TN 3.0 hours Risk Awareness - Course Syllabus
3.0 Elective Hours
What are letters of understanding?
When an agent receives instructions from a client or a customer involving something material to the transaction, it is a good idea to use a letter of understanding as a normal course of business.
For example: A buyer's agent suggests that the buyer have the septic system inspected, but she elects not to do that. The buyer's agent might then want to draw up a letter to the effect that "when we looked at this property and made this offer, I recommended we should make it subject to an inspection of the septic system and you have elected to not do that. Therefore, I am not incorporating it into the agreement. If I am misunderstanding what your intent was there, please notify me."
The agent should, of course, keep a copy for her file as evidence showing what she did under her duty of reasonable care and diligence should the buyer try to charge negligence. The agent has now placed the burden on the client to correct any misunderstanding. If the client does not correct the agent and later there is a problem with the septic, she cannot say that the broker did not mention the septic system.
One of the strongest risk management actions to avoid negligence charges is showing continuous written communication with clients or customers when issues arise. This course helps the real estate professional recognize and manage risk.