As part of our practice, we defend brokers from claims made by disgruntled buyers and sellers to the Oregon Real Estate Agency (the “Agency”). This article will briefly outline some of the most common claims we face, and how brokers can protect themselves from such claims.
Many claims against brokers simply involve negligence by the brokers. Examples of negligence include a broker's failure to adequately explain and monitor transaction timelines, to sufficiently document all communications and activities relating to a transaction, and to ensure that all conditions and steps of a transaction are addressed and dealt with on a buyer's or seller's behalf. Although brokers rarely intend to act in such a way, brokers may be careless when dealing with a tight deadline or handling many transactions at once – both situations in which the broker may not spend sufficient time making sure everything is in order. One way in which brokers can protect themselves from claims of negligence is by documenting all activities relating to a transaction, including placing notes of conversations into a transaction file, and regularly reviewing the file to ensure that everything has been addressed.
Failure to Submit Documentation and Earnest Money in a Timely Manner
As we all know, brokers must turn in all transaction documents and submit earnest money to their principal brokers for review within the required timelines. Despite brokers knowing these requirements, we continue to see brokers failing to turn in their documentation and earnest money on time. This becomes a problem because it does not allow the principal broker to adequately supervise the broker and may violate time deadlines set by law. The problem is typically discovered when the principal broker's file is audited or when a complaint is filed against the broker. Brokers need to be aware of the frequency of this problem, and constantly remind themselves to turn in all documentation and earnest money in advance of any relevant deadlines.
Misrepresentation by Failure to Disclose Prior Adverse Inspection
Brokers may run into problems in situations involving a sale fail due to material defects found by a home inspector and a subsequent sale to another buyer. Problems arise when the subsequent buyer does not discover the defects or the seller does not disclose these defects, or when the seller unsuccessfully attempts to repair the defects. Once the subsequent purchaser determines that there were undisclosed defects, he or she will likely seek compensation for the lack of disclosure, and may pursue action against the broker. Some brokers avoid such a situation by providing the subsequent purchaser with a copy of the home inspection report generated by the prior sale fail. This presupposes that the seller has been furnished with the report and has authorized its subsequent disclosure. In any event, the seller has a duty to disclose all known material defects.
Principal Broker's Failure to Supervise
Principal brokers are both blessed and cursed with the task of supervising brokers and their transactions. With this great responsibility comes great risk, as principal brokers must know licensing requirements, risk management techniques, and duties owed to all parties to a transaction. In addition, principal brokers must review all documentation and train brokers to fulfill their affirmative duties and operate in accordance with all applicable laws. Many problems experienced by principal brokers involve failure to maintain complete files; failure to review, initial and date transaction documentation; failure to train brokers; and failure to secure, transmit and document all earnest money. Principal brokers can avoid many of these problems by keeping up-to-date on all relevant rules, regulations and laws, and by frequently educating their brokers about rules, regulations, laws, office policies, and duties owed to their clients.
Failure to Renew Real Estate License
Brokers also face Agency sanctions when they fail to renew their licenses. Although this may seem obvious, we frequently see cases in which brokers merely forget to renew their licenses. Once the Agency determines that a broker has not renewed his or her license, it will contact the broker, asking for an explanation of the circumstances under which the broker failed to renew. In addition, the Agency will ask for details of all licensed real estate activities in which the broker participated in during the unlicensed period. In such a situation, a broker may receive various sanctions, including fines, which may directly correlate with the amount of commissions earned during the unlicensed period, and public reprimands. The obvious lesson learned from such situations is that brokers need to ensure that they renew their licenses on time.
It is crucial that brokers both keep up-to-date on rules, regulations and laws which impact their practice and maintain detailed and organized records for all transactions. In addition, we recommend that brokers take time to read the “Administrative Actions” section of the Oregon Real Estate-News Journal in order to learn from others' mistakes.
This column contains general information only and must not be construed as legal advice.
Questions may be submitted directly to Maylie & Grayson LLP by fax at (503) 775-1765,
by email at or by mail at 7959 SE Foster Road, Portland, Oregon 97206.