RISK MANAGEMENT SEMINAR

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RISK MANAGEMENT SEMINAR

• SLIDE SHOW

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RISK MANAGEMENT PRESENTATION OUTLINE

• RISK MANAGEMENT
• UNDERSTANDING THE RISK
• RISK AS DEFINED BY THE NATIONAL ASSOCIATION OF
  REALTORS
• A. MISREPRESENTATION
• B. AGENCY
• C. FAIR HOUSING
• D. ANTI-TRUST
• E. THE UNLAWFUL PRACTICE OF LAW

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• RISK MANAGEMENT PROGRAM
• A. EDUCATION
• B. PAPER TRAIL
• C. TRANSFERRING RISK
• I. EO INSURANCE, HOME WARRANTY
• II. DISCLOSURE STATEMENTS
• III. HOME INSPECTIONS

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CONTENTS

• THE INTENT OF THIS PRESENTATION IS TO DISCUSS
  METHODS OF PREVENTING FINANCIAL LOSS
• DEFINING RISK IS DESIGNED TO PREVENT PHYSICAL OR
  FINANCIAL HARM OR LOSS

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UNDERSTANDING THE RISK

• WE LIVE IN A SUIT CONCIOUS SOCIETY. IN FACT, IN
  THE U.S. TODAY THERE ARE MORE ATTORNEYS
  PRACTICING LAW THAN THERE ARE REAL ESTATE AGENTS.
  THERE ARE 800,000 PRACTICING ATTORNEYS IN THE
  U.S. AND THEIR NUMBERS CONTINUE TO SWELL, WHILE
  THE NUMBER OF REAL ESTATE AGENTS IN THE PAST
  SEVERAL YEARS HAS DECLINED. IT IS A WELL KNOWN
  FACT THAT IN THE U.S. YOU DO NOT HAVE TO DO
  ANYTHING WRONG TO HAVE SUIT BROUGHT AGAINST YOU.
  MANY LAW SUITS FILED AGAINST REAL ESTATE BROKERS
  ARE CLASSIFIED AS FRIVOLOUS AND OFTEN FILED BY A
  CONTINGENT ATTORNEY. NONE THE LESS, THESE LAW
  SUITS NEED TO BE DEFENDED AND CONTINGENT DEFENSE
  ATTORNEYS ARE A RARE BREED.

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THE RISKS AS DEFINED BY THE NATIONAL ASSOCIATION
OF REALTORS

• MISREPRESENTATION THIS IS THE BROADEST CATEGORY
  OF LEGAL LIABILITY OVER 60 OF LITIGATION
  ORIGINATES FROM THIS CATEGORY. THE MOST COMMON
  CAUSE IS INCORRECT SQUARE FOOTAGE. NEXT IS ANY
  STATEMENT CONCERNING THE STRUCTURAL AND
  MECHANICAL SYSTEM OF A HOME THAT TURNS OUT TO BE
  LESS THAN ACCURATE. MANY TIMES, IT IS THE
  SIMPLIST OF STATEMENTS THAT CAN LEAD TO
  LIABILITY.

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• EXAMPLE A PROSPECTIVE BUYER ASKED THE REAL
  ESTATE AGENT IF THE ROOF WAS NEW. THE AGENT
  LOOKS IN THE MLS BOOK AND UNDER COMMENTS IT
  STATES NEW ROOF THIS INFORMATION IS GIVEN TO
  THE BUYER. THIS MAY CREATE A LEGAL LIABILITY IF
  LATER THE BUYER FINDS OUT THAT THE ROOF WAS SIX
  MONTHS OLD AT THE TIME OF PURCHASE. THE BEST
  RESPONSE TO THE BUYERS QUESTION IS TO STATE THE
  MONTH AND YEAR THE ROOF WAS INSTALLED. THE SAME
  HOLDS TRUE FOR APPLIANCES, HEAT PUMPS/AC/HEATING
  SYSTEMS. IF YOU ARE NOT CERTAIN ABOUT A FACT,
  FIND OUT. REMEMBER, THE GREATEST CONVEYOR OF
  MISLEADING INFO IS THE MLS BOOK

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AGENCY WHO DO WE REPRESENT?

