Ethics Center: Business Ethics

Top Ten Most Frequent Real Estate E&O Claims, Part 5: Flooding or Leaks, Property Value

(Editor’s note: this is the last installment in our series about the most common real estate E&O insurance claims.)

Misrepresentation Regarding Flooding or Leaks

We see many claims regarding the failure to disclose or the misrepresentation of flooding or leaks in a subject property. These claims will likely include incidental allegations and/or claimed damages, such as damage to personal property, structural defects, difference in value of the subject property, and repair costs.

Some examples of claims in this area include:

  • The seller told the real estate that the basement floods, but the real estate agent told the seller not to disclose it. (In this situation, we would typically see a complaint filed by the buyers based on negligence, fraud, and the applicable consumer protection statute, followed by a cross-claim from the sellers.)

  • The real estate agent should have known of the house’s propensity to flood because of the water stains on the basement walls.

  • The real estate agent told us the water was wind driven and came in through the roof during a hurricane, when in actuality the house has a propensity to flood during lesser storms.

Misrepresentation Regarding the Value of the Property

Claims alleging the misrepresentation of the value of the property may occur in a number of scenarios. For example, the buyer of a home or the mortgage lender may allege the appraisal overvalued the subject property. In addition to appraisals, plaintiffs may allege misrepresentation concerning broker price opinions (BPOs), which provide a fair market value estimate of the subject property. (Note that some jurisdictions place limits on BPOs done by licensed real agents.) In contrast, a seller may allege his or her real estate agent undervalued the subject property and listed it for too little.

Reprinted with permission of Rice Insurance Services Company, LLC

For more information on affordable E&O insurance for low-risk real estate agents and brokers, visit E&OforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.