Referrals, Property Development Bring Lawsuits

Dangers of Referrals

In Nebraska, a lawsuit involving a referral from a real estate agent made it all the way to the Nebraska Supreme Court.  The lawsuit stemmed from an email written by an agent after using Steinhausen Home Inspections.  The email said that the owner, Matthew Steinhausen did a poor job on a property inspection, was a “total idiot” and the agent would never use him or his company again.  The email went to 600 people.  Mr. Steinhausen alleged that the email was libel and hurt his business.

In this particular matter, the court affirmed a dismissal of the case, but left room for the matter to be re-filed under modified allegations with a lower court (the lawsuit was filed by Steinhausen as an individual rather than by his company).

Real estate agents are in a position of expertise and trust.  Often clients ask their agents for referrals for property inspectors, contractors, lawyers and mortgage companies.  The fact that an agent has earned the trust of their client and become a source of information is good, but the outcome of referrals can occasionally lead to claims.  This case highlights the fact that not every referral will be a good one.  Clients can become upset over a poor job and sue the person referred and also the agent who referred him or her.

Negligent referrals has always been a hot topic in risk management and with good reason.  Each year many claims stem from a bad referral and – depending on the services – some of the damages can be large.  There are a few ways to protect your firm from receiving a claim for a negligent referral.

First, make sure that you are referring experts – not just people you like.  It is important to periodically check on the quality of work your referral sources, as well.  Ask clients how the referral performed and if they would use them again.

Secondly, it may be beneficial to offer clients a list of 2 or 3 choices for each job – rather than just one choice.  This can help offset some of the liability of only recommending the one person, but will not absolve your firm of all liability.

Third, a firm may decide not to endorse anyone as a preferred partner and avoid the situation altogether.

Property Renovation Leads to Lawsuit

A homeowner sued Handy Realtors, Inc., among others, for their role in a poorly completed renovation on a home.  Handy Realtors was engaged to elevate and build an addition to a home in the New Orleans area.  Unfortunately, after the completion of the work, the new portions of the home began to settle.  This led to cracks in the foundation, drywall, uneven counters and moisture collecting in the floorboards.  The homeowner alleges that the work was not completed up to national and local building codes.

Realtors engaging in development work is not uncommon.  Many firms offer property management and building services as well as the ability to sell properties.  However, the risks and considerations are also expanded with these additional services.  It is important to realize that the standard professional liability insurance policy does not cover development of properties and may even exclude property management.

If your firm is engaging in these types of services, it is important to have a review of the real estate firm’s professional liability insurance to make sure the firm is adequately covered for the work it does.

Contact us to learn more about protecting your real estate brokerage firm and obtaining the proper insurance.