• TRADITIONALLY, REALTORS HAVE REPRESENTED THE
  SELLER OF THE HOME AND HAVE A FIDUCIARY
  RESPONSIBILITY TO THE SELLER. THIS WAS LOGICAL
  BECAUSE BY CONTRACT THE SELLER OF THE HOME WAS
  PAYING THE COMMISSION. WHILE THE CODE OF ETHICS
  STATES REALTORS MUST DEAL WITH BUYER IN A HONEST
  AND ETHICAL FASHION, A REALTORS LOYALTY IS TO THE
  SELLER. IN THE PAST YEARS, THIS ARRANGEMENT HAS
  BEEN CHALLENGED BY THE ADVENT OF THE BUYER
  BROKER. SO MUCH SO, THAT NAR IS CURRENTLY TRYING
  TO IMPLEMENT A NEW CONTRACT FORM THAT WILL HAVE
  REALTORS CHECKING OFF WHO THEY ARE REPRESENTING,
  BUYER, SELLER OR BOTH. DUAL AGENCY LEADS TO
  GREATER LEGAL LIABILITY BECAUSE A REALTOR CAN
  REPRESENT BOTH THE BUYER AND SELLER. THIS IS
  SOMEWHAT INTUNE WITH AN ATTORNEY REPRESENTING THE
  PLANTIFF AND THE DEFENDANT SIMULTANEOUSLY. IT IS
  A VERY DIFFICULT SITUATION BUT, ONE THAT LEADS TO
  THE GREATEST FINANCIAL REWARD. NOTE SOME STATE
  DO NOT ALLOW DUAL AGENCY

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FAIR HOUSING

• THIS IS THE MOST TALKED ABOUT LEGAL LIABILITY OF
  THE LAST SEVERAL YEARS. THE PRIMARY THING TO
  REMEMBER IN THIS CATEGORY IS THAT REGARDLESS OF
  HOW A QUESTION MIGHT BE PRESENTED TO YOU, IF IT
  WOULD LEAD TO ANY TYPE OF DISCRIMINATION OR
  STEERING YOU MUST ANSWER WITH THIS STATEMENT. I
  MAY NOT DISCRIMINATE ACCORDING TO RACE, COLOR,
  CREED, FAMILIAL STATUS OR HANDICAPPING
  CONDITIONS.

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ANTI-TRUST

• ANTI-TRUST IS SIMPLY THE FEDERAL GOVERNMENT
  INQUIRY INTO PRICE FIXING. THE GOVERNMENT HAS A
  DIFFICULT TIME COMPREHENDING WHY MOST REAL ESTATE
  AGENCIES CHARGE THE SAME COMMISION TO SOMEONE
  ATTEMPTING TO SELL THEIR HOME. AGENTS KNOW IT IS
  MARKET CONDITIONS AND COMPETITION THAT KEEPS MOST
  COMMISSION RATES FIXED

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• THE MOST COMMON VIOLATION OF ANTI-TRUST LAW
  OCCURS WHEN A REAL ESTATE AGENT TALKS ABOUT THE
  AVERAGE COMMISSION RATE IN A GIVEN COMMUNITY.
  IT IS IMPORTANT TO UNDERSTAND YOU MAY ONLY TALK
  ABOUT THE COMMISSION RATE ESTABLISHED BY YOUR
  FIRM OR BROKER. TO DISCUSS THE AVERAGE
  COMMISSION RATE IN A COMMUNITY IS A VIOLATION OF
  ANTI-TRUST LAWS.

