BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Read, Read, Read
The fact that real estate agents should read the documents that pass through their hands was reinforced in the recent case of Saffie v. Schmeling.
In that case, the listing broker stated in the 2006 MLS listing:
““This parcel is in an earthquake study zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.”
That report had been done 24 years earlier and the date, May 20, 1982, was clearly and predominantly printed on the cover. Also, in July 1982, the Riverside County Planning Department issued a letter granting final approval of the report.
The buyer submitted an offer through its co-op broker, the contract was ratified, and the listing agent gave the report to the buyer’s agent who admitted that he gave the report to his client without reading it. No investigations were made by buyer or buyer’s agent regarding the geological issues prior to the close of escrow.
After COE the buyer discovered that the County of Riverside building standards had changed in the interim due to the 1994 Northridge earthquake; and thus the report was out of date. The changes in those standards rendered the property basically unbuildable.
Buyer sued both the listing and selling brokers. The listing broker was not found to be liable because that broker did not have a fiduciary duty to the buyer but only duties of “honesty, fairness and full disclosure toward all parties.” The court justified its conclusion because the date of the report was printed prominently on the cover, and there were no affirmative misrepresentations by the agent, while ATTRIBUTING the statements to the report itself.
See Weekly Practice Tip “Attribute and Disclaim”
The buyer’s broker was found liable for negligence and breach of fiduciary duty. The fact that the buyer’s broker told the buyer to “check out” the report did not save him. The court stated that the buyer’s broker “led buyer to believe that the report was current and could be relied on as an indication that the property was ‘ready to build’.”
In reaching its conclusion, the court stated:
“It was incumbent on buyer – and on buyer’s broker, in his role as a fiduciary for buyer – to determine whether the Fault Hazard Investigation report was something buyer should rely on for his particular purposes. Seller’s broker had no obligation to perform that research for buyer and buyer’s broker.”
FIDUCIARY DUTY DEFINED: An instruction given to juries in California real estate cases defines Fiduciary Duty as follows:
“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 the 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 him/herself in the position of the principal and ask him/herself the type of information required for the principal to make a well-informed decision.”
PRACTICE TIPS:
1. It is important to READ documents that you receive from sellers, inspectors, agencies and other third parties. Do not just pass them along to the other broker or to your client.
2. Although the listing broker was not found liable in this case, it took a trial and appeals court decision to resolve the issue. It is good risk management for even listing agents in this scenario to review the documents and point out something as material and important as the age of the report. It is always better to avoid a lawsuit than to spend much money and time winning one.
2. Forward documents with a cover letter/e-mail which identifies the documents being forwarded and urging clients to read them and consult with qualified professionals to get answers to any questions. This not only confirms the transmittal and receipt of the listed documents but also your recommendation to the client to read and understand them.
3. In particular, in the case of much longer documents or technical documents, such as HOA documents or geotechnical reports, you are not necessarily required to read and understand the whole document or set of documents, but be sure to recommend in writing that the client read them and consult with qualified professionals regarding any questions.
4. But, if a client has expressed a particular requirement or need (such as a buyer who wants to rent out a condo or who has two large pets in a HOA), review the documents for limitations on such uses.
5. Read, read, read.
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.