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Under the federal Fair Housing Act and the REALTOR® Code of Ethics, you cannot limit your customers’ housing options based on race or ethnicity, among other protected statuses, even if it’s what the client wants.
This is just one of many legal issues practitioners may misunderstand. Beyond fair housing, transactional items that can be wrought with legal consequences include disclosures, contracts, escrow management, and lawful property marketing. “Legal issues permeate all aspects of the real estate industry,” says Steven D. Graham, vice president of risk management at the Missouri REALTORS® association.
Common legal issues in real estate include:
- Inaccurate listing information. Graham says he’s seen lawsuits over listings using square footage from a local assessor’s office that turned out to be false. The Missouri state association has created a Measurement Disclaimer Form to address square footage. It provides the opportunity to cite the source of the square footage used for a listing but also says, “If exact acreage or square footage is a concern, the Property should be independently measured.”
- Misleading property photos. Using old photos of a property in a listing can lead to accusations of misrepresentation in advertising. Bartholomew recalls going to see one house whose photos showed a lush green lawn, but there was no grass on the property in person. Such a misrepresentation is a violation of Article 2 of the Code of Ethics, which states: “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” A Standard of Practice was added to Article 2 last year addressing the Photoshopping of listing photos.
- Escrow. A buyer who gets cold feet and wants to cancel a deal may also want his or her earnest money back, turning to you to figure out how to retrieve it. You should refer your client to his or her attorney in such a circumstance. Even in places like Illinois, where a real estate broker serves as the escrow agent, the broker cannot release funds without written permission from both parties in the transaction or a court order.
- Wire fraud. Fake emails from scammers instructing the release of escrow funds is a growing problem. If you handle escrow funds, you should have policies in place to verify any wiring instructions that are sent to your clients, says Juana Watkins, general counsel at Florida REALTORS®. Such policies might include a disclaimer on your email signature that you will never give wiring instructions via email, as well as procedures to have clients call you to verify any instructions they receive.