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Written By:  Lee A. Dresie

 Greenberg Glusker

 Los Angeles, California

A Tale of Two Brokers – New Case Illustrates How Language in an MLS Listing Can Create Potential Liability for Seller’s And Buyer’s Brokers

We know that MLS listings can sometimes use creative language to smooth over a property’s rough edges. But when does that language create a risk of liability for a broker?

A recent California appellate court decision addressed this very question. The answer has ramifications for buyer’s and seller’s brokers alike.

In Saffie v. Schmeling, a seller’s broker listed for sale an undeveloped commercial parcel. The MLS listing stated:

“This parcel is in an earthquake study zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.”

A buyer’s broker brought the property to his client’s attention.  Through the broker, the buyer made an offer; the seller eventually accepted.

During escrow, seller’s broker gave buyer’s broker a copy of the Fault Hazard Investigation report referenced in the listing. The report, which indicated on its cover that the investigation was conducted in 1982, found “no evidence of an active fault” on the

property.  Seller’s broker also provided a letter from the county granting “[f]inal approval of the report.”

Buyer’s broker gave both the report and letter of approval to the buyer. Buyer’s broker testified that he told the buyer to “check out” the report, but that he did so “without reading the report or even understanding what a fault hazard investigation report is.” Escrow closed without either the buyer or the buyer’s broker investigating the property’s geological issues.

When the buyer tried to develop the property, he discovered that the county’s standards had changed after the 1994 Northridge earthquake, and that the county no longer accepted reports performed under earlier standards. As a result, the buyer could not build on the parcel.

The buyer sued both brokers.  The trial court held the buyer’s broker liable for $232,000, finding that he acted negligently and breached his fiduciary duties to the buyer. Specifically, the trial court faulted the buyer’s broker for leading the buyer to believe that the report was current and that it could be relied upon as an indication that the property was “ready to build.” However, the trial court held that the seller’s broker was not liable.

The buyer appealed the trial court’s finding as to the seller’s broker, arguing that the MLS listing was inaccurate because it failed to disclose that the report was out-of-date.

The appellate court disagreed, and affirmed the trial court’s finding that the seller’s broker was not liable. The appellate court relied on prior California law, which does not impose a “responsibility on a seller’s broker to ensure that true statements in an MLS are not misconstrued, or to make certain that the buyer and the buyer’s broker perform the appropriate due diligence to evaluate the significance of such true statements for the buyer’s particular purposes.”

The appellate court found that the statements in the MLS listing were technically accurate—the parcel was in fact in an earthquake study zone, a Fault Hazard Investigation report had in fact been completed, and the geologist who wrote the report in fact declared the parcel buildable.  The court noted that the buyer “does not identify anything about seller’s broker’s statement itself that is false or inaccurate.” The court pointed out that the listing did not represent that the parcel was presently buildable, only that, the “parcel . . . has been declared buildable”—that is, in 1982 the parcel was buildable. The court further observed that even if the MLS listing was “misleading,” the broker cured any “mischaracterization” by actually providing the report to the buyer and his broker.

The takeaway?  Language in an MLS listing can create potential liability for both buyer’s and seller’s brokers. Seller’s brokers have more leeway to describe a property, but must be careful not to say anything that is false or inaccurate—and should always deliver any underlying reports and investigations, as we suggested in an earlier article.

Even though the seller’s broker eventually prevailed, he might have avoided litigation altogether had he chosen language in the MLS listing that did not imply more than the facts warranted. It is much better to avoid a lawsuit altogether than to ultimately prevail after lengthy litigation, a trial and an appeal.

Even though the appellate opinion did not address the buyer’s broker’s liability, he was found liable by the trial court, and did not appeal. Presumably, the buyer’s broker recognized that his higher fiduciary duties to his client led to the justifiable finding against him. Buyer’s brokers are held to a higher standard, and should investigate all statements contained in a listing to make sure that the buyer is not misled. As the case illustrates, failing to do so can be an expensive mistake.

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