HomeReal EstateHow 'secret' home warranties cost 1 brokerage millions: The Download

How ‘secret’ home warranties cost 1 brokerage millions: The Download

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Minnesota’s AG asserts that recommending a home warranty without disclosing a financial interest is a violation of fiduciary duty.

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Each week on The Download, Inman’s Christy Murdock takes a deeper look at the top-read stories of the week to give you what you’ll need to meet Monday head-on. This week: Minnesota’s AG asserts that recommending a home warranty without disclosing a financial interest is a violation of fiduciary duty.

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While affordability is a perpetual problem in the real estate market, the cost of owning a home doesn’t end at the closing table or with the monthly mortgage statement. Unforeseen repairs and replacements can make the cost of owning a home skyrocket and contribute to buyer’s remorse.

To plan for the unexpected, many buyers purchase — or ask sellers to provide — a home warranty, at least for the first year or two of homeownership. Yet those warranties themselves may be worth less than expected, especially when the fine print ensures that most claims will be refused.

As a fiduciary for your clients, it’s vital that your representation and advice are in their best interest financially. Is that even possible when it comes to marketing a product that may not pass muster and in which you have an undisclosed financial interest?

On Nov. 19, Minnesota Attorney General Keith Ellison announced a settlement with Berkshire Hathaway-affiliated brokerage Edina Realty to resolve claims that the company advertised Home Security of America’s home warranties to clients without disclosing that it received payments for the warranties.

In addition, Edina Realty was accused of allowing consumers to believe that the warranties were Edina products.

“Real estate brokers like Edina are legally required to act in the best interests of their clients. After a careful investigation, my Office is alleging that Edina Realty violated that duty by secretly accepting substantial payments from Home Security of America to push their home warranty contracts on unsuspecting clients,” Ellison said in a statement.

As part of the settlement agreement, Edina disputed the AG’s findings, asserting that “it provided a written disclosure to its customers that Edina advertised HSA home warranties in exchange for a fixed service fee and that this disclosure was signed by its customers.”

The real estate industry is under increasing scrutiny, so business-as-usual doesn’t always cut it. This is the time to rethink the way you do things and determine if your intentions and practices are in alignment — and how they could be misconstrued in a court of law.

Inman’s contributors were focused this week on what constitutes best practices, optimal company culture and relationship-building that lasts for the long haul. Check out their advice to ensure that you’re always acting from a place of sincerity and unquestionably ethical behavior.

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Leverage past clients, drum up new business and show your value with these relationship-building strategies from luxury real estate agent Evan Roth.

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