Buyer Not Required to Hold Harmless, Indemnify Brokers

Question: In a recent column you said that real estate brokers, just like doctors and lawyers, cannot require a client to waive in advance a negligence claim against their real estate broker. I am a real estate lawyer and I disagree with you. The Arizona Court of Appeals has approved a limitation in a surveyor’s contract with a developer to limit the surveyor’s liability for negligence to the $15,000 cost of the survey. 219 Ariz. 200. Similarly, the United States Court of Appeals has approved a $50,000 liability limitation for negligence between an architect and a developer. 44 F.3d 195. Therefore, real estate brokers may be able to limit in advance their liability for negligence per lines 428-434 of the AAR Purchase Contract, and initialed by both the seller and the buyer on line 434.

Answer: Thank you for your comments. The language in the AAR Purchase Contract, lines 428-434, however, is not a limitation of a real estate broker’s liability. This language is an agreement by both the seller and the buyer to “release, hold harmless, and indemnify” both the seller’s and the buyer’s real estate brokers. This broad language of “release, hold harmless, and indemnify” of both real estate brokers could release the real estate brokers from not only their negligence but even their fraudulent conduct. Also, this language could even require the seller to indemnify the buyer’s own broker, if the buyer filed a claim for negligence against the buyer’s own broker. Therefore, this broad language is probably not enforceable.

Note: Similar to the limitation of liability by a surveyor to the amount of the cost of the survey, a limitation in the AAR Purchase Contract on the liability of real estate brokers to the amount of the commissions received in the transaction might be enforceable.

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