Loss Prevention: Limit the Titles Agents can use, Watch Out for Undisclosed Information

New York Warns Against Lofty Titles for Agents

The New York Department of State issued an opinion letter in late April explaining that real estate firms must be careful when allowing their agents to use lofty titles.  Across the United States, real estate agents are almost exclusively independent contractors, but often use various titles as a means to differentiate themselves.  What New York took issue with was independent contractors using titles that give the appearance of being a corporate title.  Examples they gave were “president”, “senior broker”, “managing agent” and the like.  According to the Department of State, this can be construed as “dishonest or misleading advertising” and should be avoided when possible.

While not strictly illegal at this point, it is important for firms to be clear that the relationship between the firm and an agent is as a contractor.  Titles alluding to an employment status should be reserved for employees and members of the managing staff.  This delineation has ramifications for tax liabilities, workers compensation requirements and also for employment practices lawsuits – all three of which are typically avoided when an agent is clearly an independent contractor.  En employment lawyer or your state’s labor department can point to the definition of “employee” and “contractor” in order to help your firm avoid any dangerous cross-over.

Undisclosed Insider Knowledge Leads to Lawsuit

In the Washington DC area, a claim has been brought against a seller and his real estate agent for failure to disclose material information prior to the sale.  A restaurateur had his condo up for sale for $1.26M and enlisted the help of Sotheby’s to market it.  After the sale, it was discovered that an adjacent building was to undergo construction and that new construction would block the condo’s views, reduce the natural light and may even render the condo unusable during the time of the construction.  The lawsuit arose from the fact that the seller put his condo on the market immediately after he was at a condo board meeting where the construction plans were privately disclosed.  The seller is claiming a market value loss in excess of $300,000.

The real estate agent is being named in the suit due to his failure to discover and disclose this information to potential buyers.  The buyer’s attorney is quoted as saying “[the seller] and [the agent] knew that the truth would either prevent a sale or cut into their profits, so these two prominent Washington figures chose to conceal what they knew instead.”  Through the DC Consumer Protection Procedures Act treble damages can be awarded.

It is important for an agent to be fully aware of material facts on each property and to fully disclose each material fact to the buyer.  It is also worth noting that not all real estate agent’s errors and omission insurance policies will cover treble damages.  If you operate in a jurisdiction that allows punitive and treble damages, seek a policy that will provide protection to you and your firm.  Contact BrokerLiability.com for a complimentary review of your insurance program.