Q: I am a Buyer’s Agent in escrow. The Buyer has completed a home inspection, pest inspection and a roof inspection, and we have the written reports in hand. The Seller’s Agent, with another brokerage, just sent me an email instructing me and the Buyer not to deliver the reports to Seller’s Agent or Seller. I note that the CAR Residential Purchase Agreement requires the Buyer to give to Seller, at no cost, complete copies of all investigative reports received by Buyer. What should I do?
A: You, as Buyer’s Agent, have no reason to comply with that instruction. In fact, it is in the Buyer’s best interests to have the report sent to the Seller, especially if that Buyer wants to either (a) prove that the Buyer is acting in good faith in exercising a contingency right to cancel the contract or (b) to be able to negotiate a price reduction, credits or request repairs. The Seller’s Agent’s instructions should not be seen by any Buyer’s Agents as binding on their actions.
It should also be recognized that if the same Broker is a dual agent representing both the Seller and the Buyer, that Broker has actual knowledge of the contents of the report and thus the Seller’s Broker must make certain that the Buyer’s reports are provided to Seller and to any subsequent Buyer should the existing transaction cancel.
Even in a non-dual agency transaction, it is a bad idea for a Seller’s Agent to unilaterally decide to instruct a Buyer’s Agent and Buyer to not deliver the inspection reports to her/him for the following three (3) reasons:
- If Buyers used the contents of an inspection report to exercise their investigation contingency rights to cancel the contract, the Seller is entitled to review the report to determine if the Buyer is acting in good faith. Seller’s Agents who are intentionally keeping the inspection reports away from the Sellers are potentially breaching their fiduciary duty to protect the Seller’s interests.
- Simply because someone has not seen a report does not mean that the person is “not aware” of the existence of that report which awareness may, in and of itself, be a material fact that must be disclosed. For example, if the Seller’s Agent knows that the contents of the report were the basis for the first Buyer not proceeding with the purchase, that fact alone would need to be disclosed to the next Buyer and Buyer’s Agent. If that is not done and there is a post-close of escrow claim, the better real estate attorneys who represent the Buyers will note that there had been a prior transaction and they will subpoena the broker file from the first Buyer’s Agent. It will not be difficult to discover that the Seller’s Agent had knowledge of the report, did not disclose that knowledge to the new Buyer, and, in fact, instructed the Buyer’s Agent NOT to deliver that report to the Seller’s Agent. Although not a separate, legally-recognized tort, it is highly probable that the Courts will not look favorably on the Seller’s Agent’s willful attempt to make themselves unaware of a material fact and that could create significant civil liability for the Seller’s Agent and Broker as a result. It is also doubtful that the DRE will look favorably on the practice.
- Finally, there are only so many inspectors in any given geographical area and it is conceivable that the new Buyer may choose to use the same inspector that was used by the first Buyer. That inspector will undoubtedly make a point of letting the new Buyer know that the report on that Property already exists. Then the new Buyer may or may not want to proceed with the transaction. But even if the new Buyer closes escrow, that Buyer will have no trust or respect for the Seller’s Agent and/or the Seller. If anything else were to go amiss, the Buyer’s attorney could use the known improper acts of the Listing Agent as a bootstrap argument to claim that the Agent was acting nefariously in other aspects of the transaction.
No one in a real estate transaction benefits from concealing known material facts or by intentionally making themselves ignorant of those facts.
PRACTICE TIPS.
SELLER’S AGENTS:
- Do not, on your own, instruct a Buyer’s Agent to not deliver inspection reports. If the Seller gives you that instruction, discuss with the Seller how negatively that would look should the Buyer, either later in the escrow or after the close, discover that Seller was determined not to receive inspection reports which, if received, would have to be disclosed to a subsequent Buyer.
- If you encounter a Buyer’s Agent or Buyer who refuses to deliver inspection reports and you, as Seller’s Agent, know that inspection reports exist, you must disclose the level of your knowledge of those reports (e.g., type of report, name of inspector/contractor/engineer, content of any such report if conveyed verbally or in writing from Buyer’s Agent) to any subsequent Buyer.
- BUYER’S AGENTS: If you receive such an instruction from the Seller’s Agent, discuss that instruction with the Buyer, point out the Purchase Agreement requirement to provide inspection reports to the Seller, and advise the Buyer that it is your recommendation to ignore the instruction and forward the inspection reports to Seller’s Agent.
- DUAL AGENT: Remember that all documents and information in the possession of one agent in a dual agency transaction are implicitly within the knowledge and awareness of both agents, and of all licensees within that brokerage for that matter. This is because in a dual agency transaction all clients and all documents and information are under the Broker’s license and overall supervision. If information or a document is in the possession of a Buyer’s Agent in this scenario, there is no choice but to deliver that to the Seller’s Agent.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is 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.
© Copyright Broker Risk Management 2019 05/17/19