Liability of Broker in Real Estate Transactions

Last updated on June 7th, 2021 at 12:17 pm

Liability of Broker in Real Estate Transactions

A broker can be found liable on a contract or tort basis. A broker who is involved in a contract would be found liable if they do not comply with provisions in the stated contract. A broker who conflicts with state or common law is found liable on a tort basis. One of the most common tortious actions is fraud: both intentional and negligent. Fraud can be defined as either actual or constructive.

There are five main types of actual fraud:

1. Intentional Misrepresentation: When a broker knows and does not believe something is true but says it’s true it is considered intentional misrepresentation. In order for damages to be recovered, a plaintiff has to prove that the broker intended to create detriment or risk.
2. Negligent Misrepresentation: When a broker states something true without factual evidence to warrant such a positive statement, it is considered negligent misrepresentation. In order for it to be considered negligent misrepresentation, there must be a positive statement involved — not simply disclosing information.
3. Promissory Fraud: A broker can be found guilty of promissory fraud if they promise to do something without any intention of doing it.
4. Non-Disclosure / Concealment:
   1. If brokers conceal a fact materially that negative affect a property
   2. Known these negative facts were unknown to the other party
   3. Had the duty to disclose fact or omitted such facts
5. This type of fraud is a catchall for conduct defined as deceit, but does not fall under the above categories.

Constructive Fraud

Constructive fraud is defined as fraud that had no intent behind it, yet a broker gained advantage. To claim constructive fraud it must be proven that:

-A broker had a fiduciary obligation to the plaintiff

-This fiduciary obligation was breached

-The breach resulted in broker profit

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