15 Ways REALTORS® Can Avoid Lawsuits in Their Practice

Real estate can be rewarding, but it’s also one of the most litigious industries. One missed disclosure, one verbal promise not followed up in writing, or one sloppy MLS entry can trigger lawsuits costing tens of thousands of dollars — not to mention reputational damage.

The good news? Most lawsuits can be prevented with proactive practices. Below are 15 ways REALTORS® can reduce their risk of litigation — complete with real-world examples, action steps, and pitfalls to avoid.

________________________________________

1. Disclose, Disclose, Disclose

Why it matters:

Failure to disclose is the #1 reason agents get sued. California law (Civil Code §2079) requires agents to disclose material facts that affect the value or desirability of a property.

Example: A seller patched over termite damage. The agent didn’t probe further. Six months later, the buyer sued both seller and agent for concealment and negligence.

What to do:

• Always err on the side of transparency.
• Document disclosures in writing using TDS and supplemental forms.
• Advise sellers to disclose everything — even “minor” issues.

What not to do:

• Don’t assume “if I don’t ask, I can’t be held liable.” Courts look at what you should have known.

________________________________________

2. Be Cautious With Permit and Zoning Representations (ADUs & Guest Houses)

Why it matters:

Unpermitted conversions, ADUs, or garage apartments can expose agents to lawsuits if marketed improperly.

Example: A buyer purchased a home with an “ADU.” After closing, they learned it wasn’t permitted and couldn’t be rented legally. They sued the listing agent for misrepresentation.

What to do:

• Do not market living space as permitted if you haven’t verified permit history.
• Phrase carefully: “garage conversion” instead of “bedroom.”
• Disclose clearly if something is not permitted.
• If you haven’t verified permitting, disclose in writing that permitting has not been verified and strongly suggest buyer perform own due diligence.

What not to do:

• Don’t rely solely on what the seller “thinks.”
• Don’t market unpermitted space as income-generating.

________________________________________

3. Review Title Reports Thoroughly

Why it matters:

Title defects — liens, easements, encroachments — are common sources of litigation.

Example: An agent overlooked an easement in the title report. The buyer later discovered they couldn’t build a pool. They sued for nondisclosure.

What to do:

• Review preliminary title reports with your client.
• Flag unusual easements, CC&Rs, or liens.
• Recommend legal review if questions arise.

What not to do:

• Don’t dismiss “boilerplate” items without reading.

________________________________________

4. Encourage Pre-Listing Inspections

Why it matters:

Surprises after closing often spark lawsuits. Pre-listing inspections uncover problems early.

Example: A buyer sued over hidden plumbing leaks discovered two weeks after closing. A pre-listing inspection could have revealed the issue, giving the seller a chance to repair or disclose.

What to do:

• Recommend sellers order a pre-listing inspection.
• Use the report to prepare disclosures.
• Encourage proactive repairs where possible.

What not to do:

• Don’t assume buyers will uncover every issue. Hidden problems often lead back to you.

________________________________________

5. Put Everything in Writing

Why it matters:

Verbal promises are easily denied. Written communication protects everyone.

Example: A buyer claimed the seller promised to leave the washer/dryer. The agent had only mentioned it verbally. A lawsuit followed when the appliances were removed.

What to do:

• Confirm verbal agreements via email or text.
• Use standardized forms whenever possible.
• Keep a transaction log.

What not to do:

• Don’t rely on memory — “he said, she said” rarely holds up.

________________________________________

6. Be Precise in MLS Representations

Why it matters:

Civil Code §1088 makes agents liable for MLS misrepresentations. Even mistakes can cost you.

Example: An MLS listing showed 2,400 sq. ft. The permitted size was 2,200. The buyer sued for misrepresentation.

What to do:

• Verify data with appraisers or county records.
• Use disclaimers like “buyer to verify.”
• Double-check before hitting “publish.”

What not to do:

• Don’t copy old listings blindly.
• Don’t exaggerate features for marketing.

________________________________________

7. Confirm Third-Party Information

Why it matters:

Passing along unverified info makes you liable.

Example: An inspector casually told the agent the roof was “fine.” The agent repeated this to buyers, who later faced a $20,000 replacement. They sued the agent.

