The Real Estate Agent’s Duty to Disclose
By: D. Keith Dunnagan, Esq.
July 10, 2023
Risk management has been a hot topic, and routinely, agents are trying to reduce liability exposure in the way the agent provides disclosures. It is a rare week that goes by where we don’t get a question about the agent’s duty to disclose certain items and we routinely defend agents when they are accused of failing in their disclosure obligations. One of the more common scenarios that we are questioned with is, “I have this listing and the seller has told me about some issues – but the seller told me that I am not allowed to disclose the information to the buyer. What should I do?”
The duty of an agent to disclose is rooted in contract, statutory law and common law. In contract law, it takes the form of the disclosures contained in the Agent’s Visual Inspection Disclosure. Pursuant to Section 11(A)(2) of the RPA, the Seller’s disclosures are not completed until the Seller has completed all the questions and signed and Listing Agent “has completed and signed the Listing Broker section(s), or, if applicable an Agent Visual Inspection Disclosure (“AVID”).” The contract provides that the Listing Agent has to complete disclosures.
But the section goes on and states, “nothing relieves a Buyer’s Broker, if any, from the obligation to (i) conduct a reasonably competent and diligent visual inspection of the accessible areas of the Property and disclose” on the TDS or AVID material facts affecting the value or desirability of the Property. Contractually both parties have an obligation to provide disclosures and it is an obligation that cannot be avoided.
The language contained in the RPA nearly matches the language found in Civil Code Section 2079 which statutorily requires that a real estate broker or salesperson owes a duty to a prospective purchaser of a residential property to conduct a diligent inspection. Where the contract segregates the obligations between the listing agent and the buyer’s agent, the statute makes no such distinguishing statement. The court decisions interpreting this code have confirmed that the duty of disclosure is required of both the listing broker (See Robinson v. Grossman, 57 Cal. App. 4th 634) and the buyer’s broker (See Michel v. Moore & Associates, Inc., 156 Cal. App. 4th 756 – stating the trial court erred in dismissing the claims against the buyer’s agent).
In the recent and well-known 2016 case Horiike v. Coldwell Banker, 201 Cal. Rptr. 3d 1, the Court reaffirmed the longstanding rule that the broker owes the duty to disclose all information materially affecting the value or desirability of the property.
There is a difference, however, between investigation and visual inspection. The law confers on the agent the obligation to disclose problems that can be seen or discovered in a visual inspection. See Pagano v. Krohn, 60 Cal. App. 4th 1. These cases and the contracts do not, however, require the licensee to take the place of professional inspectors and conduct exhaustive investigations of the property.
But what is a reasonable and diligent inspection? That is the mystery question that the agents are left to decipher in their day-to-day practice and the law has not been sufficiently clear on when that burden has been met. We know that writing on an AVID, “Nothing to Note – Not a professional inspector the buyer is advised to get a professional home inspection”, is not a sufficient response. Sometimes in completing the AVID, it is correct to state that there was no material defect noticed, however writing a cursory blanket statement is not sufficient to comply with the obligation, and if a defect did arise down the road, the agent and/or broker is likely to face action for violating the disclosure duty.
The difficulty is also in determining what is a “material defect” of a property. To each buyer, a defect has a different level of importance, and how is a single agent to determine all of the different value determinations of a buyer? The best methods for a buyer’s agent are to get to know the buyer and what they are looking for. Find out what is important and what is not important. The listing agent should be looking at defects that affect value or defects that the ordinary and reasonable buyer would be concerned about.
We are not aware of any cases where an agent has been held liable for over-disclosing. But when thinking about disclosures from a risk management perspective – under disclosing where the liability increases. So always remember – when it comes to disclosure – WHEN IN DOUBT – DISCLOSE. It just may save you in a dispute later.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.
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By: D. Keith Dunnagan, Esq.
