Real Estate Agent’s Liability

The following is a topic that real estate agents have expressed an interest in. If you would like for me to discuss any contents of this newsletter at a meeting or training session for your office, please feel free to contact me to schedule time to do so. I am optimistic we will see a bounce in the real estate market and look forward to seeing you soon.

Real Estate Agent’s Liability For Misrepresentation Of The Conditions Or Character Of Real Property

Under certain circumstances, a real estate broker or agent may be liable to a purchaser of realty for material misrepresentations of the condition or character of the property purchased.

Ordinarily, in the absence of fraudulent concealment under common law, a seller’s real estate agent does not owe an independent duty of disclosure to the buyer. Sometimes, however, a duty may arise, such as where a broker voluntarily furnishes information.

The major elements which must be proved are that a real estate broker or agent:

1) Made a false statement or misleading representation of the condition or character of real property, or concealed or failed to disclose information which there was a duty to disclose (i.e. intent to deceive may be implied where broker remains silent while knowing buyer is under misapprehension of facts);

2) The misrepresentation was one of fact;

3) The misrepresentation was material;

4) The misrepresentation was intentional, reckless, or negligent; or there was a duty to provide accurate information;

5) Purchaser relied on the misrepresentation;

6) Purchaser’s reliance was justified;

7) Purchaser was harmed as a proximate result of the misrepresentation.

In addition to potentially being liable for damages, Connecticut General Statutes Section §20-320 gives the Department of Consumer Protection the ability to suspend or revoke the license of an agent who makes any material misrepresentations in the course of a real estate transaction. Similarly, Section §20-328-55a(c) of the Regulations provides that an agent shall not misrepresent or conceal any material facts in any transaction.

The common theme of the statutes and cases is that when an agent does something active, such as making a representation, and presenting information, or advertising, the agent has a duty to do so completely, accurately and honestly. However, the statutes and regulations fail to squarely address the scope of the duty that a listing agent owes to a buyer, who is represented by a different agent, when the seller makes inaccurate or false representations regarding the condition of their property.

In McKiernan vs. Green, a 2004 case, the sellers completed a property condition disclosure report form indicating that the property had a dry basement and was not located in a flood plain. The Court concluded that if the listing agent had actual knowledge about a condition of the property, she then had a duty under Section §20-320 to assure that sellers did not make a knowing misrepresentation about that condition in the disclosure report. Real estate agents are marketing agents, not structural engineers or contractors. There is no duty to verify independent representations made by a seller unless the agent is aware of facts that indicate such representations are false.

In Solieri vs. Polletta, a 2002 case, the buyer claimed that the sellers and their agents misrepresented the following facts, first, that the basement was dry, and, second the boundary lines of the property which resulted in buyer having to move their driveway. The Court noted that the MLS sheet accurately reflected the location and length of the boundaries and that the sellers did not have a survey. The Court found that, at best, the sellers made an innocent misrepresentation about the location of the east boundary; that the listing agent made no specific reference to the boundaries in her MLS description and concluded that her description of the property as “mint condition” was not a misrepresentation, given what the sellers had told her.

In Miller vs. Ryan, a 2003 case, buyer’s agent assured seller that buyer had a mortgage commitment and was able to close. In reliance, seller did not terminate the contract and, in fact, contracted to purchase another home. Shortly before closing, buyer informed seller that he didn’t have mortgage commitment, or the funds necessary to close. The issue was what duty of care did buyer’s agent owe to seller. Citing Section §20-320 which prohibits a realtor from making material misrepresentations in the course of a real estate transaction, the Court concluded that when an agent voluntarily offers information, the agent owes a duty of care not to misrepresent material facts, including the obligation to investigate the buyer’s ability to purchase the property before making oral and written assurances.

In Tanpiengco vs. Tasto, a 2002 case, purchasers, who discovered they had purchased property adjoining and partly on a former landfill, sued sellers and their brokers. In response to buyer’s question, listing agent said that the area was “open space” even though she knew it was a former landfill. Although the agent did not have to speak, if she does speak, she must provide a full and fair disclosure.

It is not entirely clear what defenses may be available to brokers and agents in Connecticut Courts. Such defenses may include:

1) Waiver or Estoppel – property to be delivered in its present condition – Article 8 of GHAR Contract (but broker isn’t a party to the contract);

2) Waiver or Estoppel – Complete Agreement – Article 13 – Contract contains entire agreement and supersedes all previous written and oral agreements; such exculpatory language may not apply to agent who is not a party to the contract;

3) Disclaimer – MLS forms which are “deemed reliable, but not guaranteed”;

4) Caveat Emptor (Buyer Beware) as to conditions open to observation;

5) Buyer due diligence – information easily available on public records;

6) Buyer due diligence – defects which could have been discovered by a home inspector.

Many of these potential defenses go to whether the buyers’ reliance on realtor’s representations were justified. Cases seem to suggest that reliance is justified when a purchaser lacks equal facilities for learning the truth, when the facts are particularly within the knowledge of the speaker, when the facts are difficult to ascertain (for example, latent defects), or where the discovery of the truth would require the employment of a third person or expert.

To reduce your potential liability, it would be useful to have an agreement which states that the purchasers were relying solely on their inspections and the statutory disclosure form and were not relying on any representations of any of the realtors involved in the transaction. Encourage buyers to hire inspectors rather than to rely on any oral statements. Have sellers fill out the property condition disclosure form. Develop on intake date sheet completed by seller for MLS information.

Please do not hesitate to contact me if you have any questions regarding the foregoing.

Sincerely,
Mark S. Steier