Disputes between clients that arise after closing can be difficult to resolve without legal help. Agreements resolving after-closing disputes, because they often involve giving up legal rights, almost always involve the practice of law and require legal advice. That is not to say, however, that real estate agents do not or should not play a role when disputes between the parties arise after closing.
It is first important to understand that as a general rule the agency relationship between a real estate licensee and a client ends with the closing of the sale. That is the case because the object of the agency has been completed. Click here for a detailed discussion of termination of agency relationships. This is important because it means an agent is not legally obligated to help a former client resolve a post-closing dispute and, if they do, their authority will be extremely limited.
Agents involve themselves in post-closing disputes as a matter of good business practices, not legal obligation. It is always good business to have satisfied and happy ex-clients out in the world singing your praises. It is perhaps even more important not to have disgruntled ex-clients out there making complaints to the Real Estate Agency and filing lawsuits. It is a short step from “the seller took advantage of me” to “his agent took advantage of me” to “why did my agent let these crooks take advantage of me.” A buyer’s agent who eggs his buyer client on by suggesting fraud and deceit may find themselves named in the lawsuit that results once their client hires a lawyer.
Although not every post-closing suit can or even should be resolved – frivolous claims and unreasonable people do exist – it is a foolish agent (whichever side they were on) who does not first explore business solutions to disputes that arise after closing. The most common post-closing dispute, of course, is one over the condition of the property. This simple fact makes agent or company provided home warranties among the most cost effective risk management tools available. Click here for a discussion of the commission sharing issue associated with agent provided home warranties.
When there is no insurance, a defect discovered after closing is very likely to mean the buyer calling their agent to call the seller’s agent to seek redress. The tendency at that point is for everyone to point fingers at everyone else. That is a foolish approach. There will be plenty of time for finger pointing later on. Rather than pointing fingers and assessing blame, the first step, just like with a pre-closing problem, is to carefully define the problem.
Suppose, for instance, the problem is that the buyer has no hot water when they move in. The first step is for someone to determine what exactly is wrong and what it will take to fix it. This sounds basic but it is all too often overlooked. Helping a former client get a problem correctly diagnosed by recommending repair people you know to be honest and competent is the kind of service that wins life-long clients, helps defuse potentially unpleasant situations and marks you as a true real estate professional. More importantly, to paraphrase a former U.S. Secretary of Defense, it is much easier to see solutions to known problems than unknown ones.
Once a post-closing problem is understood, it is time to talk to the client about solutions. This is basically beginning the same process as that used for finding resolution to pre-closing disputes. If the client feels no obligation and is unwilling to participate in any resolution, and the problem is one that could result in a significant claim, it is time to recommend they seek legal advice. If not, it is time to negotiate a resolution and to not forget about fail-safe provisions.
Agents, however, should not draft agreements to resolve disputes that arise after closing. Such an agreement will be considered a settlement agreement and as such can affect legal rights. Drafting such agreements is the work of attorneys. If a problem is big enough or complex enough to require a written agreement to resolve, it is time to get lawyers involved. Agents should, therefore, make it clear from the outset that their efforts to help former clients resolve post-closing disputes do not include legal advice or drafting settlement agreements.
If the former clients cannot or will not resolve a post-closing problem, it is time to assess the agent’s own potential exposure. Unhappy people are bad for business and can even be a threat to your license. Sure, that can seem, and maybe even is, unfair but it is reality. If someone is unhappy with your client because of a real estate transaction in which you represented that person, you need to assess the risk of that unhappiness extending to you. Their own agent should be doing the same thing.
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