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

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