Q: I have heard that Agents who get involved in a claim or lawsuit can defend themselves by establishing that they have met the “standard of care.” What is meant by “standard of care”? How can I be certain that I am meeting the standard of care if I am ever sued?
A: “Standard of Care” is a legal term that is used to describe one of the basic elements in a claim that a party was negligent. The Judicial Council of California Civil Jury Instructions describes the Basic Standard of Care in CACI No. 401 as follows:
“Negligence is the failure to use reasonable care to prevent harm to oneself or to others.”
“A person can be negligent by acting or failing to act. A person is negligent if that person does something that a reasonably careful person would not do in the same situation or fails to do something that a reasonably careful person would do in the same situation.”
With respect to the Agent’s duty to conduct a competent and diligent visual inspection of the accessible areas of the Property (the duty detailed in the CAR AVID form), Civil Code Section 2079.2 specifies:
“The standard of care owed by a broker …is the degree of care that a reasonably prudent real estate licensee would exercise and is measured by the degree of knowledge through education, experience, and examination required to obtain a [real estate] license …”
All real estate licensees have duties that they must fulfill in conjunction with their representation of Sellers, Landlords. Buyers and Tenants. These duties are created by:
- Statutes (e.g., agency disclosure and confirmation; conducting a diligent visual inspection); or
- California Appellate decisions (case law, e.g., Horiike case that held discrepancies in size must be disclosed to the Buyer regardless of agency relationship); or
- Contract (duties specified in the Listing Agreement or the Buyer Representation Agreement); or
- Custom and practice in the industry (e.g., using a specific type of form in comparable situations).
If it is alleged that an Agent breached a legal duty that is owed to a Party in a real estate transaction, the “standard of care” would be used to determine whether the Agent acted reasonably in the performance of that duty under comparable circumstances.
The Agency Disclosure outlines the basic affirmative obligations of Agents: “To your client you owe a fiduciary duty” which is defined as the “duty of utmost care, integrity, honesty and loyalty” in all of your dealings with your client.
The Agency Disclosure also specifies that the Agent owes the following duties to all parties:
- The diligent exercise of reasonable skill and care in the performance of your duties;
- A duty of honest and fair dealing in good faith; and
- A duty to disclose all facts known to you materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.
If there is a claim against a real estate licensee, the Arbitrator, Judge or Jury will need to decide whether the Agent met the standard of care in performing the Agent’s duties. If not, the Agent and Broker can be found liable. If the Agent met or exceeded the standard of care, then there is no liability.
Generally, expert witnesses are used to give opinions on the relevant standard of care for real estate licensees. The experts would testify as to what would a reasonably competent and diligent Agent in this area for this type of property do under these circumstances?
PRACTICE TIPS: To assure yourself that you are meeting the standard of care in your transactions, you should ask yourself the following four questions:
- Am I giving the clients the “utmost care, integrity, honesty and loyalty” at all times during my relationship with them?
- With respect to both clients and other Parties to the transaction:
a. Am I acting honestly, fairly and in good faith?
b. Am I being diligent in the representation of my client and in the performance of my duties?
c. Am I exercising skill in the way I am handling the transaction?
- Am I demonstrating care in the manner in which I prepare and deliver documents; in the way I communicate with my client and the other side; and in the accuracy of my paperwork and communications?
- Am I operating in a geographic area and within the type of property where I feel competent, and understand the standards to which I will be held? If not, then I will get help, or refer the transaction to someone who is competent in that field.
Hopefully you can answer “Yes” to all four of the questions above but remember that you will have to prove that you met the standard of care which means that you must always document your actions such as having emails confirming your warnings and advice to clients.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: 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.
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