The potential legal pitfalls of real estate practice

In the high-stakes world of real estate, a single misstep can transform a promising career into a legal nightmare.

Although I’m an active Realtor, back in the 1970s, as a broker, I was called upon to testify as an expert witness. The case involved a broker who was accused of not being vigilant during an open house when jewelry was stolen by someone from the public. That single case started a second career for me as an expert witness. I’ve testified in about 600 trials and written thousands of expert reports, seeing firsthand how quickly professional dreams can unravel.

The real estate industry is experiencing a critical moment. An influx of poorly trained, part-time agents who fail to understand fundamental rules and regulations is creating a perfect storm of potential litigation. The consequences are far more than monetary—they can devastate an agent’s reputation and professional future and negatively impact their brokerage.

The landscape of professional liability

Agents face numerous potential legal challenges, including professional negligence claims, fraud allegations, breaches of fiduciary duty, misrepresentations of professional expertise, financial damages from incorrect advice to buyers and sellers, vicariously dragging their brokerage into litigation and the besmirching of their personal and their brokerage’s reputations (which can be dramatic in smaller communities).

One of the most insidious risks lies not in outright lies but in strategic omissions. Agents who fail to disclose critical property details—whether they’re zoning restrictions, environmental hazards or structural defects—are setting themselves up for potential lawsuits.

Common pitfalls

There are many recurring issues that invite legal scrutiny and lawsuits, including:

Agents stating that zoning or other uses are legal when they’re not. It’s up to you to verify the zoning online or in person at the local zoning office.

Omitting negative factors

Sloppy practice inclusive of badly written offers

Accepting details from older, previous listings as fact, like incorrect lot sizes or room and gross area dimensions. Original builder representations of square footage can be exaggerated. Buy a decent laser measurement tool and, if possible when listing, get electronic floor plans and the provincial assessment gross floor area.

Pushing buyers to make a clean offer when they won’t qualify for an adequate mortgage

Selling land for a home or other construction only for the buyer to find out that it’s in a flood plain or on a restricted site

Selling contaminated land without disclosure, promising the buyer a specific (and usually inflated) price for their home when the market value wasn’t there, so they can’t close

Lack of understanding of the rules and regulations that guide the real estate industry

Your best defense: Documentation

The difference between surviving a lawsuit and being crushed by one often comes down to one critical factor: meticulous record keeping.

Agents must maintain comprehensive documentation of every transaction, including all offers, counteroffers and forms, detailed transaction diaries, email correspondence, text messages, handwritten notes and verbal communication summaries.

Be sure to verify all facts including former MLS listings and verbal representations by your sellers or buyers.

Putting this all together can be challenging and depending on the case can eat up two weeks of an agent’s time. Text message downloading can be a chore. As well, the brokerage has to produce a similar list. Preparation is your shield.

Here’s some practical advice you can implement now:

• Maintain a detailed transaction diary
• Document every conversation and action
• Verify all property and market information
• Be transparent about potential limitations
• Follow legal counsel’s guidance precisely
• Learn the rules, and study your provincial and board guidelines

The emotional and professional toll

Being sued is more than a legal battle—it’s an emotionally draining experience that can paralyze your business. If you end up in a legal case, remember, the lawyers assigned to it are veterans and they will guide and advise you. Follow their direction at all times.

Some cases settle not because the agent did something wrong but because the lawyer felt that they would make a poor witness. Some people simply can’t handle the cross-examination of opposing counsel—I’ve observed agents breaking down and quivering on the stand during that process.

The real estate profession demands more than sales skills—it requires unwavering professionalism, attention to detail and a commitment to ethical practice. Keep these tips in mind to protect your reputation and your business.