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THE UNLAWFUL PRACTICE OF LAW

• TECHNICALLY, AS REAL ESTATE PROFESSIONALS, REAL
  ESTATE AGENTS ARE ALLOWED TO FILL IN THE BLANKS
  ON A CONTRACT DRAWN UP BY AN ATTORNEY. ANYTIME
  THEY DO MORE THAN FILL IN THE BLANKS,
  TECHNICALLY THEY ARE VIOLATING THE LAW. THE MOST
  COMMON VIOLATIONS OCCUR WHEN AN AGENT ADDS
  ADDENDUM TO EXISTING CONTRACTS. SUCH AS,
  PURCHASE OF THIS PROPERTY IS CONTINGENT UPON THE
  BUYERS PROPERTY IN MICHIGAN SELLING AND THE
  BUYER OBTAINING FINANCING. BY WRITING THIS
  ADDENDUM AND ADDING IT TO THE CONTRACT, THE
  AGENT ACTS AS AN ATTORNEY.

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• MOST CONTRACTS HAVE SUCH ADDENDUM AND TECHNICALLY
  ARE ILLEGAL. THIS SITUATION PROBABLY WILL NOT
  CHANGE IN THE IMMEDIATE FUTURE. BUT, IN
  CALIFORNIA EACH REAL ESTATE CONTRACT HAS ABOUT 25
  PAGES. MOST OF THE PAGES ARE PREPRINTED
  ADDENDUM, WRITTEN BY ATTORNEYS, THAT ADDRESS THE
  GREATEST MAJORITY OF COMMON ADDENDUM NEEDED BY
  REAL ESTATE AGENTS.
• NOW THAT YOU BETTER UNDERSTAND THE RISKS, LET US
  NOW DISCUSS RISK MANAGEMENT PROCEDURES.

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RISK MANAGEMENT PROGRAM

• EDUCATION YOUR LOCAL BOARD DOES AN OUTSTANDING
  JOB OF PRESENTING EDUCATIONAL OPPORTUNITIES.
  MANY TIMES THEY DEAL WITH THE SPECIFIC SUBJECTS I
  HAVE DISCUSSED WITH YOU. NAR HAS DEVELOPED A
  LEGAL LIABILITY SERIES THAT ADDRESSES EACH OF
  THESE FIVE CATEGORIES WITH A 3-HOUR SEMINAR.
  WHEN THESE EDUCATIONAL OPPORTUNITIES PRESENT
  THEMSELVES, PLEASE TAKE ADVANTAGE OF THEM.

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• PAPER TRAIL IT IS NO LONGER ENOUGH TO SIMPLY DO
  IT RIGHT. TODAY, YOU MUST BE ABLE TO PROVE THAT
  YOU DID IT RIGHT. IN ORDER TO PROVE THIS, YOU
  MUST ESTABLISH A PAPER TRAIL. THE PAPER TRAIL IS
  SIMPLY KEEPING ACCURATE RECORDS AND NOTES FROM
  ALL CONVERSATIONS AND NEGOTIATIONS THAT OCCUR IN
  A REAL ESTATE TRANSACTION. EVERYTHING YOU SAY OR
  DO WHILE NEGOTIATING A REAL ESTATE CONTRACT FROM
  THE VERY FIRST SHOWING TO THE CLOSING, SHOULD BE
  DOCUMENTED AND FILED.

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PAPER TRAIL CONTINUED

• IN FACT, THERE IS A VERY APPROPRIATE BOOK
  TITLED, THE PAPER TRAIL BY OLIVER FRANSCONA.
  IT IS NORMALLY AVAILABLE AT LOCAL BOARDS. THIS
  BOOK ALSO HAS A LIST OF STANDARD ADDENDUM THAT
  MOST REAL ESTATE CONTRACTS REQUIRE. THE AUTHOR
  GRANTS PERMISSION TO COPY AND USE THESE ADDENDUM.
  OLIVER FRENSCONA IS A PRACTICING ATTORNEY IN
  BOULDER, COLORADO

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THE TRANSFER OF RISK

• ERRORS AND OMISSIONS INSURANCE A PARTIAL
  TRANSFER OF RISK MAY BE ACCOMPLISHED BY PROCURING
  AND MAINTAINING ERRORS AND OMISSIONS INSURANCE.
  PROFESSIONAL LIABILITY SERVICES CAN ASSIST YOU IN
  YOUR SEARCH FOR QUALITY COVERAGE AT AN AFFORDABLE
  PRICE.

