Real estate brokers, like any fiduciary, can find themselves in difficult situations where their clients insist on them taking actions that they disagree with. For example, if a seller knows of an issue with their property but insists that their broker not disclose the issue, what should the broker do?
On one hand, real estate broker and agents stand in a fiduciary relationship with their principals and, therefore, owe their principals the “same obligation of undivided service and loyalty” owed by trustees to their beneficiaries. (Warren v. Merrill (2006) 143 CA4th 96, 109–111.) On the other hand, the seller’s broker may justifiably wonder whether they would face liability by following the directions of their client.
Indeed, seller’s brokers have an affirmative obligation to disclose to prospective purchasers all facts materially affecting the value or desirability of the property. (Easton v. Strassburger (1984) 152 CA3d 90, 102; Civ. C. 2079.) A seller’s broker who breaches their duty to disclose can be subject to consequential liability to the buyer for fraud. (Id.)
Obviously, this puts the selling broker in an impossible position. If the broker expressly disobeys the client and conveys sensitive information to the buyer, the seller may claim that the broker violated his or her duty of loyalty. Making matters worse, the seller and broker may disagree as to whether the condition is even a “material fact” that affects the value or desirability of the property. Nevertheless, by following the instructions of the seller, the broker will be opening himself or herself up to liability for fraud.
Brokers in this position may decide that their easiest option is to simply remove themselves from the transaction. Unfortunately, by doing so, the broker loses out on commission proceeds. Still, we have found that many times a sales commission can pale in comparison to the financial loss associated with a fraud judgment.
As attorneys who primarily handle real estate litigation, we understand that every scenario requires a detailed analysis of the specific facts of that scenario to the applicable laws. This is true of sellers, buyers and brokers who are dealing with nondisclosure issues in the sale of property. We invite you to contact us at 310-954-1877 or for a 30-minute free consultation on your real estate issue.