Lawsuits Against Selling Agents in Today’s Market
By David Hamerslough
The majority of claims made against selling agents in today’s market involve allegations that the agent failed to perform a duty on behalf of the buyer. Typically, the buyer’s claim relates to some defect in the condition of the property and alleges that the seller and/or the listing agent knew of this defect and failed to disclose it. Another type of claim involving this duty is where a contractual dispute exists between the buyer and seller over the buyer’s performance.
The duty in question is the selling agent’s fiduciary obligation to the buyer. Some of these fiduciary duties are identified in the agency disclosure, but others exist as a result of appellate decisions. Two aspects of this fiduciary duty are often the focus of a claim. The first is that a real estate agent must place himself or herself in the position of the client and consider the type of information required for the client to make a well-informed decision. The second is that an agent cannot accept information received from another person as being true and transmit it to his or her client without either verifying the information or disclosing to the client that the information has not been verified.
A real estate transaction, from a buyer’s perspective, involves the needs and wants of the buyer, their expectations, and choices/decisions that the buyer must make. Each of these can be affected by market conditions, financial pressure, time pressure, personal issues/distractions, the buyer’s past experiences, the buyer’s knowledge and experience, the involvement of third party’s on the buyer’s behalf, and any number of other factors.
A lawyer representing the buyer will investigate what the selling agent knew with respect to all these factors, when the agent became aware or should have been aware of these factors, what the agent did to address them, what choices or options the selling agent provided to the buyer, when those choices/options were provided, whether other choices/options existed and, if so, why they were not offered to the buyer, whether the selling agent discussed the risks and benefits of each choice or option with the buyer, what choices/decisions were made by the buyer and why they were made, and whether there is any documentation of any of the foregoing.
The buyer’s lawyer will then evaluate whether the conduct of the selling agent, the buyer, and any other party involved in the transaction is consistent with what the selling agent and buyer say happened regarding the foregoing factors and/or events. The lawyer will obtain the records of any other party to the transaction (e.g., the listing agent, the seller, title/escrow companies, the lender, any governmental agency, etc.) to see if those records are consistent with what the selling agent and the buyer claim occurred.
Most attorneys evaluate whether a fiduciary duty has been met by creating a timeline of the transaction so that they can understand when and why events occurred. Most attorneys use documentation to create this timeline and to establish, objectively, the facts, events, and discussions that occurred. Where no documentation exists or the available documentation is ambiguous or incomplete, the testimony of the parties is then used to fill in the gaps in the story and/or explain ambiguous documentation. Documentation prepared before a dispute arises is often more persuasive than any statement or record prepared after a dispute arises or any subjective recollections of what occurred during the transaction after the fact. The buyer’s lawyer will also evaluate the parties’ conduct and statements after escrow closes both before and after the dispute arose to again determine if the conduct/statements are consistent with the selling agent’s and buyer’s position regarding the dispute.
The second aspect of a selling agent’s fiduciary duty involves how the selling agent transmitted information or documentation to the buyer. The buyer’s attorney will evaluate whether the selling agent identified the source of the information or documentation, whether the agent indicated whether it had been verified by the agent, and whether the agent disclosed to the buyer that the information/documentation had not been verified. If these transmissions are confirmed in writing, there is a written record that this duty has been met. If no written record exists, the attorney will look to any other documentation, conduct, or statements by the parties to determine if the transmission was accompanied by a discussion of any of these issues.
Based on the foregoing, some general comments can be made regarding demonstrating that an agent met his or her fiduciary duty. First, it is usually easier to show that this duty has been met if there are records or writings addressing this issue. Such records or writings can include any electronic communication, notes, memos to the file, and transactional documents (e.g., the contract, advisories, disclosures, AVIDs, inspection reports, etc.). Drafts of any of the foregoing also can assist in establishing that these duties were met. Second, records or writings addressing the issues, factors, and choices outlined in this article, as well as any other statements or conduct explaining what happened and why it happened in a transaction are a more reliable source of information than any party’s subjective recollection of what occurred and what was discussed.