Duties owed by a seller’s agent

A seller’s agent owes a special duty to their seller — legally called a fiduciary duty — to solicit and locate prospective buyers to acquire the listed property as fully disclosed by the seller and their agent.

After locating a prospective buyer, the seller’s agent owes the buyer and their agent a general duty to provide critical information on the listed property that might adversely affect its value — referred to as material facts. Without this information, a buyer is unable to set a price and make an offer.

The seller’s agent only needs to disclose enough information to place the buyer on notice of facts. It is up to the buyer and the buyer’s agent to determine whether the facts will have an adverse consequence on the property’s value or interfere with the buyer’s intended use.

For the most efficient delivery of property information to prospective buyers, the seller’s agent gathers data on the property at the listing stage and organizes it into a marketing package. Documentation of property information, discussions and negotiations using a checklist is the best practice for avoiding future disputes.

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The cost of a marketing package

A seller’s agent uses a Marketing Package Cost Sheet – Due Diligence Checklist published by RPI (Realty Publications, Inc.) to disclose the itemized costs the seller can expect to incur for the agent to properly market their property. [See RPI Form 107]

The Authorization to Provide Services estimates the cost of third-party investigative reports prepared by unbiased professionals or government agencies addressing essential aspects of the property’s condition. [See RPI Form 133]

These reports put a face on the property so it can be better evaluated by prospective buyers. Negotiations that require full disclosure of material facts commence when the prospective buyer or their agent seek out additional information on the listed property.

Further, when entering into the listing agreement, the seller’s agent presents the marketing package cost sheet to the seller as a “seller’s budget” for anticipated expenses. [See RPI Form 107]

The recommended third-party reports to be included in the marketing package are:

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Along with the third-party reports, the marketing package needs to include property disclosures prepared by the seller and the seller’s agent, such as:

All property information — including third-party reports and disclosures of material facts — goes into the marketing package a seller’s agent hands to prospective buyers the moment they request more information on the seller’s property.

When the seller has reviewed and signed the cost sheet for marketing, the agent will prepare and deliver authorization requests for third-party service providers  to prepare and deliver investigative reports to be included in the marketing package. [See RPI Forms 124-136]

Be aware that fully disclosing the condition of the property up front is legislated public policy for marketing a property. Up-front disclosures avoid further negotiations, or worse, money demands after entering into a purchase agreement due to the discovery of undisclosed material facts.

buyer’s enforceable expectations about a listed property are legally established based on their knowledge of property conditions before entering into a purchase agreement. Conditions revealed to the buyer for the first time after the price is set in a purchase agreement are not binding. After all, a buyer or their agent can’t consider material facts unknown to them when negotiating a price. [Jue v. Smiser (1994) 23 CA4th 312]

A competitive sales advantage

With the delivery of third-party reports to a prospective buyer, the buyer enters into a purchase agreement based on their full prior knowledge of the property’s condition. Full disclosure of material facts provides a competitive sales advantage over other listed properties not marketed with reports to establish their condition.

Further, buyers’ agents are attracted to properties offered with all investigative third-party reports as they reduce:

  • the seller’s exposure to liability under their duty to fully disclose knowledge of material facts [Calif. Civil Code §1102.4]; and
  • the seller’s agent’s exposure to liability under their duty to personally inspect, observe and report their findings to buyers about a property’s condition. [CC §2079]

Critically, when all reports are delivered to the prospective buyer prior to entering into a purchase agreement, the close of escrow is not subject to the buyer’s further-approval of the property condition disclosures.

The primary marketing advantage for the seller whose agent provides prospective buyers with third-party reports is that the sale of the property is transparent prior to entering into a purchase agreement. The price agreed to in the purchase agreement is based on property conditions “as disclosed” by the reports — not “as is.” “As is” sales situations are inherently deceitful and inevitably lead to price renegotiations, repairs, cancellation of the purchase agreement or litigation for failing to disclose known material facts. [CC §§1102.1, 2079]

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The seller’s motivation

A seller’s agent’s goal — besides the financial need to list a property and earn a fee — is to encourage and receive maximum cooperation from the seller in their sales effort. Thus, an aggressive and transparent marketing strategy is in the agent’s best interest.

A seller may dress up the property and enhance its curb appeal by cosmetic painting, landscaping and clean-up — essential to receiving top offers. However, it is the buyer’s knowledge of the property’s fundamentals — material facts — that generates firm offers and uncontested purchase agreements. Thus, it is in the seller’s best interest to willingly and openly disclose material facts to prospective buyers at the earliest opportunity — when the marketing begins.

However, in the case of a financially distressed seller who is unwilling or unable to obtain expert third-party reports, the listing comes with a significant increase in the agent’s risk of losing a sale due to a buyer’s disapproval of delayed, in-escrow disclosures.

Here, the seller’s agent often has to sell the property twice: once to find out what property conditions caused the first buyer to drop out, and again when the conditions are disclosed to a second buyer up-front.

How and when to pay marketing costs

A seller can choose how and when to pay for the cost of the reports when filling out the marketing package cost sheet. [See RPI Form 107 §3]

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The seller may opt to pay the charges directly to third-party vendors once billed. Here, the agent coordinates the arrangements for payment with the vendors. The seller’s check is, thus, payable to the vendor, not the broker.

However, a check handed to the seller’s agent for delivery to the vendor are classified as trust funds. Such a check necessitates an entry in the trust fund ledger maintained by the agent’s broker. [See Form 107 §4.1]

Alternatively, the seller may deposit the estimated cost of the reports with the broker by making the check payable directly to the broker, called advance costs. The broker then pays the charges from the deposit when billed by the reporting service. [See Form 107 §3.4]

Funds advanced by a client payable directly to a broker belong to the client. The broker needs to place all advance deposits received in the broker’s name in a trust account, whether they are advances to the broker for future costs or fees. [Calif. Business and Professions Code §10146]

The seller’s authorization to order reports

When preparing a marketing package cost sheet, the agent estimates costs for items required by a buyer to close a sale. [See RPI Form 107]

A seller who refuses to incur the cost of third-party reports on the sale of their property needs to be advised that a prudent buyer will most likely incur the costs on the advice of the buyer’s agent. In turn, the buyer will use the reports against the seller as a “punch list” for demanding repairs and replacements before the buyer will close escrow.

Thus, it is in the seller’s best interest to request third-party reports sooner rather than later.

The seller’s agent uses the Authorization to Provide Services – General Services published by RPI when preparing a marketing package to authorize another professional or government agency to perform one of the activities referenced in the marketing cost sheet. [See RPI Form 133]

The authorization contains:

The anticipated fee referenced in the authorization is to be consistent with the corresponding estimated cost referenced on the marketing package cost sheet. [See RPI Form 107]

Editor’s note — In addition to the authorization to provide general services, RPI publishes authorization/request forms that are specific to a vendor or service which are used in lieu of the general form, including:

This article was originally posted August 2017, and has been updated.