July 10, 2023
Risk management has been a hot topic, and routinely, agents are trying to reduce liability exposure in the way the agent provides disclosures. It is a rare week that goes by where we don’t get a question about the agent’s duty to disclose certain items and we routinely defend agents when they are accused of failing in their disclosure obligations. One of the more common scenarios that we are questioned with is, “I have this listing and the seller has told me about some issues – but the seller told me that I am not allowed to disclose the information to the buyer. What should I do?”
The duty of an agent to disclose is rooted in contract, statutory law and common law. In contract law, it takes the form of the disclosures contained in the Agent’s Visual Inspection Disclosure. Pursuant to Section 11(A)(2) of the RPA, the Seller’s disclosures are not completed until the Seller has completed all the questions and signed and Listing Agent “has completed and signed the Listing Broker section(s), or, if applicable an Agent Visual Inspection Disclosure (“AVID”).” The contract provides that the Listing Agent has to complete disclosures.
But the section goes on and states, “nothing relieves a Buyer’s Broker, if any, from the obligation to (i) conduct a reasonably competent and diligent visual inspection of the accessible areas of the Property and disclose” on the TDS or AVID material facts affecting the value or desirability of the Property. Contractually both parties have an obligation to provide disclosures and it is an obligation that cannot be avoided.
The language contained in the RPA nearly matches the language found in Civil Code Section 2079 which statutorily requires that a real estate broker or salesperson owes a duty to a prospective purchaser of a residential property to conduct a diligent inspection. Where the contract segregates the obligations between the listing agent and the buyer’s agent, the statute makes no such distinguishing statement. The court decisions interpreting this code have confirmed that the duty of disclosure is required of both the listing broker (See Robinson v. Grossman, 57 Cal. App. 4th 634) and the buyer’s broker (See Michel v. Moore & Associates, Inc., 156 Cal. App. 4th 756 – stating the trial court erred in dismissing the claims against the buyer’s agent).
In the recent and well-known 2016 case Horiike v. Coldwell Banker, 201 Cal. Rptr. 3d 1, the Court reaffirmed the longstanding rule that the broker owes the duty to disclose all information materially affecting the value or desirability of the property.
There is a difference, however, between investigation and visual inspection. The law confers on the agent the obligation to disclose problems that can be seen or discovered in a visual inspection. See Pagano v. Krohn, 60 Cal. App. 4th 1. These cases and the contracts do not, however, require the licensee to take the place of professional inspectors and conduct exhaustive investigations of the property.
But what is a reasonable and diligent inspection? That is the mystery question that the agents are left to decipher in their day-to-day practice and the law has not been sufficiently clear on when that burden has been met. We know that writing on an AVID, “Nothing to Note – Not a professional inspector the buyer is advised to get a professional home inspection”, is not a sufficient response. Sometimes in completing the AVID, it is correct to state that there was no material defect noticed, however writing a cursory blanket statement is not sufficient to comply with the obligation, and if a defect did arise down the road, the agent and/or broker is likely to face action for violating the disclosure duty.
The difficulty is also in determining what is a “material defect” of a property. To each buyer, a defect has a different level of importance, and how is a single agent to determine all of the different value determinations of a buyer? The best methods for a buyer’s agent are to get to know the buyer and what they are looking for. Find out what is important and what is not important. The listing agent should be looking at defects that affect value or defects that the ordinary and reasonable buyer would be concerned about.
We are not aware of any cases where an agent has been held liable for over-disclosing. But when thinking about disclosures from a risk management perspective – under disclosing where the liability increases. So always remember – when it comes to disclosure – WHEN IN DOUBT – DISCLOSE. It just may save you in a dispute later.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.
Recent and Popular Articles From Our Blog:
• May 10, 2022 – Using the 1031 to Reinvest
• August 23, 2022 – Understanding Private Road Maintenance
• January 10, 2023 – Website Accessibility Requirements
• February 14, 2023 – Understanding Mediation and Arbitration in RPA
• April 4, 2023 – Understanding Liquidated Damages in a Home Purchase Contract
• June 20, 2023 – Understanding the Lis Pendens
• June 27, 2023 – Do’s and Don’ts Guidelines to a Dental Practice Transition