Facts: A homebuyer and their agent submit an offer to purchase a single family residence (SFR) to the seller’s agent. After the purchase agreement offer is accepted, the seller’s agent provides the homebuyer with a written disclosure of the property’s condition, noting observable damage to a section of flooring. The seller’s agent gives the homebuyer additional reports provided by the seller detailing damage to the subflooring from past drainage problems. The reports note the drainage system was repaired but the subflooring was not. The homebuyer purchases the property, and later discovers the subflooring has extensive damage which was not cured when the drainage system was repaired.

Claim: The homebuyer seeks to recover their money losses for curing the subflooring from the seller’s agent, claiming the agent breached their general duty to the homebuyer since the seller’s agent failed to disclose the damage to the subflooring was not repaired.

Counter claim: The seller’s agent claims they did not breach their general duty owed to the buyer since the seller’s agent provided the buyer with a disclosure of their visual inspection noting the damage to the flooring with supplementary reports indicating repairs were made specifically to the drainage system and not the subflooring.

Holding: A California court of appeals held the homebuyer was not entitled to recover the costs for repairs from the seller’s agent since the seller’s agent fulfilled their general duty owed to the buyer by completing the required visual inspection and providing reports detailing the damage observed to the subflooring and repairs were made to the drainage system. [Peake v. Underwood (June 25, 2014)_CA4th_]

Editor’s note — While the seller’s agent owes a special fiduciary duty to the seller who is their client, the seller’s agent only owes a limited, non-client general duty to the buyer to voluntarily provide information on the listed property. Here, the “limited” refers to the minimal quantity of fundamental information about the property which needs to be presented to the buyer and their agent by the seller’s agent. The information disclosed by the seller’s agent only needs to be sufficient enough in its content to place the buyer on notice of facts which may have an adverse effect on the property’s value or the buyer’s intended use of the property.

To gather adverse facts about the property, the seller’s agent is to:

  • conduct a visual inspection to observe conditions which may adversely affect the market value of the property and note observations on a Transfer Disclosure Statement (TDS) delivered to prospective buyers [See first tuesday Form 304];
  • assure seller compliance with the seller’s underlying duty to deliver statements to the buyer as soon as practicable (ASAP);
  • confirm, without further investigation, that all information in the disclosure documents from the seller is consistent with the seller’s agent’s knowledge of the information — if  not, the seller’s agent is to correct the information or disclose their uncertainty to the seller and buyer in the documents;
  • recommend to their seller they obtain a third-party property inspection to reduce the exposure to claims by a buyer who discovers deficiencies; and
  • respond truthfully and honestly to inquiries by the buyer or buyer’s agent into conditions relating to any aspect of the property with a full and fair answer of related facts known to the seller’s  agent.

Here, the seller’s agent fulfilled their general duty to disclose adverse property conditions to the buyer by providing a visual inspection and supplementary reports which specified the damage done and the degree of repairs performed. Thus, the buyer was put on sufficient notice by the seller’s agent that defects exist in the subflooring.

The weakness in the seller’s agent’s case was that they provided property disclosures to the buyer after the buyer’s offer had been submitted and accepted, a breach of law itself. Without previous disclosure, the process of placing the property under contract was inherently corrupted due to the asymmetric knowledge of property facts between the buyer and seller when the price was set.

Remember, agents are best served by providing disclosures to the buyer and buyer’s agent as soon as practicable — before they submit an offer and the seller accepts. [Holmes v. Summer (2010) 188 CA4th 1510)]

Related articles:

Holmes v Summer: dilatory disclosures and the damage done

Post-offer disclosures: a bad deal