As you know, it has long been common wisdom in our industry that a real estate agent must provide three vendor names when a client asks for a recommendation. For example, if my client wants me to suggest a property inspector, the feeling is that I should give three names so I am not held responsible if the recommended inspector misses a problem with the house. And, while that practice is a good one in many ways, I want to be clear that there is no law requiring it. In truth, you are required to make responsible, reasonable recommendations, no matter the number you make. For example, if you gave the names of three inspectors, but you knew from experience that one of the three did a bad job, that recommendation would be negligent. So it is not really the number that is key, but rather the recommendation itself and the experience it is based upon. As a result, when you have good experience with our affiliates, it is fine to recommend that affiliate alone, without giving other names. We know that our affiliates provide good service and are financially sound. We know they are responsive to you and your clients and we know they are experts in their fields, both with regard to their specific industry and the law applicable to it. So, don’t make your life overly difficult with artificial rules. Don’t worry about numbers. Just recommend competent vendors, who do good work and who you have had good experience with.
Not surprisingly, this issues arises not just in California, but across the country. As a result, below is an e-mail written by Dana Strandmo, General Counsel of HomeServices, about this very subject. Dana sent this e-mail to HomeServices companies across the country. As always, let us know if you have any questions.
Three Referrals – An Urban Legend
Nobody knows where these things get their start. Somewhere, someone recommended or suggested or inferred that real estate agents should give their sellers and buyers at least three business cards for any recommended service to fulfill their fiduciary duty–a belief that has been perpetually perpetuated ever since. There is no legal basis for this three referral minimum.
Making referrals can involve complicated legal questions of agency, fiduciary duty, imputed negligence and vicarious liability in the event of a claim. There is no “three business cards defense” to potential claims under any of these doctrines.
Better advice would be, “Don’t exaggerate, fabricate or prognosticate.”
- Don’t exaggerate–recommendations should be accurate representations of performance, not late night commercials.
- Don’t fabricate–recommendations should be factual, not fictitious.
- Don’t prognosticate–recommendations should be based on past experience, not promises of future performance.
A good recommendation for a mortgage company is one that says, “HomeServices Lending has competitive mortgage rates and I have had good experience recommending loan officer Todd Johnson to my clients in the past.”
A bad recommendation for a mortgage company is one that says, “AnyMortgage Company has the lowest rates available anywhere and loan officer Dewey Cheetam will get you a rock bottom rate.”
Client recommendations should be made on sound business principles, not urban legends
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