Even the most honest person in the world can get into trouble if he or she does not know the law and does not properly apply it. Knowing all the rules and regulations tied to real estate will protect you from inadvertently doing something wrong. As obvious as it seems, start with honesty in all dealings and be sure that everything is in writing.

Sometimes, knowing the law isn't enough to keep you out of trouble. Complaints from one party or the other, either legitimate or picky, will need to be settled. You'll be required to use your best negotiation skills to eliminate the complaints and keep them from becoming lawsuits. In some cases, problems can arise that affect all parties, and you are the one expected to solve them.

Still, it happens every day — unhappy customers and clients file lawsuits and report real estate agents to their state licensing commissions. You must make an effort to conduct your business in a way that helps ensure that no one will make a complaint against you, but that isn't enough. It's essential to take steps to defend yourself against frivolous complaints and complaints that result when you truly do make an error in your work.

Common Complaints

The three most important words in real estate for a buyer or a seller are location, location, location. For an agent, it is disclosure, disclosure, disclosure. Disclosures need to be in writing, most of them on a form specific to the real estate division in your state. Disclosure number one is the agency disclosure. As a real estate agent, it is essential that you disclose your agency relationship, whom you work for, in every transaction. This disclosure must be made up front.

You may be working for the seller, either as a listing agent or as a subagent through the MLS. If this is the case, you must disclose it to the buyer. The buyer must have the opportunity to decide if she wants her own representation. If you are working for the buyer, this fact must also be disclosed. Although compensation traditionally comes from the seller's proceeds, this is not always the case. Some buyers will pay to have representation, such as in the purchase of a for sale by owner. Compensation does not always mean representation. It is possible to represent the buyer even if your compensation comes from the seller.

If you are working for both parties as a dual agent, this disclosure must also be made. Both parties have the right to decide if they want you to work as a dual agent. If one or the other, or both parties, do not want to have an agent who is representing everyone, either the buyer or the seller must be assigned to someone else.

Disclosure number two is whether you are a party to the real estate transaction. If you are the buyer or the seller in a real estate transaction, or if you are related to the buyer or the seller, this fact must be disclosed. Even if the buyer or seller is a corporation, and you are a minor stockholder of the corporation, this must be disclosed. Even if your name does not appear as the buyer or seller, if you receive a benefit over and above the benefit of your commission, it must be made known to all parties.

Disclosure number three includes everything else:

• Common interest communities (such as condominiums, townhouses, or cooperatives)

• By-laws

• Rules and regulations

• Dues, assessments, budget, and reserves

• Recent minutes of association meetings

• Stigmatized properties

• Location of new developments

• Location of nearby ranch lands

• Related to the inspector, lender, or other party to the transaction

• Agent or company receives compensation from someone else in the transaction. For example: if the insurance company sponsors the office Christmas party or a bonus or gift is presented to the agent by a particular pest inspector for every referral she provides.

• Office is affiliated with other offices that provide related services such as lenders, title, or escrow.

• Lead paint, hazardous materials, radon, mold

If in doubt, disclose. It is better to disclose more than necessary than to find yourself faced with a lawsuit for lack of disclosure.

Essential Records

Every area of the country is different and there are different requirements as to what you need to include in a file. Check first with your broker and find out what her requirements are. Your broker should know what forms the state and the local municipalities require.

If your office is part of a franchise, there may also be special forms that they require. From there, check with your state's division of real estate to be sure that your broker did not miss anything and that there are not any new requirements. You may also wish to check with a real estate attorney, especially if you work in a state where attorneys handle the closings.

Make a checklist of required forms and continue to expand on it, depending on the requirements of your state, of your office, and of your local municipalities. Because real estate is constantly changing, new and different forms may be required on a regular basis. Be sure you are aware of any changes in regulations and keep your list of required forms current.

Here is a preliminary list of key documents:

• Purchase agreement or offer and acceptance

• Any counteroffers

• Addendums

• Agency disclosures

• Common interest community disclosures

• Lead paint disclosure (if built before 1978)

• Other disclosures

• Copy of inspection reports

• Copy of pest report

• Copy of repair bills

• Escrow instructions (for states with escrow)

• Copies of attorney's paperwork (for states where attorneys handle closings)

• Copy of seller's disclosure statement

• Preliminary title report

• Closing statement

• Phone log/e-mail log

Your state laws dictate which official transaction documents you must keep and how long you must keep them, but your complete records should contain more than the signed contracts and other forms required by the state.

Take notes during your discussions with clients, especially when you're talking about problem issues such as repairs. Record dates and times and make sure to write down whether you had a telephone conversation or a face-to-face meeting. If you're a listing agent, keep all documents associated with measuring a structure's square footage.

There are times you should consider asking your client to sign a statement that she made a decision about the transaction against your advice. Maybe the client refused to have a pest inspection or radon test, even though you recommended both. Keeping a document in your files where she verified in writing that not performing those inspections was her choice will help you tremendously if she finds an active termite infestation or high levels of radon gas after moving in.

Keep records of your conversations with other real estate professionals who are associated with the transaction, such as appraisers, mortgage people, home inspectors, and others. Make your records as detailed as possible. Written documentation about a past event can be an effective tool if someone files a complaint about the role you played in a real estate transaction.