John M. Lee: How to Stay Out of Court

It is very unfortunate that we live in a very litigious society, but there are precautions that can be taken to minimize the chance that you will be caught up in a real-estate-related lawsuit.

Real estate contracts are legal documents and when issues rise from transactions, the consequences can be ominous. With property prices increasing as high and fast as they have been the past few years, sellers need to be extra careful during the sales process with contractual language and disclosures.

Usually when prices are increasing, the number of real estate lawsuits decrease because even if a buyer did find a defect a number of years later, the property would have appreciated enough so they are happy to pay for the repairs.

But when prices are flat or decreasing, and especially if the buyer thinks they paid too much for a property, they will look toward the sellers and/or agents for financial help with the issues. This usually results in arbitration or a lawsuit. In today's market, we are getting to that point, so sellers and agents must pay more attention to the details of a transaction to make sure the "i's" are dotted and the "t's" crossed.

Most of the complaints we see as real estate brokers are for non-disclosures. In every residential transaction of four units or less, with the exception of probate, trust and foreclosure sales, a transfer disclosure statement is required from the seller to the buyer. In many cases, a more detailed supplemental transfer disclosure statement is also completed and given to the buyer.

As a seller, please go through and answer all the questions carefully and if in doubt, disclose more rather than less. If there is not enough blank space in the paperwork to disclose completely, use an addendum or another form to provide more details.

Sometimes sellers will ask me if they need to disclose a certain item. Just the fact that they mention it is probably cause to disclose because you never know what the potential buyers are concerned about.

But if you are in doubt, check with your agent.

Another suggestion is to work with an agent who carries errors and omissions insurance (E&O) because the insurance carriers have educational requirements for agents. Most companies that carry E&O insurance will have risk management programs for their agents, educating them on the current legal issues and how to minimize risk.

If you, as the seller, are sued in a transaction, chances are high that the agents involved will be bought into the lawsuit.

Since real estate contracts are legal documents with consequences, I would suggest that all buyers and sellers have access to good real estate attorneys in the event that legal counsel is required. Chances are you will not need to use them, but it is better to know that you have access to someone when you need them rather than scramble to find someone when the need arises.

Correcting problems after the close of escrow are messy and costly. It is better to disclose and deal with problems or potential problems during the transaction than after. The worst that can happen is the transaction falls apart and you have to re-market the property again. In the long run, this is a better solution than getting embroiled in a bitter legal battle after the close of escrow.

Happy selling and my wish is that none of you ever get involved in a lawsuit, as it is absolutely no fun and an emotionally-draining experience.

John M. Lee is a real estate agent at Pacific Union, specializing in the Richmond and Sunset districts. If you have any questions about real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.