As every real estate agent knows, agents have a duty to disclose all material matters affecting the value or desirability of the property that they know of or should know of. So, when I read the case of Ryan v. Real Estate of the Pacific, Inc. (Pacific Sotheby’s International Realty) I was shocked at the egregious failure to disclose a very obvious material matter. Greed and what it does to people never ceases to amaze me.
PACIFIC SOTHEBY’S LISTING
David Schroedl of Pacific Sotheby’s in San Diego County, had a listing to sell Daniel Ryan’s pricy single-family home in La Jolla. The property was listed for $3.86 million. Schroedl received a commission of $96,500. During an open house hosted by Schroedl, the Ryans’ next door neighbor informed Schroedl that he intended to remodel his home which would permanently obstruct the Ryans’ westerly ocean view, move the home to within five feet of Ryans’ boundary line, create a two-story wing with large windows overlooking Ryans’ pool area, take up to two years to complete construction and require extensive excavation.
Sounds like important information to me.
Schroedl never informed the Ryans of the neighbor’s plans. Are you kidding me. The Ryans innocently sold to the Marinhos who promptly learned of the neighbor’s extensive remodeling plans. The matter went to arbitration where the arbitrator ruled against the Ryans who sued Schroedl.
I love how the arbitrator questioned Schroedl’s motivations: “One is left to speculate whether a 21-day, all cash escrow, involving buyers from thousands of miles away, that would garner a $96,500 commission, were considerations ‘[for Schroedl’s failure to disclose].’” I wonder.
AGENT’S DUTY TO DISCLOSE CLARIFIED
As noted, the Ryans sued Schroedl and Pacific Sotheby’s. Ultimately the Fourth District Court of Appeal ruled against Schroedl and Pacific Sotheby’s, quoting the well known Easton v. Strassburg case (which my former law clerk helped write) which today still stands as a broker’s duty of disclosure which I quote for you agents: “It is the duty of a real estate broker or salesperson…to a prospective buyer of a single-family residential real property or a manufactured home…to conduct a reasonably competent and diligent visual inspection of the property offered for sale to and to disclose to that prospective buyer all facts materially affecting the value or desirability of the property that an investigation would reveal, if that broker has a written contract with the seller to find or obtain a buyer.”
In other words, as the Court wrote, “if a real estate broker has information that will adversely affect the value of a property he or she is selling, does that broker have a duty to share that information with his or her client? The clear and uncontroversial answer to that question is yes.”
And to keep hammering this home, the Court added: “put differently, anyone who hired a real estate broker to sell her home, would expect that broker to share information that would adversely impact the value of the home.”
As I tell my clients: “over disclose.” You can’t get hurt by over disclosing information about the property, spend some time going over the Transfer Disclosure Statement where you check boxes, don’t casually and without thinking check “No problems/no defects.” Think hard about flaws and adverse information about the property that any buyer would want to know, and by doing so protect yourself from being sued.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at firstname.lastname@example.org or www.portersimon.com.
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