In Real Estate Transactions, Sellers (and their Realtors) Must be Aware How They Market Their Property 

Condo Management Magazine
Volume V, Number 55
by Matthew W. Argue, Esq.

Property owners, desiring to sell, often hire realtors to market their properties and sell them at the highest possible price. The seller's realtor (commonly referred to as the listing agent) and the buyer's realtor both owe important duties to the buyer. In their zeal to market and sell the property, these duties are sometimes forgotten.

Recent California cases highlight the important duties that sellers (and their realtors) owe to buyers. These cases underscore the tension that exists between the sellers' desire to sell their properties at the highest possible price and the realtors' duty to act fairly and honestly in disclosing all material information about the properties. (Material information is sometimes defined as anything that would be important to a buyer.) When there is a conflict between the desire to achieve the highest price and the disclosure of important information to buyers, it is the obligation of both sellers and realtors to err on the side of full disclosure or face potential liability to buyers after the sale.

The first case, Jue v. Smiser, 23 Cal.App.4th 312 (1994), involves a house that was actively marketed as being designed by a celebrated architect. After seeing an advertisement for the house, the buyers made an appointment with the realtor to see it. When the buyers toured the house, they were given a brochure indicating that it was an "authenticated, Julia Morgan design, built in 1917." The buyers made a full price offer for the house, contingent on the sale of their current home. After signing a note and deed of trust, as well as other closing documents, the buyers were asked by the realtor to sign a contract supplement/addendum whereby the buyer acknowledged that the residence was "commonly known" to be a Julia Morgan design and that there were no plans available to verify that information.

Later, after the close of escrow, the buyers learned that the house was not designed by a famous architect. Even though the buyers knew (by signing the contract addendum) before purchasing the house that it was not designed by a famous architect, the court allowed the buyers to sue both the seller and realtor for misrepresentation. The court stated that the decision "should encourage sellers and their representatives to investigate and learn the `true facts' pertaining to real property before it is offered for sale." Id. at 318.)

The Jue v. Smiser case establishes an important guideline for sellers and realtors that they must disclose the "true facts" relating to a property before marketing it for sale. In the past, it was common practice for many disclosures to be made after the deposit receipt or contract was signed. For example, "as soon as reasonably practicable" sellers must deliver to buyers a Transfer Disclosure Statement (TDS) disclosing everything known about the property (Civil Code section 1102.2). Although buyers have three days from receipt of the TDS to rescind the contract, as a practical matter, once the contact is signed a buyer has already psychologically "committed" himself/herself to the purchase and may even have paid a deposit. Jue v. Smiser places the burden on the seller and realtor to disclose information early in the transaction or be liable after the sale.

Seidman v. Dover, et al.

Jue v. Smiser is quite similar to a recent San Diego Superior Court case, Seidman v. Dover, et al., in which our firm successfully represented the buyers of a custom single-family residence against the realtor, who represented the seller of the property. The realtor represented that the seller/builder of the residence was a quality individual, an experienced home builder and a person with substantial ties to San Diego, which would benefit the buyer if problems arose after close of escrow.