I Was Told “ _____________ Are Normal For A House Of This Age”
By David Hamerslough
August 9, 2022
In several of the cases that I have handled in the past six months, the blank line in the title to this article has been filled in with one or more of the following conditions/issues:
- Sloping floors
- Foundation cracks
- Sheet rock/drywall cracks
- Exterior stucco cracks
The statements above were made by either the seller in their disclosure documents, by agents in their AVIDs, or orally in discussions with these parties. In one instance, the statement was made by a seller’s agent to a buyer’s agent, who then passed it on to the buyer without any identification of the source of the statement. The problem for the buyer’s agent was compounded by the fact that the buyer’s agent failed to specify whether the agent knew the information was true or not and whether the information was verified and failed to recommend to the buyer that they investigate that information further. In several instances, the statement that the condition was “normal” was made in response to questions/concerns raised by the buyer.
The common factors in all of these transactions was that each house was at least 50 years old, the foundations were perimeter concrete footings with isolated interior wooden posts resting on concrete pedestals, the interiors and exteriors had been patched/textured and painted, the house sat on expansive soils, and there were no (or insufficient) historical documents and photographs provided to anyone.
The inspection reports expressed a broad spectrum of opinions regarding these conditions/issues. Some recommended the retention of an engineer or a qualified professional to evaluate the foundation, and some suggested that the conditions needed to be monitored. Some reports identified other “red flag” conditions/issues such as existing foundation cracks, shims in the crawlspace, adjustable screw jacks in the crawlspace, etc.. Sadly, however, none of these observations were followed by any statements detailing what potentially significant conditions/issues might exist as a result of these “red flags.” The reports also failed to specify what needed to be further evaluated and/or failed to recommend the retention of a qualified professional to evaluate them.
Market conditions for all of these transactions favored the seller; all of the offers were non-contingent, and none of the buyers retained their own professionals to inspect the property prior to submitting their offers. Although some of the buyers did retain professionals during the escrow for information purposes only, the buyers did not benefit from those evaluations. Unfortunately, in each of these transactions, subsequent discussions between the agents and the parties led the buyers to simply close escrow. The buyers later claimed they closed escrow because of statements that the “red flags” and/or the conditions/issues were “normal” for a house of that age. In most instances, the seller or one or both agents acknowledged that they had made the statements; the excuse for these statements was that their statements were reasonable based upon the knowledge and information they had.
Unfortunately, after escrow closed, all of these buyers experienced significant cracking in the interior and/or exterior of their homes, doors and windows were not operating properly, floors became more out of level, and other costly problems developed. Since this is California, the buyers retained lawyers to pursue a claim. Typically, the lawyers retained a geotechnical engineer, structural engineer, engineering contractor, and general contractor. These professionals conducted floor-level surveys, obtained soil samples, and collected other data. In each instance, the repair solutions involved underpinning all or a portion of the residence, re-leveling it, and then repairing the interior cosmetic damage that resulted from this work. Typically, while this work is undertaken, the homeowners are not able to occupy the property, resulting in additional housing expense. Other components of the buyers’ claims included the costs of the professionals, attorneys’ fees, mediation and arbitration costs, etc. In short, the claimed damages in each of these cases ranged from a low of $350,000 to a high of just under $1 million.
Each of these disputes ended up in litigation. Rescission was not a practical remedy because, absent a negotiated settlement, the buyers would be required to walk away from any appreciation that the home had experienced since purchase (given that they all bought in a rising market) and they would have found themselves with less buying power in the current market if they had received all of their money back. The only solution that made sense for all of these buyers was to pursue a claim for damages against all possible defendants.
The litigation included claims against the sellers for many “failures”: failing to make a full and complete disclosure; failing to provide historical documents/information; and making the statement that the conditions/issues in question were “normal” for a home of that age, which was actionable because it was based upon knowledge and information that the seller possessed but failed to disclose.
Claims were made by the buyers and sellers against their agents for negligence, breach of fiduciary duty, and constructive fraud. The buyers also alleged that the statements made by the agents (or simply passed on by the agents) were statements of fact, not opinions, and that they were not reasonable in view of all of the facts, circumstances, and knowledge that the agents had or should have had based upon reasonable inquiries of the parties, the inspectors, and other individuals and entities.
As with any litigation, the outcome was uncertain and depended upon any number of facts, circumstances, and other factors, as well as expert testimony and the analysis of legal issues by the trier of fact. What was consistent about each of these claims, and what is generally true in all litigation, was the time, money, and stress for everyone involved.
Irrespective of your own experience, the purpose of this article is to identify some of the conditions/issues that may, either alone or in conjunction with others, constitute “red flags” that buyers should be encouraged to investigate, as well as the issues that arise with respect to a statement that any condition/issue is “normal.”
Sloping floors, doors and windows that don’t operate properly, cracking in interior sheetrock/drywall, exterior stucco cracking, foundation cracks, adjustable screw jacks, shims, drainage issues, water accumulating in crawlspaces, the presence of sump pumps, the age of the house, and the age and depth of a foundation may be “red flags” that indicate potentially significant conditions/issues exist that will ultimately cost a significant sum of money to address.
