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Court of Appeals Expands Duties of Real Estate Brokers Representing Buyers

Posted on: March 17, 2014

Under the appellate case of Saffie v. Schmeling (E055716, 4th District Court of Appeal, March 7, 2014), the Court held that a buyer’s broker has an affirmative duty to investigate whether a parcel is suitable for the commercial plans of the buyer and whether the local government regulations prohibit the buyer’s anticipated land use. On the other hand, the court found that the seller’s broker had a more limited duty in this context.

In Saffie, the buyer planned to purchase a parcel to construct a commercial building. The buyer’s broker presented a parcel of land advertised on the multiple listing service (“MLS”) to the buyer. The MLS listing stated that there was a 1982 geology report finding “no evidence of an active fault” and the local government had granted final approval of the report that same year. The buyer’s broker obtained a copy of the report, but he did not read it or understand what a “fault hazard investigation report” was. He merely passed the report to the buyer and recommended buyer read it.

After the buyer purchased the parcel in 2006, he discovered that the 1982 report was unusable, since the local government reporting requirements changed after the 1994 Northridge earthquake. The cost of obtaining an updated report made the buyer’s commercial plans unfeasible. The buyer then sued his broker and the seller’s broker for damages.

Buyer’s Broker Liable

The trial court found the buyer’s broker liable for breach of fiduciary duty and negligence and assessed $232,147.50 in damages. By providing the report to the buyer, the court found that the buyer’s broker implicitly represented that the report was current and the parcel was “ready to build.” The Court in Saffie suggests, but did not expressly hold, that the buyer’s broker has a duty to become familiar with the terms of the proposed commercial activity and then reconcile them with the labyrinth of local government land use regulations.

Seller’s Broker Not Liable

The buyer did not, however, succeed in his claim that the seller’s MLS posting impliedly represented that the 1982 report was current and that the posting was “false or inaccurate,” under Cal. Civil Code section 1088. The appellate court upheld the trial court’s determination that the seller’s broker had no fiduciary duties to non-clients, such as the buyer. The court stated: “[t]here is nothing in section 1088, or any other source of law, imposing responsibility on a seller’s broker to ensure that true statements in an MLS are not misconstrued, or to make certain that the buyer and the buyer’s broker perform the appropriate due diligence.” Since the seller’s broker did not expressly state that the parcel was presently buildable or that the 1982 report was current, there was no basis for liability. Overall, the opinion signals that a listing broker’s duties under section 1088 are very limited and the MLS posting will be read very narrowly and technically by the reviewing court.

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