About Property Managers

Q: Are property managers liable when they fail to fulfill client requests?

We had our property manager listed as the real estate agent when we decided to sell. It turns out the property was in terrible shape from the last renters. He kept this information from us. Can we hold him liable for not making the house ready for viewing when he told us it was?

– Richard from Paul, MN

Sounds like you ran into a conflict of interest from the get go! In his role as a real estate agent or broker, he certainly had a responsibility to get the best price for you he could. And if he’s earning a percentage commission on the sale, the incentives to do so are baked into the cake.

But as a property manager he may have had an incentive to conceal the true condition of the property to you – especially if he has trouble accounting for security deposits that could have been used to repair the dwelling. If the property was in terrible shape, did he return the security deposit to the last tenant?

On to the issue of holding him liable, you have to look at two separate levels of engagement: your engagement with him as your property manager, and as your listing agent/broker.

The first step is to look at the contract you had with him for property management. Was he in breach of any provision? What were the provisions in place for termination of the contract? Was there any provision for inspecting the property? If he can be demonstrated to be in breach of the property management contract, then that might be the easiest way to go.

Turning now to the question of his role as your listing agent or broker, the question will probably turn, in part, on the kind of relationship you elected to create with your Realtor. In Minnesota, under Chapter 82, Section 82.67, a seller essentially has three choices: You can engage the Realtor as a seller’s broker, a dual-agency broker representing both buyer and seller, or a facilitator.

Early in the relationship, your Realtor should have handed you an agency disclosure form, usually entitled “Agency Relationships in Real Estate Transactions.” You can find the required text here.

If you selected to engage the Realtor as a seller’s broker, he has some specific fiduciary duties to you. Your case against him is strongest if you selected to engage him as a seller’s broker, because his fiduciary duty to you means that he has the highest obligation of care and fair dealing to you recognized under the law. If he has a fiduciary duty to you, then he must act solely in your best interest.

It is possible he may have been negligent, or he may have committed a breach of fiduciary duty.

If you elected to have him act as a dual agent, he still owes a fiduciary duty to you – but loyalties, of course, are divided. He also owes a fiduciary duty to the seller.

If you elected to have him act as a facilitator, then he does not owe you a fiduciary duty other than confidentiality, which is not an issue in this case. That’s critical, because some complaints you might bring against the Realtor rely on there being a fiduciary relationship in place before you can get a judgment in your favor, or before the Minnesota Real Estate Commission can formally sanction a licensed broker.

So, if you want to pursue a lawsuit against this Realtor, you have the best chances of success or at least a favorable settlement if you can demonstrate that there was, in fact, a fiduciary relationship in place.

You do have at least one Minnesota case in your favor: Walter Olson v. R.A. Penkert, a 1958 case involving a real estate broker’s commission dispute that went all the way to the Minnesota Supreme Court. The facts of the case were quite different from yours, of course. But the broker in this case had the role and obligation of a fiduciary to his client, and so had the highest obligation of good faith and fair dealing. When the Court ruled against the broker in the case, Justice Martin Nelson, writing for the majority, wrote:

“A broker is always bound to make a full and fair disclosure to his principal of all facts within his knowledge affecting the rights or interests of the principal in the sale. The agent must deal fairly with his principal to the extent that he must lay bare the truth, without ambiguity or reservation in all its stark significance. If he acts in bad faith or commits a fraud upon his principal, he will forfeit his right to compensation. This rule is based upon the requirement that a broker owes the utmost good faith and loyalty to his principal.”

If you can demonstrate that the broker failed to perform due care that any reasonable person in his place could be expected to perform in prepping the home for sale, that he was authorized and capable of doing so, and that he deliberately withheld significant information regarding the valuation of your home from you, you have a shot at a favorable result. Especially if he has errors and omissions insurance in place – which he should.

You would still have the burden of proving damages, though, so make sure you do your homework. In a case called Hill v. Tischer, Minnesota Appeals Court reversed a lower court’s award of damages because the $20,000 at stake in this case seemed to be an “off-the-cuff estimate.” The plaintiff simply could not explain how she had come to that figure, and so the court threw it out.

If you’re going to claim damages, you’ll have to provide evidence of a higher fair market value for your home that you could have recovered had the agent not been negligent, or not withheld information from you.

Note also that the clock is ticking. The Minnesota statute of limitations on real estate transactions is two years.

Disclosure: This author is not an attorney, and the information herein is for informational and background purposes only and should not be construed as legal advice in any way. You should seek the services of qualified counsel licensed in your state.

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