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Avoid professional negligence claims

16 February 2017

By Peter Moran, partner at Colin Biggers & Paisley

Any agent who has ever experienced a negligence claim knows that it can be time-consuming at best; costly and reputation-damaging at worst.

Here are four ways agents can avoid (or at least lessen the chance of) a negligence claim.

1. Communication is key

Lack of clear or adequate communication accounts for the majority of real estate-related claims.

Agents can substantially reduce their risk of a claim by improving their agent/client communications and documenting their work.

Failure to inform a client or follow a client’s instructions, obtain consent or disclose information to a lender client can lead to a lawsuit. Agents should always check in with clients to confirm when new information is received and make sure it's understood, especially if there is a language barrier.

The importance of documenting work cannot be emphasised enough. Having a paper trail of what occurred, even if notes are brief, will be instrumental to defend against a negligence claim.

2. Don't take shortcuts

Take time to clarify the instructions and enforceability of a sales contract pre-exchange.

Take, for example, the case of Signorelli v M G South Pty Ltd [2012]. A vendor alleged negligence against his selling agent subsequent to the termination of a $1.8 million contract to sell property in Blakehurst.

The agent attended on exchange and in doing so accepted a photocopy (as opposed to an original) of a deposit bond.

Post exchange, attempts to obtain the original deposit bond from the purchaser were unsuccessful, resulting in the vendor's solicitors advising that the contract ought be terminated.

That was duly done and the property then resold for $180,000 less than the original contract price.

The vendor contended negligence against the selling agent and claimed the $180,000 price differential. This could have been avoided if the original bond was insisted upon at exchange.

3. Beware these difficult clients

There are a number of client types that carry with them an increased risk of a claim:

The "disappearing" client who fails to respond when you attempt to make contact

The "don't involve me" client who wants you to make all the decisions

The "transferred" client who has been transferred from another agent and typically has not paid the former service provider their fee

The "close knit, extended family" client, where one person has engaged you, but their family members attend meetings with them and give them the information and instructions

The "experienced" claimant – notorious for avoiding paying commissions

The non-English speaking client – this situation may be risky depending on who is doing the translating and interpreting

The "family/friend" client – a personal friend or family member of the agent who is looking after their matter

4. Say no

Sellers can be very demanding. With every new legislative change comes more paperwork and administration.

All too often, agents are pressured to meet unrealistic deadlines. It's when you are rushed that most mistakes happen.  It's critical to set realistic timeframes for yourself and your clients to avoid risk.

When sellers' expectations aren't realistic, say no to the job. Bear in mind it is the real estate agent that is ultimately responsible for meeting their legal obligations. It is the agent that will be sued for misconduct - not the client.