Everyone’s got a story about a real estate agent who referred their buyer or seller to either a mortgage rep, a lawyer, a title company, a home inspector, and so on and so on. But, what most agents don’t understand, is that when they make a referral, they place themselves at additional risk of legal liability to the person to whom they have made the recommendation.

Did any of you pick up on what I just wrote?

In case you didn’t, please notice, that after I said, “when they make a referral,” then I went on to say, “they place themselves at additional risk of legal liability to the person to whom they have made the recommendation.” You see, most people who receive a referral automatically consider it to be a RECOMMENDATION; and that’s where the trouble originates.

Because the general public has such a low opinion of the honor of real estate agents, the moment an agent makes a referral there is the perception that the agent:

1. Is getting some sort of financial kick back from the person or company being referred; or

2. Is going to give a bribe to the person or company being referred in exchange for that person or company doing whatever they are able to help the agent close the deal and collect a commission.

Unfortunately, this negative public perception of real estate agents is supported by the improper actions of many agents, even if there is nothing improper in their relationship with the person or company they are referring.

For example, many agents will tell their buyer or seller something like this, “Don’t worry. If you use this home inspection company you won’t have any problems.” Well, what does THAT mean?

Although the agent may have meant to say, “This inspection company does a thorough job, and if they do find problems , which they very well may, they aren’t alarmists and intentionally scare off the buyer or seller; they will, however, explain the problem in detail and provide some advice on how it might be corrected.” But, that’s NOT what the agent said.

I can tell you, that if the agent’s first “Don’t worry” statement was said as testimony in a court of law, it would almost certainly be understood to mean, “I have a deal with this inspection company not to report anything negative.” And, that would be the end of the agents defense against a claim of fraud and/or conspiracy to commit fraud.

Then, there are the agents who will tell their client, “Don’t worry about your credit. This mortgage company get EVERYBODY approved.” What does THIS mean? I means that the agent has knowledge that this mortgage company is likely committing fraud to get unqualified people approved for mortgage loans.

Again, while the agent may have meant to convey this information, “This mortgage company is known to work with buyers with poor credit and have access to hard money investors who frequently make loans to people with less than perfect credit,” the agent DID NOT say this.

And, again, if the agent’s first “Don’t worry” statement was said as testimony in a court of law, it, too, would almost certainly be understood to mean, “I have a deal with this mortgage company who will commit fraud to get you a loan.” And, that would be the end of the agents defense against a claim of fraud and/or conspiracy to commit fraud.
By the way, in both of these circumstances, it’s pretty likely, that in addition to losing the lawsuit, the agent would also lose their real estate license.

Hopefully, you’re beginning to understand, that no matter how pure of heart a real estate agent may be, the public perception of real estate agents is, they will do anything, including anything dishonest or dishonorable, to close a sale because they are more interested in earning a commission than doing the right thing for their client.

And, even in the circumstance where the agent makes a referral and isn’t accused of fraud, the agent is STILL in the chain of legal liability if the professional that the agent referred does a poor job and caused harm to the person who was referred

However, a smart real estate agent can easily satisfy a client or customer without submitting themself to suspicion by following one very simple rule: DON’T MAKE ANY REFERRALS.

Sounds stupid. Right?

But, here’s how to help your client without making any referrals, and without placing yourself in greater legal jeopardy.

1. Make a list of at least 3 of each type of service that both a buyer or seller may need. Include their company name, a person at the company with whom you may be familiar, the company’s business address, and main phone number; you may also include a direct phone number to a specific person IN ADDITION to the company’s main phone number.

2. On the top of the page before the list of the various professional service companies, make a disclaimer statement similar to this example:

“The following is a list of service providers that are generally known to perform various services commonly used by buyers and sellers of real estate in this general physical location. This is not a recommendation to either employ, or rely upon any of these companies or persons on this list as I, (your name, and your company name and address) am providing this list merely as a courtesy for your convenience. I have no business relationship with any company or person on this list, and I do not receive any financial or any other type of consideration of any type from any company or person on this list. I have no personal knowledge of the professional competence of any company or person on this list. Finally, I strongly suggest that you seek out and employ any professional service provider(s) of your choice after conducting your own due diligence.”

3. Hand out the exact same list to all buyers and sellers, and have every one of them sign one copy that you should keep in your file to prove that you provided this list.

Now, some agents say, to do this will damage their business relationships with some of the companies to which they presently make referrals. To this I must ask: What is more important, your business relationship with these companies, or your duty to your client and to the public perception of your integrity?

Don’t be one of those agents who fails to heed this warning, then finding yourself on the wrong end of a lawsuit that accuses you of fraud and/or conspiracy to commit fraud.

This entry was posted on Monday, November 23rd, 2009 at 6:25 pm and is filed under Real Estate Agents, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.