Being Helpful and Staying Out of Your Own Way

Recommending other professionals to consumers


 Cori Lamont  |    April 01, 2013
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It is not uncommon for parties in a real estate transaction to turn to their agent and ask for the name of a contractor, inspector, painter, title company or attorney. While it is not illegal for an agent to provide such recommendation, the agent should do so with care. This risk is on display in Olson v. Zurich American (No. 2010AP1207, Ct. of App. 2012) www.wisbar.org/res/capp/2012/2010ap001207.htm. 

In Olson, the court discusses the liability of a real estate agent who referred a seller to what turned out to be an untrustworthy title agent. It is a tale of negligent hiring, theft and misappropriation. 

The players 

Thomas Olson intended to close and receive net proceeds in cash of over $175,000. David Reed was Olson’s real estate agent who recommended Coulee Country Title, the local office of the title company, Ibarras-McClary Global LLC (I-M) to prepare the necessary title work and serve as the closing agent for the sale. Pamela Harris was an I-M employee and closing agent. Commonwealth was the title insurance company for whom I-M served as underwriting agent. Prior to Commonwealth, I-M served as an agent for Stewart Title. 

The closing took place on May 22, 2006. Harris provided a check to Olson on May 23, 2006, for the total amount issued by I-M and signed by Harris. When Olson deposited the check, he learned that it was returned because the I-M trust account did not have sufficient funds to cover the check. 

Olson attempted to obtain his sale proceeds, but to no avail, and therefore brought action against Reed, I-M, Commonwealth, Stewart Title and their individual insurers to recover his money. Originally Harris was included in the action but was later dismissed because she was discharged in bankruptcy. 

Olson’s claims

Olson alleged that Stewart Title terminated its relationship with I-M in November 2005 because of irregularities with I-M’s trust account and problems with the nonpayment of premiums. However, Stewart claimed the relationship was severed because there was already another agent in the area. Olson alleged that I-M was negligent in its hiring, training and supervision of Harris and that Stewart Title colluded with I-M and Harris to conceal why it terminated its relationship with the agency and assisted in helping I-M obtain a new underwriter. Olson also claimed that Reed was negligent in recommending I-M, and Harris was both negligent and committed theft for misappropriation. While a number of cross-claims were made, the only relevant one for this discussion is Commonwealth against Stewart Title for intentional misrepresentation and negligent misrepresentation. 

The jury verdict

The jury, which was presented a number of questions, found that both Stewart Title and Commonwealth were casually negligent. Commonwealth lost its cross-claim against Stewart for intentional misrepresentation. Both Stewart Title and Commonwealth were found negligent. And the jury rejected the notion of fraudulent misrepresentation and found Commonwealth’s contributory negligence to outweigh Stewart Title’s negligent misrepresentation as a cause of its damages. 

The outcome

The circuit court held a hearing and issued a number of judgments, and for more information relating to the circuit court holding and the Court of Appeals, review the November 2012 Legal Update, ‚ÄúCase Law Update 2012: Land Use and Miscellaneous‚ÄĚ at www.wra.org/LU1211.¬†

The circuit court dismissed Reed and his insurance carrier, and the jury unanimously found that Reed was not negligent. On appeal Olson argued that Reed had a duty of care as Olson’s real estate licensee when making a referral. However, we will never know the court’s response to Olson’s argument against Reed since the court refused to address the issue because Olson’s arguments were statements unsupported by authority. 

Moving forward and avoiding liability 

Refer to your company policy and consult with your broker if the policy is not clearly stated. However, the following are practice tips to help alleviate some of the pressure and worry when referring a provider to a party.

  1. Prepare a list of professional inspectors and contractors. Do not recommend or endorse one particular contractor because a recommendation that does not present the party with options may result in liability. Instead, maintain a list with the names of at least three professionals in each field, and include any available references from past users. Any contractor included on a list of contractors should be certified in his or her field, if at all possible, and at minimum should hold all applicable credentials for the type of work being performed. Any company or agent affiliations with any of the listed contractors should be stated on the list or disclosed when the list is distributed. Put the list on a sheet of company letterhead, and include a disclaimer that the company’s agents cannot personally endorse these professionals.
  2. Avoid referral fees. It is wise to not ask for or accept a referral fee from any name on the referral list. Earning a fee just for referring business (except to other real estate brokers) violates the Real Estate Settlement Procedures Act (RESPA) if the contractor or company is a RESPA settlement service provider like a home inspector, appraiser or title company. The best policy is to not take referral fees unless actual goods or services are provided.
  3. Let inspectors and contractors do their jobs. Licensees may wish to avoid accompanying an inspector through the house because this may imply that the licensee is supervising the inspector. Reinforce that the party hired the inspector and let the party deal directly with the inspector. Similarly, do not volunteer to inspect work performed on the house unless you wish to be considered the contractor’s supervisor. Instead, suggest that the buyer engage an appropriate expert to inspect this work if the buyer wants a professional evaluation.

Remember that you want to be helpful ‚ÄĒ just not the kind of helpful that places you at risk.¬†


Cori Lamont is Director of Regulatory Affairs for the WRA.

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