What the Heck is the “Standard of Care”?

 

You have likely heard the phrase “standard of care,” but what the heck is it?  Well, the term "standard of care" is a legal concept that is generally applied to the conduct of any professional, such as a doctor, a lawyer, or an engineer, and the legal concept of “standard of care” applies to real estate professionals as well. 

The Standard of Care Requires Reasonable Care

The standard of care requires that a real estate agent exercise the degree of care that a reasonable agent would exercise in the same or similar circumstances. Figuring out what is “reasonable” under the circumstances is generally the hard part. 

What constitutes reasonable care in a transaction varies depending on the situation. The specific conduct, disclosures, advice, and counsel required of an agent depend on the facts of each transaction, the knowledge and the experience of the client, the questions asked by the client, the nature of the property and the terms of sale. You are not required to be perfect, but you are required to act with reasonable care.

 Reasonable care may include:

·         Resisting any temptation to provide advice that is outside the area of expertise for a real estate licensee.

·         Recommending other professionals when necessary to perform inspections and investigations or to provide legal and tax advice.

·         Assisting your client in verifying information when you have reason to question the accuracy of the information being provided or when your client has questioned the information.

·         Disclosing all known material defects existing in the property. If you have to ask whether a fact must be disclosed, the answer is probably “yes.” 

·         Practicing within your area of expertise.

·         Understanding the purchase contract and related documents.

·         Complying with the ADRE Statutes and Commissioner’s Rules.  https://azre.gov/laws-rules-policy-statements-and-advisories

                                            

If you are unsure what is reasonable under the circumstances or how to handle a situation, always consult with your designated broker or manager for guidance. 

The Battle of the Experts in Determining the Standard of Care

How does the judge, jury or arbitrator in a lawsuit determine what a "reasonable” real estate professional would do in the same or similar circumstances? That is where the experts come in.

The standard of care is generally established by expert testimony, unless the conduct required by the situation is within the common knowledge of a layperson. Therefore, a plaintiff buyer or seller that alleges that a defendant agent acted negligently usually must present the testimony of a qualified expert, in other words, another agent, that the defendant agent acted unreasonably and fell below the standard of care.

The defendant agent will generally do the same – present the testimony of another agent as an expert witness that will testify that the agent’s actions were reasonable under the circumstances and within the standard of care. 

The judge, jury or arbitrator will consider the testimony of each expert along with the rest of the evidence presented and make the determination of whether the agent complied with the standard of care.  If not, there are consequences. 

Consequences of Falling Below the Standard of Care

If an agent’s conduct falls below the standard of care, the agent is negligent. Once an agent’s negligence is established in a lawsuit, the agent will be held liable to the plaintiff buyer or seller for all damages (money) caused by the negligent conduct. Additionally, any judgment arising from such a case must be reported to the ADRE within ten days and the ADRE may impose regulatory sanctions as well.

Tips to Help You Practice Within the Standard of Care

The following is a list of tips to help you exercise reasonable care and practice within the standard of care.  

• Get to know your client and their concerns.                                                  

• Read and understand the purchase contract & related forms. 

• Educate your client on the process and documents.

• Avoid shortcuts, such as incorporating other documents into the contract or failing to write contingencies out completely.

• Handle all offers properly and promptly. 

• Practice only within your area of expertise, both in practice area and geographically.

• When in doubt, disclose – and do it in writing.                                             

• Assist your client with disclosures & due diligence. 

• Think before you speak - don’t speculate or guess. Identify the source of any information provided and direct your client to the source if possible.

• Verify information if you have reason to question the accuracy of information being provided in a transaction or if your client has questioned the accuracy of the information.

• Document the transaction - take contemporaneous notes and confirm important issues in writing.

• Communicate, communicate, communicate – answer your phone and promptly return calls to clients and the other agent.  Talking is almost always better than texting. 

 Don’t forget – you are a professional.  By complying with the standard of care, you not only reduce the potential of costly and time-consuming lawsuits, but also reduce the risk that your clients will encounter problems during or after the transaction.

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  9/7/22