Legal Update

A LISTING AGENT IS NOT LIABLE TO THE BUYER FOR MAKING A STATEMENT OF FACT REGARDING THE PROPERTY THAT IS ACCURATE BUT OUTDATED. THE SELLING AGENT IS LIABLE FOR FAILING TO EXPLAIN IT.

  • April 21st, 2014
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The buyer of an undeveloped parcel of real estate sued the seller, listing agent and listing broker when he discovered that the property he purchased was unbuildable even though the MLS description written by the listing agent stated a geologist report concluded it was buildable.  The listing agent failed to disclose in the MLS that the geologist report was 25 years old and outdated.  The court ruled that the seller and listing agent were not liable because the MLS statement was factually accurate.  However the selling agent was found liable because he failed to review the report and failed to inform his buyer the report was unreliable.Saffie v. Schmeling (2014) 224 Cal.App.4th 563

FACTS: A listing agent advertised an undeveloped real estate parcel in Riverside County for sale on the Multiple Listing Service. The MLS language written by the listing agent stated as follows: “This parcel is in an earthquake zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers”.

Upon seeing the MLS description of the property, another real estate agent (selling agent) recommended the property to his client (buyer) and provided him with a copy of the report.  The selling agent testified that he gave the buyer the investigation report without reading or understanding what a Fault Hazard Investigation Report was.  The selling agent told the buyer to “check out” the report.  The buyer did not investigate further and purchased the property.

After closing escrow and when seeking building approval, the buyer was told by the County of Riverside that the property was not “ready to build.”  As it turned out, the report was written by the geologist in 1982 (25 years earlier) and was no longer valid.   After the 1994 Northridge Earthquake, the County no longer accepted fault hazard investigation reports performed under earlier standards.  The County required additional geological investigation which included such substantial excavation that the buyer could not move forward with his construction plans for the commercial building.

Buyer sued the selling agent, seller and listing agent. The trial court found that the selling agent was liable for $232,147 because he had led the buyer to believe that the report was current and could be relied upon as an indication that the property was “ready to build.”  The listing agent and seller were not liable.

DECISION: The buyer appealed the trial court’s decision in favor of the listing agent.   The buyer contended that the listing agent’s statement in the MLS regarding the report was false or inaccurate because the statement failed to specify that the reported was dated 1982 and thereby gave a false impression that the report was current and valid. 

The Court of Appeal affirmed the trial court’s decision.  The Court stated that a broker’s duties with respect to any listing information posted to a MLS are specified in Civil Code Section 1008.  This section states in relevant part that the broker shall be responsible for the truth of all representations and statements made by the agent of which that agent had knowledge or reasonably should have had knowledge.  The Court held that the broker’s statement that ‘a licensed geologist had declared the lot to be buildable’, was neither false nor inaccurate.  The listing agent did not say the lot was buildable and he did not say the report was current.  What the listing agent said about the geologist was factually true.  Furthermore by giving a copy of the report to the buyer, the listing agent satisfied his duty of “honesty, fairness and full disclosure toward all parties.”

The selling agent on the other hand was held liable because he failed to read and explain the report to the buyer.  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 report was something buyer should rely on for his particular purposes.  Listing agent had no obligation to perform that research for buyer and selling agent.”

ANALYSIS: Readers of this opinion should not consider it to be a green light for listing agents to write technically accurate but deceptively incomplete property descriptions on the MLS.  With different fact the court could just as easily impose liability on the listing agent.  This decision is important because it highlights the fiduciary obligation of the selling agent to do more than merely deliver a report to his client without understanding or explanation.  If the listing agent does not understand the report and does not realize that a change in earthquake standards rendered the report outdated, the selling agent should at least recommend to his buyer to consult with a geologist for a proper explanation.      

Full Text of the Decision: http://www.leagle.com/decision/In%20CACO%2020140307044  

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This case was recently decided and is subject to change by further appellate proceedings or legislation.  You should consult legal counsel to evaluate this legal precedent in the context of your specific facts.  The distribution of the SLF Legal Update does not by itself create an attorney-client relationship with the reader.