A couple of weeks ago I was interviewed by a reporter from the New York Times who was writing a story about an unusual case pending in San Diego. The case concerns a buyer who is suing her agent because he allegedly misled her about the value of a house she and her husband purchased.
I expressed the general view that far more claims concerning the purchase of residential real estate will be asserted in the present declining market than are asserted in an appreciating market. But I opined that there will probably not be a wave of cases alleging that buyers' agents misled buyers as to property values during the recent boom years in the residential market. Value is in the eye of the beholder and information about home sales is publicly available.
The article ran in the New York Times on January 22, 2008 and included one of statements that I made to the author. To read the article, click here.
There are many reasons that a buyer's agent can be sued -- most claims arise from a misrepresentation or non-disclosure about the physical condition of real property. But it is certainly possible that an agent can misrepresent the value of a home, and whether this is actionable will depend on the facts of the case. As the authors of a leading real estate treatise have poetically concluded, “The kind and number of intentional misrepresentations reflected in the reported decisions are as plentiful as grains of sand on the beach.” 1 Miller & Starr, California Real Estate (3d ed. ) p. 436.
The law in this area is well settled but is worth briefly summarizing. A buyer's agent has a fiduciary duty to disclose material facts to the buyer. This includes a duty to disclose reasonably obtainable material information, which may require the agent to investigate facts not yet known to the agent. [See Leko v. Cornerstone Bldg. Inspection Service (2001) 86 Cal. App. 4th 1109, 1115–1116—this includes the obligation to discover and disclose material defects in property.]
The broker's fiduciary duty to disclose material facts about the property arises upon creation of the principal-broker relationship—before the purchase contract is entered into.
Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal. App. 4th 698, 711.
When transmitting material information from the seller (or others) to the buyer, the buyer's broker must either verify the accuracy of the information or disclose to the buyer that the information has not been verified. Salahutdin v. Valley of Calif., Inc. (1994) 24 Cal. App. 4th 555, 562–563 & fn. 3. A buyer's broker who accepts material information from others as being true and transmits it to the buyer without verification or disclosing to the buyer that it has not been verified breaches his or her duty and may be liable to the buyer for negligent misrepresentation or “constructive fraud.” Id.
On the other hand, the “buyer's agent is not required to verify information received from the seller and passed on to the buyer if the buyer understands the agent is merely passing on unverified information.” Pagano v. Krohn (1997) 60 Cal. App. 4th 1, 11; see Assilzadeh v. California Fed'l Bank (2000) 82 Cal. App. 4th 399, 417.
Knowledge of these rules and a spirit of full disclosure will help keep real estate agents out of trouble.
