November 2014 Article
In My Opinion, You Should Be Careful About Giving Opinions
When you give an opinion to a buyer or seller, they can construe it as “professional advice.” As a real estate licensee, you might be held accountable for the accuracy of your opinion. Clients may ask your advice (and that will make you feel important) but you should not always give it.
Here are some hazardous opinion areas, and ways to avoid giving them:
• Tax opinions: This is a job for your client’s accountant or tax adviser. They are paid to give tax advice, but you are not. Instead of saying: “If you sell your investment property for a profit, you’ll only have to pay taxes based on the lower capital gains rate,” say: “You might qualify for special capital gain treatment, but ask your tax advisor to make sure.” Agents who sell investment property often advise their clients (in writing) to seek competent legal and/or tax advice, and ask for the buyer’s signature on that disclosure.
• Legal opinions: If you tell your seller something such as, “They have to close, otherwise you can sue them,” you are giving your seller a legal opinion. Law is not common sense. It is a set of complex—and sometimes ambiguous—rules. Do not play lawyer.
• Condition opinions: Your buyer asks you, “Does that roof look okay?” You look up at it and say, “It looks good to me.” You might have just unwittingly warranted the roof. If it leaks after the buyer moves in, you can expect an unpleasant—and maybe expensive—phone call. It is better to say, “I don’t see anything wrong with it, but I’m not a roof expert. If you have concerns about the roof, you should have it inspected by a licensed roof contractor.”
• Area advice: “Is this a good area?” When your buyer asks that, beware. Saying an area is “good” could be construed as a comment on racial composition, familial or religious demographics, air quality, or proximity to the airport noise abatement zone. Asking “Good in what way?” might lead to a slipperier slope, but you can’t ignore the question. If they are asking anything that suggests protected classes, you’ll have to say that you cannot ethically or legally answer the question. If they are asking about crime in the area, have them call the local police department, or advise them to check a government crime website. If they are wondering about resale value, show them some sold listing comparables, but add that no one can predict the future with certainty.
• Negotiation advice: Be careful when your buyer asks, “How much should we offer?” or when your seller asks, “Do you think we should accept this offer?” If a buyer asks about contract language or terms and you can competently explain them, go ahead and do so. But how much money they should offer or accept is their decision. I have a theory that after the closing, all sellers think they could have held out for more money, and all buyers think they should have offered less. That’s because their anxiety about the risks and uncertainty of negotiating is gone after the closing. Post-closing buyers ignore the fact that they might not have successfully purchased the house if they had offered less, and sellers forget that they might have scared off the buyer if they had countered by too much. The point is, if you direct buyers to offer a certain amount, or direct sellers to accept a certain amount, you could set yourself up as the scapegoat if they second-guess their decisions later.
When you are representing buyers and sellers, they see you as their guide. But a competent guide knows when it’s appropriate to refer clients to other experts and resources. That doesn’t diminish your importance, it enhances it.
By Jim Luger, CDEI
Certified Distance Education Instructor
Continuing Ed Express