Real Estate Lawsuits – Top Issues and How to Avoid Problems

Did you know that every real estate professional in Alberta has errors & omissions insurance through the Real Estate Insurance Exchange (REIX)? They are the insurer who manages legal claims against real estate agents and have insight to all of the lawsuits filed pertaining to real estate in Alberta.

They also provide superior risk management information, training and statistics for members and their recent 2021 Annual Report had some excellent tips and metrics I want to share.

In addition to handling lawsuits, REIX also manages pre-litigation problems – called Events – helping to resolve issues before they become a claim. They helped address 176 events in 2021 saving the costly and time-consuming court process.

REIX reported 53 new claims (lawsuits) in 2021, which is the lowest in their 30-year history. They break down claims into the 6 major categories below:

  • Non-disclosure: stigmatized property, water well, hearing, multiple offers, prior act
  • Land Use: subdivision, easement, zoning, RPR, environmental
  • Property Condition: flooding, foundation, septic system, sewer, roof, age of home
  • Defective Documentation: incomplete sale, lease agreement, chattels, land description, square footage, lot size, access prior to closing, parking arrangements
  • Financial: deposits, loss of income, mortgage, property value, taxes, condo fees
  • Nature of Breach: breach of fiduciary duty/contract/duty of care/Property Management duties

And the top three categories of the 53 claims reported in 2021? Property condition, defective documentation and financial. So, let’s talk about how to avoid the pitfalls in these three areas.

Property condition: the fundamental fix to this potential claim is disclosure. Not sure the age of the house? Disclose in the contract. Had a leaking basement – even if it’s been fixed? Disclose in the contract. If unsure of anything, disclose it in writing in the contract because it will save a possible he said/she said situation down the road.

Defective documentation: the key to managing this one is strict attention to the contract clauses. Review each and every line of the contract to make sure it lines up with all of the party’s expectations. A simple example of this is the Goods Included section of the contract. While the MLS® feature sheet might say that sweet hot tub is included – unless the actual contract includes that hot tub, it is NOT part of the agreement. The feature sheet does not form part of the contract and contains representations which include a disclaimer that the information may not be reliable. Always include the important matters in the contract to ensure they are binding. Square footage is another important, more complicated one. I’ve written a whole blog on this one topic but, in short, the Real Estate Council of Alberta (RECA) implemented new measurement standards in 2015. So, if you bought your home prior to 2015 and are selling it now, your home might “measure” a different size due to the new standards.

Financial: taxes and condo fees are a big contributor to this one. Though the buyer has an opportunity to verify information, such as the taxes with the city and condo fees via a condo document review, some choose to rely on information provided by the seller and which can be incorrect. As a buyer, always review whatever information is important to you and for sellers, include accurate, up-to-date information in your listing.

As your agent, protecting you is one of my fiduciary duties and it is one I take very seriously. If you, your family or friends need someone on their side to realize their real estate goals I’m only a phone call away. Visit me on Facebook and Google!