A Real Errors & Omissions Claim: How an Inaccurate MLS Listing Opened the Door to Liability

As a real estate professional, you’re an MLS regular. Whether finding the perfect new home for your buyers or attracting potential buyers to your sellers’ listing, the detailed info provided in the MLS database is crucial for making sales. But do you know what happens when a feature in an MLS listing is determined to be inaccurate or misrepresented? Are the new homeowners entitled to any financial recourse? And what role does errors & omissions (E&O) insurance play in this situation?

The Broker’s Error

These questions became real-life issues for a Colorado-based real estate broker and Berxi real estate E&O insurance client. In the MLS listing for a property he represented, the broker inaccurately described the boiler as a “modern Burnham boiler.”

The system, estimated to be around 36 years old at closing, was anything but modern.

Before the sale, the buyers had an inspection on the home that identified some problems with the boiler. As part of the negotiation and sales contract, the sellers agreed to have a licensed professional replace or repair the boiler before closing.

Unfortunately, that didn’t go as planned. According to the home’s new buyers, the sellers had an unlicensed family member conduct the repairs.

Shortly after closing, the boiler failed and needed a replacement. The buyers were upset and looking for recourse.

What Happens When a Realtor Misrepresents a House on a Listing?

A few months after the closing, the broker for the home sellers received a demand letter from the buyers’ attorney. This was how our broker first learned about the problem with the “newly repaired boiler.”

In the letter, the buyers requested that the home sellers and the seller’s broker each pay $7,500 to cover the $15,000 cost to replace the failed boiler.

Upon learning of the complaint, our client logged onto the Berxi website and submitted a claim. He was quickly contacted by Valerie Fletcher, Senior Complex Claims Director, Executive and Professional Lines at Berxi, a part of Berkshire Hathaway Specialty Insurance Company (BHSIC). “In these situations, I always call the client first to get their perspective on what happened,” Valerie shares.

Valerie was looking for details on the situation as well as any correspondence exchanged between the parties that could disprove the allegations made against our client. Once she obtained further information from the client, she compared it with the statements and documents the buyers submitted.

At least one thing was clear: due to a Colorado statute about the accuracy of advertising — or, in this case, the accuracy and truthfulness of the description on the MLS — our client faced liability.

How Much Did the E&O Policy Cover?

The question for Valerie then became: What does the client’s policy cover? She found that the broker’s policy provided up to a total of $1 million in coverage for defense costs and/or a settlement.

However, there was a deductible of $5,000 that would need to be applied. Berxi would cover the remaining defense costs, as long as total costs stayed within the policy’s $1 million limit.

It was important to Valerie that the client understood how his policy worked, so she explained this to the broker. “I wanted to set realistic expectations for the client so that there were no surprises about his liability and what the policy covered, which could slow down the resolution,” she explains.

Defending a Client Who Made a Mistake

Once Valerie conducted the coverage analysis, she worked on securing an experienced attorney within the Colorado jurisdiction where the home was located. To find one, she leveraged BHSI’s list of qualified attorneys. (This list is a perk of being a Berxi customer!)

Once she selected an attorney and a conflict clearance was conducted between the two parties, she introduced the client to the attorney. She then worked with them to help build a defense.

Since no lawsuit had been filed and our client was liable for the erroneous MLS listing, the attorney chose to go through mediation first to attempt to resolve the claim.

“The longer the claim, the more expensive it becomes,” explains Valerie. “So we chose mediation, which can save a lot of time and money on defense costs.”

Mediators can make or break mediation. A mediator might not understand the circumstances to correctly translate it to the other side. Our appointed attorney needed to choose a mediator with an established track record of being knowledgeable of real estate laws, empathetic, and fair.

But Wait, There’s a Twist!

In this case, mediation was successful on the first attempt, which helped reduce the client’s costs. But something interesting happened. The Berxi customer’s defense team determined that the buyer’s broker was also at fault. This brokerage was not listed in the demand letter but had an obligation to ensure the terms of the repairs were met.

In the end, the complaint was settled for $10,100: the seller’s broker (our client) paid $5,000, the buyer’s agent paid $5,000, and the seller paid $100.

The mediation reduced the liability of our client and helped ensure he did not have to go through the expense, stress, and uncertainty of a lawsuit.

The Difference a Good Claims Provider Can Make

Errors, oversights, and mistakes can happen in any profession. That’s why real estate and other professional service providers carry liability insurance. However, not all liability insurers are the same. This story highlights the importance of having an experienced liability insurance provider that:

• Promptly responds to a claim filed.
• Offers a single point of contact to answer your questions and concerns.
• Provides ongoing, open, and clear communication of what to expect and coverage benefits.
• Investigates allegations against you fairly and thoroughly.
• Works with an experienced team of defense attorneys in your jurisdiction.
• Handles attorneys’ fees and costs associated with defending your claim.
• Provides an outcome to help you save time and money, reduce liability, and protect your livelihood and reputation.

How did the Berxi client feel about the resolution? “Our client wasn’t happy that he was liable for the error he made,” shares Valerie. “He was, however, pleased with the result and thankful it didn’t have to go to litigation.”

Making mistakes are part of life. While no professional wants to deal with the expense and inconvenience of having a dispute or claim made against them, having a liability insurance provider that looks out for you can make all the difference.

To enjoy the peace of mind of having a professional liability provider that has your back, get a quote from Berxi today.

start your quote here

Last updated on Aug 05, 2024.
Originally published on Aug 02, 2024.

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The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice. Click here to read our full disclaimer