E&O Risk Manager: Seller Sues Agent for Warrantless Search of Property

A Real-Life Situation on the Importance of Abiding by Internal and External Rules and Guidelines

Situation:

pearl-insurance-logo

A real estate brokerage received a listing agreement in a beautiful neighborhood filled with numerous Queen Anne homes constructed in the mid-19th century. The agent and sellers came to an agreement on the price, partially based on comparable sales of properties in this post-industrial tourist town. The property was listed in the Multiple Listing Service and a combination lock box was installed on the front door.

Problem:

Another agent in the brokerage, while serving as a member of the local preservation review board, was actively engaged in the process of designating buildings for historic landmark status. In that capacity, she accessed the lock box to show it to other board members and to secure photographs of the home’s interior.

Mistake:

The agent violated the rules of the Multiple Listing Service by using the lock box for purposes other than to show the property to prospective buyers.

Result:

Unbeknownst to the listing agent and sellers, the preservation review board petitioned the town to designate the property for landmark status. If approved, the designation would have placed restrictions on certain improvements and alterations. Meanwhile, the sellers received a purchase offer from a buyer who was willing to pay more than the list price. But that offer was significantly reduced after the board notified the parties of the pending petition. The sellers then filed suit against the broker and agents alleging breach of fiduciary duty, failure to seek consent, and facilitating a warrantless search of private property. The matter was settled for an amount within the two offers, plus legal fees incurred to defeat the historical landmark designation.

Prevention:

Maintaining a good reputation in the community can be difficult to achieve if agents fail to abide by internal and external rules and guidelines. Periodically reviewing these may help you accomplish this goal while reducing the chances of being the target of expensive and time-consuming litigation. Putting the interest of your clients first should always be a priority. And it’s important to keep in mind that most, if not all, real estate errors & omissions insurance policies preclude coverage when an agent acts outside the scope of their professional responsibilities.

The recommendations in this article may differ from state and local practices. Greenwich Insurance Company and Indian Harbor Insurance Company Coverage is not available in all jurisdictions.

Copyright © 2016 Pearl Insurance/XL Catlin