Liability of Real Estate Brokerage Firm for Acts of its Real Estate Agents

Question: I am the designated broker of our small Glendale real estate office. I know that I have to supervise all real estate agents in our office. One of our real estate agents recently made inappropriate remarks and physical advances to a female real estate agent at an open house. She even filed a police report. Is our real estate brokerage firm liable if there is a lawsuit by this female real estate agent against our real estate agent?

Answer:  Probably not. The Arizona Court of Appeals has ruled that a real estate brokerage firm has no liability for the negligence of a real estate agent who caused a fatal automobile accident, after driving away from a listing appointment. This ruling says that “[t]he focus of the broker’s responsibility … is the substance and documentation of the real estate transaction itself. And a salesperson’s driving does not relate in any way to documenting a transaction.” 240 Ariz. 454. Bottom line: A real estate brokerage firm is only liable for a real estate agent who acts specifically as a real estate agent, e.g., failing to disclose a leaky roof, or misrepresenting the square footage of a home.

Note:  Most real estate agents sign an independent contractor agreement (“ICA”) with their real estate brokerage firm, rather than an employment agreement. Under an ICA, the real estate brokerage firm is not responsible for a real estate agent’s unemployment taxes, worker’s compensation, and employment/withholding taxes. The real estate brokerage firm, however, is still responsible for the negligence of a real estate agent in the course of business.

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