Houses that are constructed on expansive soil and/or fill that has not been properly compacted exist throughout the greater Bay Area. Some of the conditions/issues identified in this article are indicia of expansive soil and/or poorly compacted fill. Foundations constructed 50 or more years ago may not be embedded below the upper layers of expansive soil. Drainage imperfections on the property may be compounding this problem. Historic and seasonal contraction of expansive soil produces cracks in the interior, exterior, and foundation of a house. Yes, these problems are frequently seen, but that does not mean that they are (1) “normal” or (2) something that can be dismissed by anyone as inconsequential.
The location, length, direction, offset, and other aspects of cracking in a residence are signs that qualified professionals (a geotechnical engineer, structural engineer, engineering contractor) are needed to determine the nature and extent of any problems, the appropriate repair(s), and the cost of that work. Floor-level surveys are one tool that these professionals use to determine the degree of slope or out-of-level condition of the floors. Historical documents can also assist these professionals by providing them with additional evidence upon which to base their evaluation and recommendations. When a house has been remodeled, textured, and painted so that these conditions/issues are no longer visible and there is no historical documentation/photographs depicting the prior “red flags,” the professional inspectors, real estate licensees and the buyers are effectively hampered from making appropriate determinations about the condition, value, and/or desirability of the property.
Buyers and/or their attorneys naturally then question the motivation for why this information/documentation has not been provided; they often claim that had it been provided, the buyer would have made different choices, including perhaps not purchasing the property, reducing the price, investigating the situation further, etc.
The statements that prompted this article and led to these cases raise a number of factual and legal issues. In each of these lawsuits, the party who made that statement probably believed that it was true based upon the facts, information, and circumstances. However, whether that type of statement would result in liability exposure to the speaker would similarly depend on those and other facts, issues, and/or circumstances.
Before we look at some of them, the definition of the word “normal,” whether used as an adjective or a noun, should be considered. It means the usual, average, or typical state or condition or the expected condition. Every buyer in these disputes claimed that they reasonably and justifiably relied upon the statement (believing that the problem was inconsequential) and were prepared to accept the then-existing conditions of the house. What they were not willing to accept was the additional and significant cracking, separation, non-functioning doors and windows, and excessive out-of-levelness of the floors.
Whether a statement that a particular condition/issue is “normal” is actionable as a misrepresentation will turn, in part, on whether the statement is one of fact or is an opinion. A statement of a past or present fact that is false when made is actionable. On the other hand, as a general rule, a mere expression of opinion does not constitute a misrepresentation even if the opinion is in error. This is true even if the statement merely expresses the belief of the person making the statement without certainty as to the existence of the fact. Alternatively, it is not actionable if it is simply an expression of opinion as to the quality, value, authenticity, or other matters of judgment.
Generally, whether a statement will be interpreted as one of fact versus an opinion depends upon, among other things, the intent of the speaker and the understanding of the other party. The analysis focuses on, among other things, the content of the statement, the context of the conversation and surrounding circumstances, whether it is intended as a mere expression of opinion or as a representation of fact, whether it was made with the intent to induce reliance by another party, whether it was reasonably understood by that other party as a statement of fact, and whether that reliance was reasonable and justifiable. Suffice it to say, the outcome of this issue is qualitative, not quantitative.
There are also a number of exceptions to these general rules. One exception is when the speaker has superior knowledge or special information; in this situation, the recipient may be justified in relying on the statement as a representation of fact rather than as a mere expression of a personal opinion. Another exception is where there is a special relationship, including a fiduciary or confidential relationship, between the parties that creates a natural reliance by the principal. Buyers may be justified in relying on the statements of their agent because of that fiduciary relationship; in that circumstance, the agent’s comments may be deemed statements of fact, even though they might otherwise be considered expressions of opinion in a different context. Another exception is where a statement of opinion is made as an assertion of a positive fact. Again, the test is what the other party reasonably believes; that belief is determined by the manner and circumstances in which the statement was made and, again, whether the recipient reasonably relied upon it. Finally, if an expression of opinion is made but it is not honestly believed by the speaker, then that may be actionable as a misrepresentation of fact.
As you can see, the outcome of these types of claims turns on any number of facts and circumstances. They also turn on market conditions, buyers’ and sellers’ motivations, what advice and recommendations were given, when they were given, whether they were reasonable, whether further investigation was possible, etc.
What I hope you take away from this article are the following key points:
- the liability exposure for claims of this nature can be significant;
- the time, cost, and stress associated with these claims can also be significant;
- everyone should be sensitive to the potential “red flags” that may indicate the conditions/issues that were involved in these claims and refrain from classifying problems as “normal” (either for the area or age of the property) or in any other way downplaying the seriousness of any “red flags”;
- everyone should recognize who is and who is not qualified to express an opinion about these types of conditions/issues;
- ) everyone should choose their words carefully when making any statement about a condition/issue either in a TDS, an SSC, an SPQ, an ESD, an AVID, emails, or oral conversations;
- always qualify the delivery of information received from others by (a) specifying who provided the information, (b) whether you investigated that information and, if you did not investigate it, clearly state that you did not and will not investigate or otherwise verify that information;
- encourage buyers to further investigate all information received and/or any concerns or questions that buyers have;
- confirm in writing all recommendations/advice regarding any condition/issue in a timely manner; and
- if you have any doubts about how to proceed, consult your manager and/or a qualified California real estate attorney