Are real estate firms on the hook for all misdeeds by their agents? No. Here's why

Question: I am the designated broker of a small real estate office. I know I must supervise all real estate agents in our office. One of our real estate agents recently got into a physical altercation with another agent at an open house. There was talk of filing a police report. Is our real estate brokerage firm liable if there is a lawsuit by this other agent against our 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 the "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."

The bottom line? A real estate brokerage 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 with their brokerage firm rather than an employment agreement. Under an independent contractor agreement, the real estate brokerage is not responsible for a real estate agent's unemployment taxes, worker's compensation or employment/withholding taxes. The real estate brokerage, however, is still responsible for the negligence of a real estate agent in the course of business.

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Contact real estate attorney Christopher A. Combs at azrep@combslawgroup.com.