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Want To Know Everything About Your New Home? Just Ask The Neighbors

You probably don’t think of the maxim “Love your neighbor as yourself” (Matthew 22:39) in the context of buying and selling property, but it’s more apropos than you might expect.

Often, your neighbors know more about you and your property than you would ever suspect. They see repair trucks come and go. They hear you complain about your leaking roof, the way the street has become so much noisier over the years, and all the other issues and annoyances that arise in day-to-day urban living.

However, when you move, the folks next door are no longer your neighbors. They are now the neighbors of your new buyer, and usually they’re going to want to ingratiate themselves with the new folks in the neighborhood. The phenomenon I have seen over and over again is the neighbors telling the new owners every problem they knew or suspected about your new house, the neighborhood, and any other issue affecting the property’s value or desirability.

In counseling thousands of homebuyers, our lawyers always ask them, “How did you find out about this problem?” Invariably, the answer is that a neighbor came over to welcome them to the neighborhood and then told them something negative about their new home or the neighborhood.

The role neighbors can play was emphasized in a recent article written by our partner, David Hamerslough [Legal Update #89], on the recent appellate case of Ryan v. Real Estate of the Pacific, Inc. In the Ryan case, the court discussed what happened when a neighbor told the sellers’ agent important information and the agent did not pass that information on to his clients before close of escrow:

“During an open house hosted by [real estate agent] Schroedl, the Ryans’ next door neighbor, Hany Girgis, informed Schroedl that he intended to remodel his home, which would permanently obstruct the Property’s westerly ocean view. Girgis also told Schroedl that the planned construction would have a significant impact on the Property. Specifically, the construction would: (1) move the footprint of Girgis’s home to within five feet of the common boundary, (2) create a two-story wing with large windows overlooking the pool area of the Property, (3) take up to two years to complete, and (4) require extensive excavation and removal of several hundred yards of dirt. Schroedl never informed the Ryans regarding Girgis’s plans.” (Ryan v. Real Estate of the Pacific, Inc. (2019) 32 Cal. App. 5th 637, 639 – 640.)

The next day, after escrow closed, the buyer’s interior decorator talked with the neighbor, who again mentioned his remodeling plans. The buyer demanded rescission, and the sellers ended up suing their own agent and broker, whose failure to disclose a known material fact affecting the value of the property ultimately led to the buyer rescinding the transaction.

Real estate agents have sought our counsel over the years, asking whether they should disclose a particular fact or potential problem to a buyer. They say things like “well, we think it’s just a rumor,” “we don’t know if it’s true,” “we don’t know if it’s material,” and “do we really have to disclose this to the buyer?”

Our answer to that question is always “yes.” In line with what the court said in the Ryan case, our advice has always been and continues to be that real estate agents and brokers have a fiduciary duty to share the information they possess with their clients.

When one discloses what they know, that’s all they can do. Whether it’s a rumor, what the source of the information is, whether the issue is likely to be an ongoing problem – these are all secondary concerns. The essential duty remains – you must disclose what you know.

The Ryan case clarifies and emphasizes what we already know from our law practice – that it’s of the utmost importance for buyers of any kind of real property to engage real estate professionals who are knowledgeable, honest, and diligent. We often see buyers trying to approach the listing agent in an attempt to make their offer “more attractive” or trying to get the purchase price reduced by eliminating the commission that would normally go to the buyer’s agent, i.e., by having the listing agent represent both the buyer and seller as a dual agent. Trying to cut corners this way can be a very costly mistake. When one of our clients balks at the expense of a top-notch agent, I tell them what one of our savvy legal assistants used to say – “If you pay peanuts, you get monkeys.”