Vicarious liability is a form of secondary liability that arises under the common law doctrine of ‘agency.’ In the real estate industry, vicarious liability is typically assigned to a firm or broker whose agent has been sued for misconduct. Vicarious liability can also be assigned to a buyer or seller for misrepresentations by their real estate agent.
How is Vicarious Liability Assigned?
Vicarious liability typically comes with the agency that a real estate professional has over their client. A real estate professional may operate with a number of different types of agency, including:
- Single Agency; as a buyer’s agent or a seller’s agent. When a written listing agreement is made with a seller, or a buyer agency agreement is made with a buyer, it indicates an agreement of express agency between the two parties. In most states the agent must also disclose to their client specifically how they will be representing the client over the course of the real estate transaction.
- Dual Agency; as an agent for both the buyer and the seller. In the case of dual agency, this type of representation must be agreed to in writing between all parties, as agents are tasked with trying to represent two sides with conflicting interests. A dual agent has both a duty of confidentiality and a duty of accountability to both the buyer and the seller, and this can be difficult to achieve, leading to an unhappy customer on one side of the transaction.
- Subagency; where a seller may authorize their real estate broker to use agents from other firms to find the buyer a property. When the buyer’s agent is working as a sub-agent of the seller’s listing broker, he owes fiduciary duties to the seller rather than to the buyer. In this situation, the seller and their broker could be held liable for the actions of the buyer’s agent.
Although agents are often required to present their clients with a disclosure describing the nature of their agency relationship, it does not serve as an agreement of any sort, and does not protect either party from any kind of liability. Real estate agents and firms face a variety of professional liability exposures during each transaction, which is why it is important for them to partner with insurance specialists that understand these types of exposures and can help provide them with wholesale real estate liability insurance to help manage their liability risks.
About Highland Risk Services
At Highland Risk, we use our expertise and experience to provide insurance information and programs to those who serve long-term care and senior living facilities. Since 2007, we’ve been offering insurance and risk management plans designed to help our agents give their clients the ability to achieve continued growth while simultaneously protecting against loss, containing costs and increasing profitability. With offices to serve you in Chicago, Illinois and Phoenix, Arizona, we do everything we can to make your experience with us as professional and transparent as possible. To learn more, contact us at (847) 832-9100.