Fisher Law Corporation’s Frequently Asked Questions

The following are select subjects which are representative of the type of law we practice. Peruse the articles: If you don't find a subject that interests you, call us or e-mail us with your request.

Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.


What is an all-inclusive deed of trust? »

What is CERCLA? »

How does a condominium differ from a house? »

What are Covenants that run with the land? »

What is a deed in lieu of foreclosure? »

What are easements? »

What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

What is a Mechanic’s Lien? »

How does a Multiple Listing Service work? »

What is an off-shore trust? »

How do real property taxes work? »

What is Procuring Cause? »

What is a Quitclaim Deed? »

What is RESPA? »

Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »

 


Q. Does a buyer’s broker have a duty to inspect?

A. Since the 1950s, the courts and the legislature have continuously expanded the duties imposed on real estate brokers exposing them to broad liability. Lawyers have been quick to pick up on this trend to amplify liability, and it is now commonplace for both the seller’s and buyer’s broker to find herself or himself enveloped in litigation. Sometimes, regardless of the nature of the dispute, the brokers are pulled into litigation for their perceived “deep pockets.” A more recent trend is developing where the cooperating or buyer’s broker is finding herself or himself embroiled in litigation for misrepresentations or omissions of the seller where the buyer’s broker knew or should have known of the misrepresentations or omissions.

This article explores the developing duty to inspect imposed by the courts and the legislature on the buyer’s brokers and focuses on one case example found within our own backyard.

The Real Estate Agency Relationship

Real estate agency relationships are created, controlled and defined by a combination of real estate and agency law. The term “agent” is generally defined as “... one who represents another, called the principal, in dealings with third persons.” In the context of real estate transactions, an individual licensed as a salesperson does not personally become the agent of the principal, but rather, the salesperson’s actions flow through the broker under whom the salesperson is licensed such that the agency relationship runs between the principal and the broker.

An agency can be created expressly, by implication or by subagency. The question of whether an agency in fact exists is one of fact. The most common form of real estate agency is the express agency because the Statute of Frauds requires a written agreement in order for the broker to enforce his or her right to compensation. The most common form of subagency is created by a multiple listing service, where the seller lists the property for sale and the cooperating (buyer’s) broker finds a ready, willing and able buyer. At this time, the buyer’s agent becomes a subagent of the seller.

The real estate broker who enters into an agency relationship with its principal assumes the fiduciary duties of a trustee. The broker must not only disclose facts which are known to him or her, but must additionally investigate to discover all material facts which may affect the decision of the principal. The seller’s broker can readily discharge this latter duty of discovery because he or she should have free access to the real property; however, the buyer’s broker faces more difficult obstacles in discharging his or her duty of discovery because of his or her general lack of access to the real property. The question arises then, does the buyer’s broker have the same duty to inspect?

Both the listing and the cooperating broker are encumbered with the duty to inspect residential property to discover defects or evidence of possible defects or other problems in the property subject to sale. This duty arises from the long standing general tort principle that a professional not just a real estate broker owes a duty of care to all persons within the area of foreseeable risk.

The circumstances that require investigation depend upon whether the broker should have reasonably known that the matter might affect the principal’s decision to enter into the transaction. This question and its answer must be determined as of the time the transaction took place, not after the fact.

The legislature has provided that the buyer’s broker owes the same duty to the seller that a seller’s broker owes to the buyer to diligently exercise “reasonable skill and care in the performance of” his or her duties, and “to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of” the buyer. Taken to the broadest interpretation, this means that the buyer’s broker must disclose any and all material facts which may even cause the seller to increase the sales price. This appears to conflict with the principle that an agent must represent his or her client’s best interest. The courts have not yet thoroughly examined the extent to which a broker representing a buyer must investigate and/or disclose material facts to the seller. More often than not, cases are settled before they get to trial, especially in situations where the law is undecided and there is little precedent with which to proceed to trial.

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