We’ve all been in some version of this conversation, perhaps at a holiday party:
“Oh, I heard you’re Dr. Dudley? Is that right?”
“Yes, I’m a pediatrician. And you are…?”
“I’m Fern. So glad to meet you... You see this dark spot on my arm? Well, it showed up out of nowhere and it’s been tingling like crazy, so please tell me it’s not serious.”
At this point, Dr. Dudley’s “spider sense” is what should be tingling. A stranger, providing no medical history, asks for an opinion far outside the realm of pediatrics, and even provides the desired diagnosis. While Dr. Dudley might think it doesn’t look serious, should she say that?
Real estate agents and brokers can find themselves in the same predicament. We find it hard to turn away someone asking for help, even in an area of expertise beyond what we’re licensed to do.
Now, take a relationship with your buyer or seller. You know a lot about your clients: Where they want to live and why; what type or size of mortgage loan they might be able to afford; and – if your customer relationship management software is up to date – the names, ages, and interests of their children.
What’s more, your clients genuinely trust you. They want to talk to you about their big decision, not someone else. But they will likely have a lot of questions that go beyond your real estate license. How can you help? And what if you know the answer, even if it’s not your specialty?
A Real Estate Scenario
Say a licensed real estate agent from your brokerage has a client (the Harrisons), who want to make an offer to buy a four-bedroom house listed in another county.
Henry Harrison: “We love the house and especially the six-acre yard, but the stone wall is old and I’m concerned that it might not follow the property line. How’d it look to you?”
Harriet Harrison: “And what about that part in the listing about holding the seller harmless for any claims of encroachment? Is that legal?”
Henry: “We’re also thinking of planting vines and starting a vineyard. If I take money out of my IRA to get it started, is it likely to be profitable within three years?”
Just like Fern with the tingly skin blotch, the Harrisons don’t recognize that there are limitations on professional advice. It’s tempting to answer each of these questions, even if it’s just an opinion, but your brokerage and your agent could be held liable if something were to go wrong. Instead, this agent needs to recommend trusted surveyors, lawyers, and financial advisors. This is how you and your team can continue to be seen as trusted experts, helping your clients, while not going out-of-bounds.
The Problem With Real Estate Professionals Veering Off-Course
The issue with dabbling in a specialized field is that the professional (i.e., the agent) is held to a specialist’s standard of care. Here are a few examples of ways in which you can move beyond the scope of your real estate licensure:
- Evaluating a legal issue, or drafting legal paperwork
- Opining as to the tax ramifications of a transaction
- Surveying property lines by “eyeballing” them
- Appraising the value of property
- Suggesting that a particular aspect of the house (e.g., a roof) “looks safe”
- Advising on investments
As a real estate professional, you may get questions once a day (and twice on Saturdays) asking you to draft addenda to property sales agreements, estimate property taxes, and opine on comparable sales.
Do you really have to keep mum on those topics?
No, you don’t. In each of the listed examples, the key word is a form of specialized advice. Unless you are licensed in multiple professions — and, if you are, please be sure you have liability insurance for each of them — you can’t give legal, tax, appraisal, surveying, or investment advice. But you’ve learned many facts that you can share with clients that don’t involve judgment calls, such as the property tax rate that will apply to the house. Going back to the Harrisons’ scenario: You aren’t stepping out of bounds by providing the couple with recommendations of surveyors who could help them confirm whether the stone wall follows the property line or not. Same goes for if you advise them to consult with a real estate lawyer regarding the legality of the sellers’ stipulation that they will be held harmless for any claims of encroachment.
Indeed, you’re supposed to disclose material facts to your client. Nondisclosure of material facts is among the most frequent causes of lawsuits by clients against their agents. However, you’re also not allowed to give professional advice outside your own profession.
If Things Go Wrong
Swerving off your professional path can cause serious consequences: Lawsuits, regulatory discipline, and derogatory comments on social media, just to name a few. “You’re only as good as your reputation,” as they say.
I remember defending a commercial real estate broker some years ago. The property required a permit from the city to be converted to the planned use. That fact was fully disclosed, but when the permit process stalled and the new owner was looking for people to sue, he named the permit facilitator, the seller, and the broker. The case went on for many months before settling, favorably as to the broker.
Besides my legal fees, the real cost of that suit was my client’s time. He spent weeks preparing for and attending depositions, producing documents, and enduring all the other inconveniences of the discovery process. That was uncompensated time sitting next to me, not serving his other clients.
When agents get sued, they have less time to do what they do best and fall down the rabbit hole into the unfamiliar world of civil litigation, stranger than anything Lewis Carroll imagined.
Real estate agents tend to be gregarious, outgoing people, active in their communities and eager to help others. When it comes to giving advice to clients, those positive tendencies must be tempered with a healthy dose of self-preservation. Here are ways to maintain that balance:
1) Actively listen to clients’ questions.
Are you being asked to take a detour into a different profession? Remember Dr. Dudley’s “spider sense” – triage the question and stick to what you know.
2) Don’t give opinions.
When presenting information that’s on the cusp of another profession, just stick to the facts, don’t opine. If your client insists on an opinion, suggest a quick consult with someone licensed to give one.
Develop a network of allied professionals, such as accountants, real estate lawyers, surveyors, inspectors, and appraisers. In addition to acting as your “lifelines” to answer questions that aren’t in your wheelhouse, they can also be great referral sources.
Above all, read or re-read your state’s real estate code of ethics. You can even mark it as a favorite on your computer’s browser for quick reference.