Both clients and agents know that realtors owe a duty to diligently inspect residential property and disclose the results to buyers and sellers. But how far do they have to go? A recent decision may make that duty impossible to define.
Duty seems to know no bounds. A recent decision in California now seems to say that a real estate agent’s duties must go beyond the measure of disclosure statutes and use hindsight, that is after the fact, to know just what he or she must disclose to both buyers and sellers.
Double Obligation
California law places on both the listing side broker (seller’s agent) and buying side broker (buyer’s agent) an obligation to conduct a reasonable and diligent inspection, both inside and outside of the physical premises, when a property goes under offer after which they must disclose all observed material facts. (See California Code of Civil Procedure 2079.)
Twice in 1997 California’s appellate courts ruled in directly conflicting ways about what a broker’s duty is. In Padgett v. Phariss, the court held that compliance with the statute — that is to conduct the inspection and disclose what was seen — was sufficient compliance. In that case the broker was charged with failing to ascertain if a homeowner’s association was the subject of any pending lawsuits. In finding in favor of the broker, the court said that compliance with CCP 2079 was enough and that an off-site investigation was beyond the required language of the code, thus relieving a broker from that investigative duty. But wait. It seems brokers can’t rely on Padgett.
From the Other Side
The same year, a different appellate court found in Michel v. Moore & Associates that compliance with CCP 2079 requires different conduct. In Michel, the buyer’s agent reported only the cracks she had seen in the interior walls of the house, not cracks and broken tiles in the pool that had been observed by a second agent of the same company six months before, during an inspection where the second agent was trying to get the listing but failed.
After escrow closed, the buyer’s soils engineer advised that the poor fill in the soil resulted in a 3.5-inch displacement. Then the rains came and the cracks opened up, resulting in a bid to repair the house for some $500,000.
Michel (the buyer) sued the brokerage house, claiming negligence and failure in their duty to disclose the results of the other agent’s inspections six months earlier. The court held that even though the buyer’s agent did inspect and disclose, that it did not relieve the company from having to disclose the results of its first agent’s earlier inspection. In other words, the physical inspection by Michel’s agent wasn’t enough – her brokerage firm still had to conduct an off-site investigation of its own files and agents to discover the facts it was charged with having to disclose.
Feeling Conflicted
Given that one decision says the agents did not breach their duty by failing to inquire of the homeowners and the other says that the broker did breach a duty by failing to disclose knowledge learned six months earlier by an uninvolved agent, it’s hard to say to what length agents and their brokerage firms must go to satisfy their duty. The legal trend, more and more, seems to be to protect the consumer. But in broadening the statutory language, the Michel court seems to be saying it’s not enough to have inspected, to rely on the statutes; realtors must look backward after the damage has occurred and then ask, “If I had disclosed then what I now know I know, would the result have been the same?” This seems an impossible standard for agents to adhere to. Does the brokerage house have to track agents who had knowledge but may have left the company? If they sold a damaged home five years back, and it’s since been repaired, do they have to confirm the repairs?
If the brokers, and the agents have to look backward to assure their duty of disclosure, it is doubtful if they ever will be able to effectively do their jobs. Worse, as long as the courts are in conflict, there will be no objective factors on which the agents can rely in making a complete disclosure. And if there is conflict in the agents, imagine the conflict among the consumers. Different agents with differing experiences will see different things. And that will certainly lead to more litigation, not less. The California courts need to resolve this issue immediately to avoid further litigation as clients will claim there should have been disclosure but there wasn’t.
Mark Salkin is a realtor and California attorney with more than 35 years experience in the real estate industry. You can have your real estate questions answered by writing Mr. Salkin directly at realproperty@marksalkin.com. The opinions expressed are solely those of the author and not those of any real estate brokerage house or of this online publication. Mr. Salkin’s direct line, 310.301.2316.
