There is an obscure provision in the FAR/BAR contract that offers some unique protections to a licensee if – among other things – a party has misrepresented any information to the licensee (or there is incorrect information available in the public records), the licensee makes a faulty third party referral, or any such third party vendor provides defective products or services to a contracting party.
Section 14 of the contract provides in part:
Buyer and Seller (individually, the “Indemnifying Party”), each individually indemnifies, holds harmless, and releases the Broker and Broker’s officers, directors, agents and employees from all liability…including all costs and expenses, and reasonable attorney’s fees at all levels, suffered or incurred…in connection with or arising from claims, demands or causes of action instituted by Buyer or Seller based on:
- inaccuracy of information provided by the Indemnifying Party or from public records;
- Indemnifying Party’s misstatement(s) or failure to perform contractual obligations;
- Broker’s performance, at Indemnifying Party’s request, of any task beyond the scope of services regulated by Chapter 475, F.S., as amended, including Broker’s referral, recommendation or retention of any vendor for, or on behalf of, Indemnifying Party;
- products or services provided by any such vendor for, or on behalf of, Indemnifying Party; and
- expenses incurred by any such vendor.
Buyer and Seller each assumes full responsibility for selecting and compensating their respective vendors and paying their other costs under this Contract whether or not the transaction closes.”
There is a small fraternity of attorneys who will insist this provision be stricken from the contract offer.
This leaves buyers and sellers off the hook for any misrepresentations they may have made, and the licensee open to claim in the event one of their recommended referrals (i.e., home inspector, lender, closing agent, roofer, electrician, pest inspector, handyman, surveyor, septic inspector, plumber, and so on) renders defective service. It also removes the specific responsibility for sellers and buyers to pay for the services of the third party vendors they utilize.
For a seller or buyer, this is not an unhappy turn of events – they’re not on the hook financially, or for being less than forthright. Yet the licensee is potentially liable for the actions of the third parties the licensee refers, and possibly the fees for said vendors if the party fails to pay.
So what do you do when put in such a position?
You want to render comprehensive service and guidance to your client, yet with the stroke of a pen, their attorney leaves you holding the proverbial bag for your professional efforts.
Do you raise an objection and risk creating an adversarial atmosphere? Or, do you just go about your business with fingers crossed, hoping that everyone performs as expected (and you don’t run into a situation like the one [true story] where the respected home and pest inspectors both missed the massive termite infestation in the property’s truss system, necessitating tens of thousands of dollars of post-closing repairs for the unwitting buyer)?
Dishonesty and misrepresentation can be difficult to peg. According to Realtor Magazine: “Use..seller disclosure forms (and be sure that the seller fills out the form). [D]ocument sellers’ sources of information and encourage the use of other professionals, such as inspectors and attorneys, whenever appropriate. Avoid making predictions, such as “This well will never run dry” or “The value of this house is sure to appreciate.” They’re recipes for disaster.“
On the referral issue, you can simply pass along the third party referral responsibilities to the client’s attorney, leaving yourself free from any possible liability for defective performance by a vendor.
Most professionals, though, would feel like they were not doing their job, and furthermore maintain a trustworthy network of third party professionals upon which they rely, so a fallback position (and one some brokerages have adopted), is to provide a list of referrals with contact information and a bold-faced disclaimer, and leave it up to the client to make the hiring decision. You can also ask the client to oversee whomever they hire once the decision is made.
While a discussion on the laws of agency and referral are lengthy enough to fill at least another post (or two), suffice to say that this situation is an excellent reminder to continually vet your third party vendors to ensure their performance is of the quality you expect and your clients deserve, and to always remain vigilant in seeking out forthright clients with which to work.
You will also want to check with your liability insurance carrier to understand what coverage you have, if any, should the work of any of your referral partners turn up defective.
And, when faced with this unique situation where your client’s attorney puts you on the defensive, be sure to alert your broker about the proposed contract revision, and if you proceed in the normal course and wish to make referrals, be very judicious with your selections and utilize your A-Team for every component of the transaction under your control.
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