BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
ISSUE: I am the broker of a real estate company. I understand that it is recommended that real estate agents refrain from investigating public records, including permits. My agents believe that it is part of their duties to their clients to obtain public records including permits and provide them to the buyer and seller. Please explain why real estate agents should not investigate public records.
RESPONSE: Civil Code §2079.3 specifically states that real estate agents are not obligated to obtain public records. This means that real estate agents have no legal obligation to obtain public records for their clients. If real estate agents choose to undertake this duty, which is not required by law, they undertake all the risks and liabilities affiliated with that duty.
Please consider the following situations in which we have represented real estate agents:
Situation No. 1: Real estate agent obtains building permits for a buyer. The real estate agent did not realize that the permit file was incomplete. The buyer closed the escrow in reliance on the documents provided by the agent. When the buyer sought a permit for additional work, the buyer discovered that there were notices of abatement in the file, which the agent did not obtain or provide. Because the governmental agency has immunity for negligence, the Building Department was not liable for providing an incomplete file. Rather, the real estate agent was held liable for negligently obtaining the records.
Situation No. 2: Real estate agent obtains permitting files and provides them to the buyer. There is a permit for a kitchen remodel. The agent reviews the permit and advises the buyer that a permit was obtained for the kitchen remodel. However, the agent did not notice that while there were initial inspections by the building inspector, the building inspector never provided a final approval of the permit and therefore, the permit was invalid. After the close of escrow, the buyer learned of the issue and sued the agent. The agent was liable for providing inaccurate advice.
Situation No. 3: Agent tells the buyer to obtain permits and that obtaining permits is beyond the scope of the real estate agent’s duties. Buyer asks the real estate agent to visit the Building Department with the buyer. The agent does so. The buyer did not understand that permits had not been finalized for some of the improvements. Buyer learned of the situation after the close of escrow. The buyer sued the agent for improperly advising them during the course of being at the Building Department. Agent was held liable.
Situation No. 4: Seller represents that a soils report exists at the City’s Building Department. Agent advises the buyers to obtain a copy of the soils report. Agent further advises the buyers that the agent is not qualified to obtain the report at the City’s Building Department. Buyers visit the City and cannot locate the soils report. The agent, in writing, advises the buyers not to remove their inspection contingency until they have obtained and reviewed the soils report. The buyers remove the contingencies against the agent’s advice. The agent never visits the City. A slide subsequently occurs on the property leading to $3,100,000.00 in damages. The buyers sue the agent for negligence. The judge dismisses the agent and cites to Civil Code §2079.3. However, at the hearing, the judge specifically stated to counsel, “Had the agent visited the City with the buyers, I would not be dismissing the agent from this lawsuit.”
RECOMMENDED HANDLING: If a situation arises where a buyer should obtain permits or other public records, just like an agent does not go under a house and make recommendations regarding the foundation, an agent should not handle obtaining public records, including permits. Instead, the agent should recommend that the buyers retain an expert to assist them, such as a contractor, appraiser, architect, or civil engineer. All of these professionals are qualified to obtain public records and permits.
PRACTICE TIPS:
- Agents should not investigate or obtain public records for their clients.
- Agents have no duty to and should not review permits or other governmental documents, nor interpret them or provide advice to buyers regarding them.
- Agents should refer buyers and sellers to qualified professionals to obtain and interpret public records, including permits.
- If sellers provide an agent with permits, the agent should provide them to the buyer with a caveat that the permits were provided by the seller, the agent has not investigated the permits nor verified their accuracy and completeness, and the buyer should undertake their own investigation.
This Weekly Practice Tip is an attorney-client privileged document 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. 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.