Risk Management: Segment 1 - A Tool to Increase Profits

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The following are part of a reasonable risk shifting strategy:

* Advising the buyer to have a home inspection, even in the case of new construction. *Purchasing Errors and Omissions Insurance. *Directing the client to seek professional advice relating to matters outside of the licensee's expertise.

Common Areas of Risk

* Contract preparation * Property condition * Property ownership * Failure to research, investigate and disclose material facts. * Conflicts of interest * Negligent advice * Trust fund handling * Kickbacks and RESPA violations * Referrals to vendors and third parties * Lack of appropriate supervision of affiliated licensees.

The primary point of potential liability that comes from doing real estate business over the internet.

* Disclosure law * Advertising rules * Privacy protection

Explain various components of a risk management strategy, including doing business over the internet.

* Education - to gain as much knowledge as possible about the practice and have a working knowledge of the laws and rules that govern it. Licensees should continually seek out timely continuing education. * Risk Anticipation - identifying typical or potential problems that may arise in a real estate transaction. Once identified, the licensee should establish a strategy or implement a set of procedures to ensure that the anticipated problems are avoided. Ex: Documentation and Record Keeping: Disclosures: Disclaimers: Documenting Information Provided by a Seller or Buyer. * Risk Control - means addressing an issue when it first arises by attempting to find a solution as soon as possible. * Risk Shifting - from the licensee to another party is a desirable strategy to minimize risk. * Adoption and enforcement of written policies - and procedures that define the company's agency representation policies, competitive practices, fair housing guidelines, personnel policies, communications policies, documentation and record keeping policies and a statement of the company's overall commitment to the ethical and legal practice of real estate. Once adopted, these policies should become part of each licensee's everyday practice and enforced on a consistent basis. * Managing Internet Risk - The Internet provides a licensee with many opportunities to promote real property or his/her services. Technology also creates a number of risks that need to be identified. * Privacy Issues - A great deal of confidential personal information is usually transmitted over the Internet and stored on a licensee's computer. * Advertising - A licensee disseminating unsolicited information concerning real property or marketing through the internet or email is engaged in advertising and all rules and regulations regarding advertising apply. * Disclosures - A licensee using the Internet or email must also make all required disclosures regarding identification of licensee status,information about the licensee's employing broker, etc. *** The internet creates potential risk exposure when not properly used. Most internet risk exposure relates to privacy issues, advertising rules and compliance with agency disclosure law.

Intentional Misrepresentation is an active fraud that requires the alleging and proving all of the following elements:

* False representation of Material Fact * Intent to Deceive * Misleading Statement Relied Upon by Complainant * Actual Damages Result.

Intentional Concealment is knowingly failing to disclose a material fact. It is considered a "passive" fraud and is very similar in concept to intentional fraud. The difference is that the conduct of the party committing the fraud is passive or includes omitting facts. The tort of intentional concealment requires alleging and proving all of the following elements, very similar to intentional misrepresentation:

* Nondisclosure of Material Fact * Intent to Deceive * Misleading Statement was Relied Upon by Complainant * Actual Damages Result

Unauthorized Practice of Law

* giving tax advice * Rendering opinions on the tax implications of a 1031 exchange. * Giving counsel on the meaning of legal documents or phrases within such a document. * Rendering advice as to how title should be taken. * Any advice that may affect the legal rights or duties of any party to the transaction.

Kinds Of Torts: Torts are generally categorized by two factors: the level of intent that must be assessed against the tortfeasor (the one committing the tort) and the interest affected by the tort.

*intentional torts are actions intended to harm. In the area of real estate, these torts usually relate to fraud. * unintentional torts are based upon the concept of negligence. Negligence involves activities not necessarily intended to cause harm, but which result harm. The conduct that underlies all negligence cases is that of "unreasonable actions" on the part of the party breaching a duty.

A licensee should attempt to minimize liability exposure by developing ?? for risk management.

A plan

A real estate brokerage should ??? that will help to minimize risk and potential liability exposures.

Adopt written policies and procedures.

The basic definition of a "risk"

An exposure to the chance of injury or loss.

What is the basic definition of a "risk"?

An exposure to the chance of injury or loss.

Not a risk-shifting method

Completing a visual inspection of a property for sale.

Define key terms related to "risk management".

Due diligence, which means paying attention to potential liability issues and displaying reasonable care in your real estate practice, is the key to managing risk.

What type of insurance can be used as a risk-shifting strategy, covering actions undertaken in the course of a professional activity?

Errors and omissions insurance.

Tort Law Liability- is to be distinguished from breach of contract. Tort is a legal term derive from the Latin word tortus, which means "a wrong". The french avoir tort translates to "to be wrong".

In real estate related contracts, punitive awards arise out of tort actions such as fraud, negligent misrepresentation, intentional misrepresentation, and interference with economic relationships. Tort duties are legal liabilities independent of contract standing and apply to the involuntary assumption of liability and risk. For these injuries, tort law attempts to right the wrong by awarding monetary damages to the one who has been wronged.

Licensee liability is primarily based upon principles of contract Law, tort law or violations of real estate practice law.

Licensee liability under contract law essentially relates to the consequences of the nonperformance or misperformance of a contractual duty. If the licensee fails to perform the contract agreed, the licensee is in default or in breach of contract. The breach of a contract in its most basic form, is either total or partial, each with varying consequences.

Describe what is meant by the term unauthorized practice of law and explain what activities real estate licensees can be engaged in without being engaged in the unauthorized practice of law.

Real estate licensees are not to engage in the unauthorized practice of law. To do so is grounds for SUSPENSION or REVOCATION of their real estate license. Penalties for the unauthorized practice of law range from disciplinary action to CIVIL lawsuit exposure. There are certain activities that are clearly the practice of law and in which a licensee should never engage: * Giving tax advice * Rendering opinions on the tax implications of a 1031 exchange. * Giving counsel on the meaning of legal documents or phrases withing such a document. * Rending advice as to how title should be taken. * Any advice that may affect the legal rights or duties of any party to the transaction.

Recordkeeping is a good example of

Risk anticipation

What should a licensee do to safely dispose of documents that contain personal information?

Shred or burn the documents.

What is a good risk anticipation procedure if a client needs assistance on matters that are outside of the licensee's areas of expertise or beyond the scope of their license?

Use a written disclaimer to advise the client to seek a competent professional for advice or services.

The following is not a part of a reasonable risk shifting strategy

Using only open-source software in the office.

A licensee is allowed to fill in the blanks of a preprinted, standardized form

at the direction of a principal to the transaction such as the seller or buyer.

Risk anticipation means to identify or predict problems that can arise in a transaction. Licensees should attempt to establish a strategy to ??

avoid problems instead of dealing with them after they happen.

Usually the best way to control an active complaint is through

early communication.

The main purpose of errors and omissions insurance is to

protect a licensee from claims brought by an unhappy client because of the actions taken by that licensee during the course of representation.


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