don’t forget to consider any additional costs that may be associated with each alternative.
How Victor can help
If you’re asked to act as an authorized agent under a POA to facilitate a real estate transaction on behalf of your client, it’s essential to recognize and understand the risks that come along with this role. Seek appropriate guidance from your broker or legal counsel, if appropriate, and explore all alternatives before considering whether to accept such responsibility. Should a claim arise, Victor’s errors and omissions (E&O) policy may be able to help. Find out more about our policy by reading our article, Safeguard your success: The importance of E&O coverage for your business.
Victor and the National Association of REALTORS® have partnered under the NAR REALTOR Benefits® Program to provide a first-class errors and omissions (E&O) insurance program for REALTORS®. Several premium credits are available, as allowed by state law, including a credit for being an NAR member and/or holding select NAR designations. Receive a free quote today. Be sure to note your NAR Member ID on the application.
To learn more, please email realestate.us@victorinsurance.com.
