Liability of Real Estate Agents and Brokers
Evidence was sufficient to support jury’s determination that a real estate agency was negligent in its dealings with home purchasers, where jurors found that the agency: (i) violated statutes specifying that vendor’s agent must conduct a reasonable, competent, and diligent visual inspection of property, (ii) failed to disclose to a prospective purchaser all facts materially affecting value or desirability of property, (iii) failed to provide a purchaser with a document setting out obligations of the agent, and (iv) failed to act under a fiduciary duty. West’s Ann.Cal.Civ. Code §§ 2079.2, 2079.14, 2079.16.
Real Estate Agency Seller’s Agent
A Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only. A Seller’s Agent or a Subagent of that Agent has the following affirmative obligations:
- To the Seller:
- A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller.
- To the Buyer and the Seller:
- (a) Diligent exercise of reasonable skill and care in performance of the Agent’s duties.
- (b) A duty of honest and fair dealing and good faith.
- (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.
Real Estate Agency Buyer’s Agent
An agent acting only for a Buyer has the following affirmative obligations:
- To the Buyer:
- A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Buyer.
- To the Buyer and the Seller:
- (a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.
- (b) A duty of honest and fair dealing and good faith.
- (c) A duty to disclose all facts known to the Agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. An Agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.
Condition of Property on Closing
California Residential Purchase Agreement and Joint Escrow Instructions
Buyer is strongly advised to conduct investigations of the entire property in order to determine its present condition.
Seller and Agents may not be aware of all defects affecting the Property or other factors that Buyer considers important.
Property improvements may not be built according to code, in compliance with current law, or have had all required permits issued and/or finalized. (C.A.R Form RPA section 7b(2))
Statutory Disclosures and Cancelation Rights
C.A.R. Form RPA Section 11 requires seller to provide the TDS and continues…
- Nothing stated herein relieves a Buyer’s Agent, if any, from the obligation to (i) conduct a reasonably competent and diligent visual inspection of the accessible areas of the Property and disclose, on section IV of the TDS, or an AVID, material facts affecting the value or desirability of the Property that were or should have been revealed by such an inspection… C.A.R. Form RPA 11 (A)(2)
Transfer Disclosure Statement required under this section is considered fully completed when it has been completed by the Seller and signed by the Seller and the Seller’s Agent.
Buyer’s Investigation Advisory (C.A.R. FORM BIA 3)
The form states in relevant part that you (Buyer) are strongly advised to investigate the condition and suitability of all aspects of the property, including but not limited to the (C.A.R. FORM BIA 3)
- Building Permits, Zoning, Governmental Requirements, and Address: Permits, inspections, certificates, zoning, other governmental limitations, restrictions, and requirements affecting the current or future use of the property, it’s development or size. Postal/mailing address and zip code may not accurately reflect the city which has jurisdiction over the property.
C.A.R. FORM RPA Section 12 Buyer’s Investigation of Property and Matters Affecting Property: Buyer shall… conduct inspections, investigations, tests, surveys, and other studies. Buyer Investigations include any… specific inspections of the physical condition of the land and improvements.
C.A.R Form RPA Section 18 (B) Scope of duty: Buyer and Seller acknowledge and agree that Agent… Shall not be responsible for inspecting public records or permits concerning the title or use of property.
What About The AS-IS” Language in The TDS?
The Controlling Case on This Topic Is:
Loughrin v. Superior Court (Barr) 15 Cal.App.4th 1188, 19 Cal.Rptr.2d 161
The “as is” sale simply means the Buyer accepts the Property in the condition visible or observable by him.
“As is” clause only protects the Seller as to unknown facts, not for nondisclosure or misrepresentation of material facts known to the Seller. Both the Seller and the Seller’s Agent have separate and independent duties to disclose concealed material defects that are not observable by the Buyer.
An “as is” clause does not protect the Seller from liability for his or her own negligent failure to disclose a material fact.
Broker Fiduciary Duty (generally)
The broker has a fiduciary duty to his or her principal to learn the material facts that may affect the principal’s decision.
The broker is hired for professional knowledge and skill. He or she is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal’s decision and has a duty to counsel and advise the principal regarding the property and ramifications of the decision.
The Agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information. Field v. Century 21 Klowden-Forness Realty, 63 Cal. App. 4th 18, 25–26, 73 Cal. Rptr. 2d 784 (4th Dist. 1998) (quoting text); McCollum v. Friendly Hills Travel Center, 172 Cal. App. 3d 83, 92–94, 217 Cal. Rptr. 919 (2d Dist. 1985).
Broker Fiduciary Duty (Scope of Duty is Case Specific)
The facts that a broker must learn, and the advice and counsel required of the broker, depend on:
- The facts of each transaction,
- The knowledge and experience of the principal,
- The questions asked by the principal, AND
- The nature of the property and the terms of sale.
The broker must place himself or herself in the position of the principal and ask the questions and obtain the type of information required for the principal to make an informed decision.
This obligation requires investigation of facts not known to the Agent and disclosure of all material facts that might reasonably be discovered. Field v. Century 21 Klowden-Forness Realty, 63 Cal. App. 4th 18, 25–26, 73 Cal. Rptr. 2d 784 (4th Dist. 1998) (quoting text); Montoya v. McLeod, 176 Cal. App. 3d 57, 64–65, 221 Cal. Rptr. 353 (4th Dist. 1985).
Broker Fiduciary Duty (Field v. Century 21 Klowden-Forness Realty Standard)
Fiduciary duties of a Buyer’s Agent may include a duty to investigate public records and permits.
While a Seller’s broker in a residential transaction has no duty to investigate the public records for purposes of disclosure to the buyer, the duty of the Buyer’s broker is more than to merely conduct a visual inspection of the property to be purchased and may include a duty to investigate public records and permits regarding the property. Field v. Century 21 Klowden-Forness Realty, 63 Cal. App. 4th 18, 73 Cal. Rptr. 2d 784 (4th Dist. 1998).
Appraiser Scope of Services May Be Limited in The Contract
B4-1.3-06, Property Condition and Quality of Construction of the Improvements (03/01/2023)
Appraiser Selection of Condition, Quality, and other Characteristic Ratings
The condition and quality ratings must be based on a holistic view of the property and any improvements. When selecting the condition and quality ratings, an appraiser must consider all improvements to determine an overall condition and quality rating. The appraiser should select the rating that best reflects the property as a whole and in its entirety.
Describe the subject property as of the effective date of the appraisal on an absolute basis, meaning the property must be rated on its own merits. The rating should not be selected on a relative basis, meaning it is not selected on how the property relates or compares to other properties in the neighborhood. Additionally, the condition and quality ratings for comparable properties must be made on an absolute basis (again, each comparative property on its own merits), not on a relative basis, and reflect the property as of the date of sale of that comparable property.