CAR Attempts to Provide Brokers Additional Liability Protection
Posted on October 28, 2014
By: Anna Greenstin Kudla
This November, the California Association of Realtors (“CAR”) is coming out with a new standard Residential Purchase Agreement (“RPA”). The new RPA contains revisions to its Financing, Loan Contingency, and Termite sections. Most notably, the RPA has a new larger Scope of Duty section designed to protect brokers. Paragraph 18, entitled “BROKERS,” identifies compensation rights, sets parameters for scope of duty, and addresses the real estate professional’s representative capacity.
CAR has made a strong effort to limit the liability of a broker, by definitively stating that a broker does not guarantee the condition of the property, performance or adequacy of inspections; a broker is not obligated to inspect or identify defects in common areas or reasonably accessible areas; a broker is not responsible for title or permit searches; a broker is not responsible for identifying boundary lines or square footage; a broker is not responsible for determining fair market value; nor is a broker responsible for providing legal or tax advice, among other things.
At first glance, the Scope of Duty section seems to protect the broker from most, if not all, of the representations and responsibilities a real estate professional is hired to offer. However, brokers and agents beware. Just because a contractual provision sets out to limit liability exposure, there is no guarantee that it will. If a broker is caught giving legal advice and/or a homeowner relies on representations that are not accurate, liability will ensue. Although a buyer or seller acknowledge that a broker is not responsible for certain acts, if a material fact effecting the desirability of a property is misrepresented, there is no question that a broker may be held accountable. False security offered by the new RPA should not replace a real estate professional’s ethical and professional responsibility to their client. If the agent knows of a matter effecting the desirability of a property, the fiduciary duty to disclose still exists. The legal claims posed will still start with “should.” Should the broker have known? Should the broker have disclosed? Though CAR is attempting to limit liability by limiting responsibilities, there is no protection against negligent behavior.
As soon as real estate transactions start to include the new RPA, it will be interesting to see how courts interpret the Scope of Duty limitations. We suspect that attorneys hired to represent brokers sued for failing to disclose or misrepresenting information, will try to use CAR’s overly zealous Scope of Duty protection section. However, we are not confident that a court will be as quick to limit liability for actions a licensed professional is required to carry out efficiently. At the end of the day, a fiduciary duty carries with it the highest standard of care owed. Real estate professionals should not take that for granted.
The real estate attorneys at Kring & Chung, LLP, some of whom also maintain real estate broker’s licenses, are knowledgeable and ready to assist homeowners, agents and brokers with any and all real estate related legal matters in this rapidly evolving market. If you have any legal questions, please feel free to call Anna Greenstin Kudla.