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If The Buyer Is Suing The Seller For Failure To Disclose, Why Is The Listing Agent Or Selling Agent Also Named In The Complaint?

Breach of Contract by Peter N. Brewer, Esq.

This firm defends real estate brokers and salespersons. The typical scenario the firm sees in a “bad house case” (a purchase and sale transaction in California where seller has failed to disclose a defect) is that both the listing agent and the selling agent (buyer’s agent) are named. Occasionally, the home inspector will also be named in the complaint.

Assume that Bob and Betty Buyer buy a house in Palo Alto for $1.5M. They find out after moving in that there are major leaks, the roof and the window sills, and perhaps even evidence of concealment—such as new paint. The Transfer Disclosure Statement fails to mention any history of water intrusion, roof leaks or window leaks.

Given the princely sum that the Buyers have paid for their Bay Area home, it is not surprising that they file suit, and name the sellers: Sam Seller and Seller’s agent, Lisa Listing. The causes of action against each would be different—though the damages are the same.

Seller had an obligation to disclose all known conditions material to the purchase—usually through the medium of the TDS and the Seller’s Supplemental Checklist (for residential purchases). Buyers after receipt have three days to rescind their offer. (California Civil Code Section 1102.1)

Listing agent had to perform a “reasonably competent and diligent visual inspection” and note her findings on the Agent’s Inspection portion of the TDS. Obviously, if Seller conveyed any information to Listing agent material to the purchase, Listing agent would be obligated to disclose that information to the Buyers as well.

Accordingly, Seller is likely sued on theories of intentional misrepresentation, negligent misrepresentation, as well as possibly fraud and concealment. Listing agent is usually named in some or all of those causes of action in the complaint as well, and sometimes Plaintiffs allege agent’s failure to comply with Civil Code Section 2079.

Seller may respond the Complaint by filing a cross-complaint against the selling agent, for indemnity and contribution and on the theory that the selling agent represents the buyer and owes a fiduciary duty to the buyer.

Defenses for the agents typically are fact driven, based on what the type of defect was, whether or not it was visually observable, what the Seller actually knew and also what the Buyer saw. Under California Civil Code Section 2979.5, Buyers have their own duty to “exercise reasonable care” in their purchase.

How long does this agent liability last? Two years from the date of close of escrow or possession, whichever comes first. [California Civil Code Section 2079.4]

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