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THE TRANSFER OF RISK

• USE OF HOME WARRANTY PRODUCT HOME WARRANTIES
  ARE ANOTHER WAY TO TRANSFER RISK. THIS PRODUCT
  COVERS REPAIRS ON THE MECHANICAL SYSTEMS DURING
  THE LISTING PERIOD AND ONE YEAR FOR THE BUYER
  AFTER CLOSING. APPROXIMATELY 41 OF LITIGATION
  IN THE REAL ESTATE FIELD TODAY ARE DUE TO THE
  MISREPRESENTATION OF PROPERTY CONDITIONS AFTER
  CLOSING. DOESNT IT MAKE SENSE TO USE A WARRANTY
  AS A PART OF YOUR RISK MANAGEMENT PROGRAM?

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THE TRANSFER OF RISK

• DISCLOSURE STATEMENTS MANY STATES HAVE PASSED
  LAWS REQUIRING SELLERS TO FILL OUT DISCLOSURE
  STATEMENTS. THE BALANCE OF STATES ARE CURRENTLY
  DRAFTING LEGISLATION WHICH WILL MAKE THIS PART OF
  A MANDATED PROGRAM NATIONWIDE. THIS IS AN
  EXCELLENT TRANSFER OF RISK METHOD SINCE THE
  SELLER OF THE HOME IS FORCED TO DICUSS THE
  CONDITIONS OF THE MECHANICAL AND STRUCTURE
  COMPONENTS, TO THE BEST OF THEIR KNOWLEDGE.

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THE TRANSFER OF RISK

• HOME INSPECTIONS THIS IS A RAPIDLY GROWING AREA
  OF THE REAL ESTATE TRANSACTION. ALTHOUGH,
  LOOSELY ORGANIZED AND SOMETIMES A DETERRANT TO
  THE ACTUAL CLOSING OF THE TRANSACTION, HOME
  INSPECTIONS ARE AN EXCELLENT TRANSFER OF RISK.
  IF YOU ARE CURRENTLY USING HOME INSPECTORS, IT IS
  BEST TO USE AN INSPECTOR THAT IS CERTIFIED BY ONE
  OR MORE OF THE NATIONAL ORGANIZATIONS, SUCH AS
  THE AMERICAN SOCIETY OF HOME INSPECTIONS OR
  AMERICAN INSTITUTE OF INSPECTORS. THERE ARE
  SEVERAL OTHER NATIONAL ORGANIZATION, BUT THERE IS
  NO CLEAR LEADER

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THE TRANSFER OF RISK

• HOME INSPECTIONS CONT. IT IS ALSO IMPORTANT TO
  OBTAIN A CERTIFICATE OF INSURANCE FROM HOME
  INSPECTORS. THESE INSPECTORS SHOULD HAVE EO
  INSURANCE AND GENERAL LIABILITY INSURANCE.
  PLEASE DO NOT ACCEPT A COPY OF THE INSURANCE
  POLICY OR DECLARATIONS PAGE OF THE POLICY. A
  CERTIFICATE OF INSURANCE IS ACTUALLY ISSUED BY
  THE INSURANCE COMPANY TO VERIFY COVERAGE IS IN
  FORCE AND IS PAID IN ADVANCE. PLEASE REMEMBER TO
  NEVER REFER A SINGLE HOME INSPECTION COMPANY TO A
  PROSPECTIVE BUYER. A LIST OF SEVERAL DIFFERENT
  INSPECTION SERVICES SHOULD BE ACCUMULATED AND THE
  SAME FORMAT SHOULD BE USED FOR TITLE INSURANCE,
  MORTGAGE OR ANY TYPE OF INSURANCE FOR ACTUAL
  CLOSING.

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