In a new published decision entitled Saffie vs. Schmeling (March 7, 2014) the appellate court exonerated a
listing broker from any liability when the buyer purchased an undeveloped commercial parcel which was discovered to be unbuildable after close of escrow. The property was located in an earthquake study zone. The listing broker represented in the MLS “This parcel …has had a Fault Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.” The date of the report was May 20, 1982, but the listing was put into MLS in June, 2006. The report was 24 years old. The buyer was represented in the transaction by a different broker. The buyer received a copy of the report but did not read it prior to close of escrow. After purchasing the property, the buyer discovered that the planning department would not allow development of the property using the old report and since earthquake engineering standards had changed radically after the 1994 Northridge earthquake, the intended development of the property could not be accomplished.
The buyer sued his own broker, the listing broker, and the seller. The trial court found the buyer’s broker liable for $232,147.50 for breach of fiduciary duty and negligence. However, the court found the listing broker was not liable, since no misrepresentation was made in the MLS. The actual report was provided to the buyer before close of escrow and it was prominently dated in 1982 and the buyer could have ordered a new geological investigation. Civil Code section 1008 states that the listing broker is responsible for “the truth of all representations and statements made by the agent … of which that agent had knowledge or reasonably should have had knowledge to anyone injured by their falseness or inaccuracy.”
Since the listing broker merely represented that the property had been declared buildable by a geologist and a copy of the report was provided to the buyer prior to close of escrow, there was no misrepresentation, since the report was true when it was written. It was up to the buyer to order a new geologic investigation since it was obvious that the report was 24 years old.
The buyer’s agent and broker were held liable because agents and brokers owe their own clients fiduciary duties, which is a higher standard than what a listing broker owes to third parties who are not their clients. The buyer’s broker therefore had a duty to determine whether the geologic report that was 24 years old was something the buyer should rely on for his particular purposes. The listing broker has a duty of honesty, fairness, and full disclosure toward all parties. However, a listing broker does not have a duty to investigate public records, or permits pertaining to title or use of the property. The buyer’s broker, however is expected to perform the necessary research and investigation in order to know the important matters that will affect the buyer’s decision.
There are several lessons to be learned from this case. A listing broker will be liable for any misrepresentations made in MLS that cause the buyer damage, however, he is not required to investigate public records or permits pertaining to title or use of the property. A buyer’s broker, however, may be liable for breach of fiduciary duty to their client for failing to advise the client to get an updated geologic report when the only report provided is 24 years old. The fiduciary duty a broker has to his client is higher than the duty of a listing broker to buyers in a transaction when the buyer is represented by another broker.