Ryan v. Real Estate of the Pacific, Inc.
Facts: A seller employs a broker under a listing for the sale of their residence. The broker knows the seller’s neighbor intends to make extensive renovations to their property which will obstruct the ocean view of the seller’s property. The broker does not inform the seller or potential buyers about the planned renovations. A buyer submits an offer to purchase the property, which the seller accepts. After closing escrow and taking title to the property, the buyer learns about the renovations and seeks to rescind their acquisition from the seller. The broker instructs the seller not to agree to a rescission of the sale. The seller and buyer enter into arbitration to resolve the dispute over the rescission demand. The buyer is awarded money losses exceeding the price the seller received for the property. The seller sues the broker.
Claim: The seller seeks money losses from their broker for the amount paid to the buyer on the return of the property to the seller by rescission, claiming the broker breached the fiduciary duty owed their seller since they did not inform the seller of the neighbor’s renovations.
Counter claim: The broker claims a breach of fiduciary duty cannot be established since the seller lacks an expert witness to establish the breach.
Holding: A California appeals court holds the seller may recover money losses from the broker since no expert witness is required to establish the broker’s negligence for failure to disclose known material facts as a breach of fiduciary duty. [Ryan v. Real Estate of the Pacific, Inc. (February 26, 2019) _CA4th_]
Editor’s note — A seller’s broker and their agents have a fiduciary duty owed to the seller employing them to act in good faith toward their client and not to obtain any advantage over the client by the slightest misrepresentation, concealment or undue influence. Here, this refers to the broker’s nondisclosure of material facts, plus the fee paid on closing the transaction.
Further, the seller’s agent owes the prospective buyer a limited, non-client general duty to voluntarily provide substantive information affecting the value of the property listed for sale, collectively called due diligence disclosures.
Here, the broker violated not only their fiduciary duty owed the seller, but also the general duty owed the buyer, by failing to inform either party of material facts affecting the property’s value.
Whether the seller obtained expert testimony about the duty a seller’s broker owes their client is irrelevant — the broker so egregiously violated agency law by failing to disclose a material fact that such testimony would only serve to reiterate the obvious.