QUESTION: Our Brokerage just took a listing and the Seller instructed us not to communicate with his neighbor; the Seller has described the neighbor as being “untrustworthy.” We thought this request was odd but we had no intention of contacting the neighbor. Right after our “For Sale” sign went up, I received an e-mail from that neighbor describing a long list of problems that she has had with the Seller, including disputes regarding fence location, noise and tree root issues. She stated she expected me to “ensure potential buyers are notified of these problems before they buy.” I printed her e-mail and showed it to the Seller who became irate; he ordered me to burn the e-mail and never speak about that e-mail message again to anyone.
I know from past Legal Seminars that we must give Buyers any documents that we have in our possession which relate to the Property but if we burn the e-mail as the Seller has instructed, do we still have to tell the actual Buyer anything about it? What is the best practice when a Listing Agent receives bad news from neighbors?
ANSWER: Buyers need to be told when a neighbor has raised complaints, whether oral or written, about the Property, the neighborhood or other information negatively affecting value or desirability. Here, the best practice is to provide the Buyer with a copy of the neighbor’s e-mail.
The reality is that the neighbor’s e-mail exists and not only in your computer/phone system, but in the neighbor’s e-mail server as well. Thus burning the copy you showed the Seller and even erasing that communication from your own e-mail server does not mean that the e-mail does not exist and/or it does not eliminate your obligation to disclose what you know; which, as described above, is that the neighbor has raised multiple allegations in writing about the Property listed for sale.
Regardless of the Seller’s instructions, Listing Agents must disclose their knowledge of a neighbor’s allegations. Even if the neighbor’s claims are 100% false, a respectful disclosure about the situation is the best means of managing the broker’s risks and protecting the Seller’s interests. We have learned in countless scenarios over the last three decades that whatever neighbors tell Listing Agents prior to the Close of Escrow will be repeated (if not expanded upon) when the Buyer meets the neighbors after escrow closes. It does not matter how unusual the allegations are or how loud the Seller’s protestations, there is often at least a kernel of truth in the communications received from neighbors.
We also know that when Buyers first learn about any type of problem from the neighbors after escrow closes, the Buyers tend to become so upset that they retain an attorney to sue everyone. Choosing not to disclose the neighbor’s allegedly “false” claims have led to many lawsuits against Sellers and Listing Agents that have ended up costing everyone far more than what they thought they would “save” by keeping silent.
The best practice is to provide the Buyer with a copy of the neighbor’s e-mail at the same time that the Buyer is provided with the Listing Agent’s written visual inspection disclosure, preferably using the “Agent Visual Inspection Disclosure” AVID form. The e-mail should be physically attached to the AVID; then in the “Other” section on page 3 of the AVID, the attachment needs to be referenced using a standardized disclosure format that we refer to as Attribute, Disclose & Disclaim:
Attribute: Briefly explain how and when you obtained the information and from whom.
EXAMPLE: On [insert date of email] , I received the attached e-mail from [insert name of neighbor].
Disclose: Briefly summarize the information in a non-inflammatory statement of facts without indicating whether any of the information is true or false and indicate the agent’s lack of actual knowledge prior to receiving that information.
EXAMPLE: The neighbor has made various allegations about the fence location, noise and tree roots, none of which I knew about prior to receipt of this e-mail.
Disclaim: Advise Buyers that, as the Listing Agent, you have not and will not investigate or verify the neighbor’s allegations but that the Buyer should do so.
EXAMPLE: Neither I nor my broker have or will verify or otherwise investigate or verify the neighbor’s claims; Buyer should investigate.
PRACTICE TIPS:
- Regardless of what Sellers claim or threaten, once a Listing Agent receives information negatively affecting the property or neighborhood from any source in any medium (oral or written), that information needs to be disclosed to Buyers as expeditiously as possible; to do otherwise exposes the Seller and Listing Agent to a potential post close of escrow claim for damages and/or rescission of the transaction.
- Listing Agents should not investigate whether the information from third parties such as neighbors is true or not. Listing Agents are not obligated to verify whether or not that information is true; the Listing Agent’s obligation is limited to making the disclosure, not defending the Seller or disproving the neighbor.
- Do not accept the Seller’s position as being 100% truthful (regardless of who the Seller is) and do not adopt the Seller’s position as your own. Simply because the Seller says the neighbor is untrustworthy (or crazy) does not mean that the information supplied by that neighbor can be safely ignored; you also should not repeat the Seller’s analysis of the claims or commentary about the neighbor.
- When you receive oral or written information from any third party about the Property, use the Attribute-Disclose-Disclaim format detailed above and remember the old adage: “Keep It Simple, Sweetheart”.
- If Sellers want to dispute the information from the neighbor, then the Sellers can do that in their disclosures.
- If Sellers want to know how to deal with the information from the neighbor, advise the Sellers (preferably in a writing such as an e-mail) to consult with their own qualified California real estate attorney as to the best means for the Sellers to deal with the situation.
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 2018 7/20/18