If a professional fails to exercise reasonable care in referring a competent individual to a client, the professional could be held liable for any resulting damages. Although the Arizona courts have yet to specifically address the issue of negligent referrals, support for such a cause of action can be found in case law of other states.

Many negligent referral cases involve lawyers.  In an article published in the Arizona Attorney magazine the author wrote: “. . . you should be aware that there is such a thing as ‘negligent referral,’ in which lawyers have been successfully sued for negligently referring a person to an incompetent or dishonest lawyer. In view of this, you will probably want to make sure that if you refer someone to a lawyer, it is because you have a respect for that lawyer’s competence and effectiveness.” Arizona Attorney, October 2006 43-OCT Ariz. Att’y 10 David D. Dodge (citing I Mallen & Smith, Legal Malpractice § 5.9 (2005)). 

The same advice applies in the real estate context.  In Thomson v. McGinnis, 465 S.E. 2d 922 (W.Va. 1995), a West Virginia court found that a real estate broker may be liable to a buyer for negligent selection and retention of an inspector. In this case, the broker hired an inspector to inspect the heating system of a house. Unfortunately, the inspector hired by the broker was not certified to work on heating systems. The “inspection” consisted only of listening to the furnace while it was running, after which the inspector signed a certification stating the furnace functioned properly. Having received the certification, the buyer purchased the home. After the close of escrow, the buyer discovered that the furnace did not function properly. A certified technician informed the buyer that the furnace had many problems and was unsafe to operate. The buyer then sued the inspector and the broker who had hired the inspector.

The broker argued that she could not be held liable for the actions of the inspector. However, the court stated that the broker may have been negligent in hiring the inspector, who was not certified to inspect heating equipment. The court stated:

While a real estate broker bears no responsibility to conduct an independent investigation of a latent defect, when such broker volunteers to secure an inspection of the premises, or some part thereof, by retaining on behalf of the buyer a third party to conduct the inspection, then that real estate broker may be held liable to the buyer for civil damages if the broker in retaining said third party is negligent in the selection and retention of the third party and if such negligence proximately causes harm to the buyer.

Thus, in making real estate related referrals, a broker should consider:

• providing the client with more than one referral option, when possible,
• insisting that the client determine which individual should be hired,
• encouraging the client to inquire as to the qualifications of the individual and, if applicable, determining whether the individual has errors and omissions liability insurance coverage,
• not directly hiring any person or business on the client’s behalf.

In conclusion, clients expect their brokers to refer or recommend competent individuals to assist in connection with a home purchase.  And generally, when a broker refers a competent person to do work for a client and exercises no supervision or control over the work, the broker should have no liability even if the person acts negligently.  

K. Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®.  She is also the author of the book – Arizona Real Estate: A Professional’s Guide to Law and Practice (3rd Ed.).  Watch for the Fourth Edition, which should be available soon. 

 For more real estate related articles, visit Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)

This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  9/22/23