BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Listing agents’ duties include marketing and selling a property for the highest price and terms possible. However, listing agents need to be cognizant of ensuring that they do not stretch representations in advertising beyond providing accurate information to buyers.
Civil Code §1088 specifically provides that listing agents will be held liable for any misrepresentations or misstatements made on the Multiple Listing Service (“MLS”) in listing agents’ advertisements. Therefore, agents need to be careful in the comments they make on the MLS.
SCENARIO NO. 1: I am a listing agent and marketed a property as having 3,000 square feet in the MLS. However, one of the bedrooms was not permitted and therefore, the Tax Assessor’s office listed the property as having 2,700 square feet. The buyer was not aware of the Tax Assessor’s measurement prior to the close of escrow and has sued me and my broker for false advertising and representing that the property was legally 300 square feet less. Am I liable?
RESPONSE: The law requires that you accurately represent the condition of the property on the MLS. See Civil Code §1088. As such, unless you specifically stated in the MLS comments that the square footage included a potentially unpermitted bedroom, you could be held liable for misrepresentation of the square footage.
SCENARIO NO. 2: I am listing a property, which has a pool house. The pool house is approximately 200 square feet and contains a small sitting room and a bathroom. It does not contain a kitchen. I am placing the property on the MLS. Can I include the pool house as living space in my advertising? Can I include the square footage in the square footage calculations? I do not know if the pool house has permits. The seller represents that the pool house does not have permits. How do I market the pool house?
RESPONSE: It is recommended that you refrain from including the square footage of the pool house in your square footage calculations. You should disclose in your marketing that there is a structure on the property, which contains a bathroom and a sitting area. You should state that the seller represents that there are no permits for the structure and that you have no knowledge as to whether it is legal, permitted, or built in compliance with building codes. You should note that a buyer is advised to investigate the structure if the legality of the structure is of concern to the buyer. You should not represent in the MLS that it is a legal structure. You should consider having the seller sign the disclosure and disclaimer agreement regarding non-conforming uses or structures created by Broker Risk Management, a copy of which is attached to this Tip.
SCENARIO NO. 3: I am representing a buyer. The listing agent’s advertisement, including a flyer and the MLS listing, references an in-law unit. I am not sure whether the square footage represented by the listing agent includes the in-law unit or whether the in-law unit has permits or is built in compliance with local building codes. How do I properly represent my buyer?
RESPONSE: Ask the listing agent in writing whether the seller has permits for the in-law unit and whether the seller is aware of whether the in-law was built in compliance with local building codes. Notwithstanding any disclosures or representations by the seller, it is recommended that you advise your buyer to check the permitting status of the in-law unit with the local building department. You should not check the permitting status as you do not legally have that duty and it is beyond the standard of care of a real estate agent to check permits (Civil Code §2079 specifically states that real estate agents do not have an obligation to check public records, including permits). You should also advise your buyer in writing to doublecheck the square footage if square footage is of concern to the buyer. Checking square footage can be done by checking the Tax Assessor’s office or consulting with an appraiser if the property is being appraised. You may also ask the seller to complete a CAR Square Footage and Lot Size advisory (SFLS).
DISCUSSION: Civil Code §1088 provides:
“(a) A listing may not be placed in a multiple listing service unless authorized or directed by the seller in the listing and (b) If an agent or appraiser places a listing or other information in the multiple listing service, that agent or appraiser shall be responsible for the truth of all representations and statements made by the agent or appraiser of which that agent or appraiser has knowledge or reasonably should have had knowledge to anyone injured by their falseness or inaccuracy.”
This statute generally provides that real estate agents may be held strictly liable for misrepresentations regarding properties in the MLS. Therefore, it is important that listing agents refrain from making any exaggerations or misrepresentations regarding properties they are listing.
Specific areas of concern regarding misrepresentations include the following:
- Square footage by stating inaccurate square footage.
- Including a non-conforming, illegal, or other structure which does not have permits.
- Misrepresenting that a property is on sewer when it is on septic.
- Misrepresenting the number of bedrooms.
- Misrepresenting acreage.
- Using improper adverbs or adjectives in MLS comments.
Listing agents are advised to ensure that all of their representations in the MLS and advertising materials are accurate. Agents are advised against exaggerating square footage or misstating whether a structure is legal. Listing agents are also discouraged from using adverbs and adjectives such as “legal,” “buildable,” “completely remodeled,” “completely rebuilt,” “perfect condition,” etc. Listing agents are also encouraged to use BRM’s disclaimer regarding non-conforming uses, if a property contains a structure, repair, or building, which may not have been built with permits or is non-compliant with local building codes.
PRACTICE TIPS:
- Listing agents should ensure that all advertising is true and accurate including marketing flyers and representations on the MLS.
- If a listing agent is utilizing a transaction coordinator (“TC”) to upload information into the MLS, the listing agent should doublecheck the entries to ensure accuracy as the agents are legally responsible for the work by their TC.
- If a listing agent is marketing a property with a non-conforming use or a structure which lacks permits, listing agent is encouraged to use BRM’s advisory and disclaimer, a copy of which is attached to this Tip.
- Listing agents are advised to refrain from using comments such as “legal,” “buildable,” “completely remodeled,” “completely rebuilt,” “perfect condition,” etc.
- Agents representing buyers should identify any potential issues in marketing, such as square footage discrepancies or uses or structures, which may not have permits or may not be built in accordance with local building codes. Agents representing buyers in these circumstances should advise their buyers in writing to investigate the issue with the local building department to determine whether permits have been provided and whether the structures are built in accordance with local building codes.
- Agents representing buyers where square footage is being questioned should recommend that their buyers obtain and review the appraisal to ensure the buyers are satisfied with the square footage and there are no misrepresentations. Buyers can also verify square footage by separately retaining an appraiser, engineer, contractor, or architect to measure the square footage.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.