Do you have a risk reduction plan for your real estate business? In this post, we outline 12 strategies or best practices to consider adopting to reduce your liability and help manage the risk of potential litigation as well as complaints filed with the state real estate licensing entity or your local REALTOR Association.
- Develop and use standard procedures with everyone. Review fair housing rules and treat all prospects, customers and clients honestly, fairly and equally.
- Keep a communication log during your transaction. Record your notes, conversations, milestones. If red flags are raised during the transaction or you encounter challenges, it is particularly important to record the pertinent facts and events. If you are using a paperless transaction management system, scan and upload all of your notes, emails and correspondence for your transactions.
- Use email to confirm conversations, verbal agreements, proof of delivering copies of contracts and addenda. If your clients don’t use email, then mail copies of all the contracts and documents they sign via certified or registered mail or us an overnight service like Fedex.
Note: If you and your client prefer communicating via text, make sure to take a screen capture of important texts regarding the transaction. Or better yet, follow-up the text with an email to document the notification or important communication.
- Keep a record of your transaction including all paperwork, emails and correspondence. Create a file on your computer (or use a cloud-based program like Dropbox or Evernote) and a folder in your email program to organize your correspondence and documents. Archive your closed transactions (including your emails and other correspondence) and store them in your transaction management system, Dropbox, Evernote, and/or a backup drive.
- Rule of 3 – always recommend three vendors, contractors, attorneys, lenders, home inspectors, home warranty companies, etc. Consider creating a disclosure with the companies and service providers you recommend and having your clients sign and acknowledge the choices you presented.
- Always recommend and explain the benefits of a home inspection and a home warranty to your clients. Get a written waiver if they choose not to.
- Disclose…Don’t Diagnose. Be the source of the source. Stay within the boundaries of your area of expertise (real estate contracts, sales and marketing). Leave the analysis and diagnosis of any potential defect, issue or concern to the appropriate expert or contractor.
- Educate & set the proper expectations with your clients and customers. For example:
- Explain the entire short sale process; pros and cons of purchasing a short sale
- Review earnest money and what happens with a cancelled sale
- Conduct a seller and buyer interview/qualification with all clients
- When working with buyers, make sure your buyer is ready, willing and able to purchase. If getting a loan, have they started the approval process with a lender? If they are a cash buyer, do they have proof of funds?
- When working with sellers, ensure they are ready, willing and able to sell. Conduct a thorough consultation prior to listing to ensure they are motivated to sell and realistic in pricing the property. With short sale sellers, ensure you have the sellers complete the short sale packet and all documentation before you list the property.
- Use a transaction checklist or action plan to stay on top of all the tasks and procedures in a real estate transaction from initial contact to the successful closing of escrow. Include any due diligence and contingency deadlines.
- Communicate. Communicate. Communicate… often and with all parties to the transaction! Return phone calls and emails promptly.
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