What to do:

• Attribute information clearly: “Per the inspector’s report…”
• Encourage clients to obtain their own expert opinions.
• Document the source in writing.

What not to do:

• Don’t paraphrase or overstate third-party findings.

________________________________________

8. Track Deadlines and Contingencies Closely

Why it matters:

Missed dates for inspections, contingencies, or loan approvals are fertile ground for lawsuits.

Example: An appraisal deadline was missed, and the buyer’s financing fell through. The seller sued for breach.

What to do:

• Use calendars with automated reminders.
• Employ transaction coordinators.
• Create a standard checklist for every deal.

What not to do:

• Don’t assume the other side will remind you of dates.

________________________________________

9. Stay in Your Lane of Expertise

Why it matters:

Agents can be held liable for “acting like” experts in fields outside real estate.

Example: An agent told buyers a home “looked structurally sound.” Weeks later, major foundation issues surfaced. The buyers sued.

What to do:

• Limit advice to real estate practice.
• Refer to attorneys, CPAs, or contractors when appropriate.
• Document referrals in writing.

What not to do:

• Don’t speculate on legal, tax, or construction matters.

________________________________________

10. Manage Client Expectations from Day One

Why it matters:

Lawsuits often stem from disappointment when expectations aren’t met.

Example: A seller expected $900k after the agent “promised” it. The home sold for $840k. The seller sued for negligence.

What to do:

• Explain market realities clearly.
• Under-promise, over-deliver.
• Put pricing strategies in writing.

What not to do:

• Don’t overhype outcomes to win the listing.

________________________________________

11. Document Offers and Counteroffers Carefully

Why it matters:

Poorly worded addenda or missing initials cause disputes.

Example: A buyer alleged they were promised closing costs, but the concession wasn’t written into the final agreement. Litigation followed.

What to do:

• Double-check every document.
• Use precise language.
• Confirm client understanding before signing.

What not to do:

• Don’t rush paperwork under pressure.

________________________________________

12. Communicate After Closing

Why it matters:

Many lawsuits arise post-closing when buyers discover problems. A quick call can de-escalate.

Example: A buyer discovered the dishwasher was broken after move-in. They felt abandoned by their agent, fueling legal threats.

What to do:

• Check in with clients after closing.
• Be available for a short “transition period.”
• Refer disputes quickly to professionals.

What not to do:

• Don’t disappear the moment escrow closes.

________________________________________

13. Maintain Professional Boundaries

Why it matters:

Mixing personal and professional roles creates liability.

Example: An agent referred their cousin to do repairs without disclosing the relationship. The work was shoddy, and the buyer sued.

What to do:

• Disclose conflicts of interest.
• Avoid recommending unlicensed vendors.
• Maintain professional distance.

What not to do:

• Don’t put personal relationships above client interests.

________________________________________

14. Carry (and Understand) E&O Insurance

Why it matters:

Errors & Omissions insurance is your safety net, but not a blank check.

Example: An agent assumed their policy covered fraud. It didn’t. They paid damages personally.

What to do:

• Review policy details annually.
• Understand exclusions (fraud, intentional acts).
• Confirm coverage extends to your brokerage.

What not to do:

• Don’t assume “I’m insured for everything.”

________________________________________

15. Stay Current on Laws, Ethics, and Forms

Why it matters:

Laws, disclosure requirements, and C.A.R. forms evolve constantly. Staying up-to-date reduces liability.

Example: An agent used an outdated form that failed to capture new disclosure requirements. The buyer sued for nondisclosure.

What to do:

• Attend legal update classes.
• Review C.A.R. form changes regularly.
• Refresh your Code of Ethics training.

What not to do:

• Don’t assume “I’ve been doing this for years” is good enough.

________________________________________

Why Avoiding Lawsuits Matters

Litigation drains money, time, and reputation. By weaving these 15 practices into your daily workflow, you reduce risk, build client trust, and protect your license.

________________________________________

Want to go deeper?

Nathan Klein will break down the most common disclosure mistakes in his upcoming class:

“Common Disclosure Issues that can Lead to Litigation!”

Date: October 22 at 10:00 AM

Time: 45-minute presentation + 15-minute Q&A

Don’t miss this chance to learn how to protect your practice and avoid costly legal pitfalls.