Realtors Beware: (June Litigation Quarterly 2009)

Avoiding Litigation in a Troubled Florida Real Estate Market

As once happy real estate purchasers watch their property values plummet, it can be no surprise that these purchasers are upset and looking for someone to blame for their once proud investment becoming their new found liability.  Unfortunately, there seems to be a sudden increase in lawsuits against real estate agencies and real estate agents throughout the country, and particularly in Florida.  See David Streitfeld, Feeling Misled on Home Price, Buyers Sue Agent, N.Y. Times (Jan. 22, 2008).  The most common basis for these lawsuits involves allegations that the real estate agencies and/or real estate agents misled the buyers throughout the subject purchase.

However, the good news is that Florida law tends to favor both real estate agencies and real estate agents.  For example, in Florida, there is a presumption that a real estate agent is acting as a transaction agent, unless a single agent relationship is established, in writing, with a customer. See § 475.278(2)(a), Fla. Stat; see also Burchfield v. Realty Executives, 971 So.2d 138, 139-140 (Fla. 5th DCA 2007).  In Florida, a transaction agent owes their clients a duty to deal honestly and fairly, to use skill, care, and diligence, and to ensure limited confidentiality.  See § 475.278(2)(a), Fla. Stat. This is helpful in defending real estate malpractice lawsuits because a transaction agent is one who provides only limited representation to a buyer, a seller, or both, in a real estate transaction, but does not represent either in a fiduciary capacity or as a single agent.  Accordingly, an agent who has not executed a written single agent agreement with a principal has no fiduciary duty to the principal because a written agreement is the only way to rebut the statutory presumption that the real estate agent is acting as a transaction agent. See § 475.278(3)(b), Fla. Stat.

Because a transaction agent does not have a fiduciary relationship with its clients, the agent is not subject to a breach of fiduciary duty claim by the Plaintiff.  Therefore, it may be advisable that a real estate agent not sign a single agency agreement with their client, as a transaction agent has less exposure, and stands in a better legal position with respect to potential litigation.

Real estate brokers can be held vicariously responsible for the conduct of their agents.  However, recent Florida court decisions have held that a real estate broker is not vicariously liable for the negligence of its independent contractor real estate agents, even when the agent is operating under the name/letterhead of the broker firm.  See Order Granting M.S.J, Cent. Land Dev. v. Weits, et al., No. 07-14377, 2009 WL 252091, at *5 (S.D. Fla. Jan. 30, 2009).  These decisions are fact specific and based upon a finding that the real estate licensee is an independent contractor of the real estate agency, as generally, an employer is not liable for the torts of an independent contractor.  See Hubbard Const. Co. v. Orlando/Orange County Expressway Auth., 633 So.2d 1154, 1155 (Fla. 5th DCA 1994).  Florida courts consider some of the following factors in determining whether a real estate agent is an independent contractor of the real estate agency:

Whether the agent and the real estate agency entered into an Independent Contractor Agreement;

Whether the agent was free to determine their own business hours and to choose their own target clients, marketing techniques and sales methods;

Whether the agent had authority to incur obligations on behalf of the agency;

Whether the agent was to abide by the agencies policies concerning unsolicited sales practices, privacy issues, registration of domain names, and the use of the agencies trade name and logo on the agents’ literature;

Whether the agency had employment policies and guidelines which the agent was obligated to comply with;

Whether the agent was required to close a minimum amount of transactions, attend certain classes concerning policies and procedures, and comply with the agencies employment policies and guidelines;

Whether the agent is responsible for paying the costs of advertising their real estate listings;

Whether the agent is paid a certain salary or on a hourly basis, or whether the agent’s compensation is based on commission; and

Whether the real estate agency supplies the instrumentalities, tools, and a place of work for the agent doing the work.

See Freedom Labor Contractors of Fla., Inc. v. State of Fla., Div. of Unemployment Comp., 779 So.2d 663, 665 (Fla. 3d DCA 2001).

Courts will balance the above factors in determining whether the real estate agent is an independent contractor of the real estate agency, and no one factor is dispositive to the courts’ determination.  However, it may be advisable for a real estate firm to consider the above factors when determining the relationships that they wish to have with their real estate agents, as this could potentially lead to the real estate agency insulating itself from future liability of its agents.

Particularly, in order to potentially limit a broker’s liability, any written agreement between the agency and the real estate agent should specify, if applicable, that the agent is: responsible for client development, responsible for marketing and determining their work schedule, paid based on commission, responsible for paying for their own advertising costs, as well as any other factors that would demonstrate that the real estate agent is separate and independent from the real estate agency, not taking direction directly from the real estate broker firm.

The more factors that are outlined throughout the agreement between the real estate agency and the agent which demonstrate an independent relationship between the two parties, the greater the chance is that a court will determine that the real estate agent is an independent contractor.   Id.

As the Florida real estate market continues to be troublesome, real estate agencies and real estate agents may find themselves adversely impacted by past clients who want to blame them for their involvement in the client’s decision to purchase the price-declining property.   Even though Florida law tends to provide favorable defenses via the transactional agent relationship, there still remains potential for liability and exposure in these cases.  While we all hope that the current situation quickly improves, real estate agencies and real estate agents would be well advised to be mindful of their potential exposure in each transaction and take the necessary precautions to avoid unnecessary claims.