Last year, the California Court of Appeals handed down a decision that may have serious repercussions for the real estate broker community (Saffie v. Schmeling, Fourth Appellate District, Case No. E055716, dated March 7, 2014). In Saffie, a Buyer’s broker was held liable for simply passing along disclosures received from a listing agent without analyzing the sufficiency of the disclosures. The problem is, that is exactly what many agents are trained to do.
For years, real estate agents have relied on the idea that they are “merely conduits for information.” A Buyer’s agent gets a stack of disclosures from a listing agent and passes them along to the Buyer to review and sign. Many agents are trained to do very little analysis, and most agents (outside of DeLeon Realty, of course) refuse to provide their Buyers with a written summary of key disclosure items even when requested. The continuation of this conduct may create liability for brokers everywhere, but it should be a good thing for clients. After all, agents are trained professionals who should be familiar with the sufficiency of provided documents and the general status of the applicable law.
In Saffie, the plaintiff (Buyer) wanted to procure a site suitable for a new building. The Buyer’s agent identified a potential opportunity and brought it to the Buyer’s attention. In the MLS remarks, the listing broker included a statement that said, “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.” The report, which was prominently dated May 20, 1982, was provided to the Buyer. Additionally, the Seller also provided a letter dated July 23, 1982, from the Riverside County Planning Department, which granted its “[f ]inal approval of the report.” The buyer purchased the property in 2006. Immediately thereafter, he tried to develop the property, but the Riverside County determined the Property was not “ready to build.”
The problem was that the applicable zoning rules changed in the years between the time of the report (1982) and the date that the report was delivered to the Buyer (2006), due to the 1994 Northridge earthquake. The Court held the statements that the listing agents made were accurate, truthful, and in compliance with California Civil Code Section 1088. However, the Court held that the Buyer’s broker was liable for failing to investigate and understand the implications of the report’s date. In other words, the Court found the Buyer’s agent had a duty of more than simply acting as a conduit of information.
Although some agents may argue that this standard is unreasonable, it is actually just common sense. Agents should review all disclosures and share their insight with the clients. While Sellers have an obligation to disclose all information they know about the property, they are generally not obligated to search for problems. If a report is outdated, then agents should flag that fact for the Buyers.
However, it should be stressed that this case does not relieve the Seller of the duty of full and accurate disclosure. If Sellers or agents attempt to conceal known information, then they will still face significant exposure.
Hopefully, cases like Saffie will encourage more agents to provide actual counsel and advice to their clients rather than just passing along information for their clients to decipher.
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