In the case of Greif v. Sanin, (2022), 74 Cal.App.5th 412, California’s Fourth Appellate District decided that in the sale of vacant land a real estate licensee representing the buyer exclusively had no common law duty to inform an unrepresented seller that the purchase price was below fair market value. In and of itself, that holding is not surprising. After all, even prior to this case what real estate attorney would tell a buyer’s exclusive agent that the agent has a duty to inform the seller that the buyer is getting a good deal, or even a “steal?” After all, doing so might be a breach of the buyer’s exclusive agent’s fiduciary duty to the agent’s own client.
What makes this case stand out, however, is not just that the price arguably was below fair market value but the extent to which the price was below fair market value. The seller alleged that when he signed the contract for $330,000 he thought he was signing a contract to sell the property for $3,300,000. If the seller’s valuation was correct, then the purchase price represents a mere 10% of the property’s value. That’s not just a good deal for the buyer, that truly would be the “deal of a lifetime.” But the part of the opinion addressing mutual mistake reveals that the seller’s allegation of value was unfounded. The seller’s own expert valued the property at $1.25 million, barely a third of the seller’s allegation. The buyer’s expert valued the property at $705,000. The court concluded the value was in the $500,000 range. And after taking into consideration the price per acre of nearby properties, the fact that the property was unentitled, that a massive expense would be necessary to bring water to the property, and that at the time of sale there was a market downturn, the court concluded that the sales price at 66% of the court’s own estimate of value was fair and reasonable under the circumstances.
Would the result have been any different if the court agreed with the buyer’s expert’s valuation of $705,000 and the negotiated purchase price was under 50% of the fair market value? Or if the court agreed with the seller’s expert’s valuation of $1.25 million and the purchase price represented only about 25% of the fair market value? In those situations what would be the real estate agent’s obligation? Would the agent have to disclose to the seller the property’s full market value? And, if so, how could that even work given that the experts’ valuations in this case differed so widely? If the buyer’s agent informed the seller that the buyer’s price may not represent fair market value, how would the buyer’s exclusive agent’s revelation to the seller comport with the agent’s duty to the agent’s own client? Wouldn’t such a disclosure inferring the price was below market undercut the buyer’s position? Maybe something more innocuous would be appropriate such as merely informing the seller that the agent does not advise the seller and if they want advice, the seller should obtain the seller’s own real estate agent or attorney before signing the contract. One could argue that the generic advice might always be appropriate. In Greif there was allegations that the seller, an elderly person with potential – albeit disputed – competency issues, was pressured into signing the contract on the spot. Should that matter?
A discounted price is not necessarily an indication of seller distress. A seller may need a quick sale to pay off debts or taxes before penalties, or worse, accrue. A seller may also need a quick sale to invest the proceeds in a better, but short-lived, business opportunity. Or maybe a residential seller simply wants to avoid the time and expense and inconvenience of fixing up an aging property, marketing the property, holding open houses, and waiting out a buyer’s contingencies and escrow period and just wants to move on to the next phase of the seller’s life. It should not be the buyer’s, or the buyer’s agent’s, responsibility to guess at the seller’s motive.
A more insightful question might be whether an extreme (however defined) differential between value and price, when combined with a more obvious competency problem, plus more high-pressure tactics than in Greif raise red flags that would trigger a duty from the exclusive buyer’s agent to the seller? And, if so, what would those duties be? As discussed above, it is not always easy to balance a buyer’s agent fiduciary duty to the buyer against a duty to be honest and deal fairly with the seller.
In Greif, the court easily disposed of the statutory duty issue because the Civil Code section cited, 2079.16, did not apply to vacant land transactions at the time of the sale. However, consider whether the result would be any different if the sale took place presently, now that the Civil Code Section does apply, or if the sale was for residential property rather than vacant land. The Civil Code provides that a buyer’s agent has the following affirmative obligations to both buyer and seller. (a) Diligent exercise of reasonable skill and care in performance of the agent’s duties. This factor is not seemingly relevant here, so should not change the result; (b) A duty of honest and fair dealing and good faith. This duty is essentially the same as the common law duty described in the opinion and disposed of by the appellate court, so should not change the result, either; and (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of the parties. The court held that value is not in the exclusive domain of the buyer. Therefore, value is within the diligent attention and observation of the seller and should not change the result. And the Code also provides that an agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above. Civil Code 2079.21(c) defines confidential information to include a client’s bargaining position, financial position or that the buyer is willing to pay a greater price than the price offered. Thus, by statute, a buyer’s agent should not be obligated to reveal to a seller that the property is being sold below market value if by doing so the agent expresses or implies that the buyer may be willing to pay a greater price for the property. And in the Greif case, the buyer was searching for property in a certain range, and that would presumably be considered financial information relevant to the buyer. Thus, even if Civil Code 2079.16 did apply, the result would not necessarily be any different.
At first blush, the holding in Greif may be curious but a closer look reveals that the court’s reasoning applies not just to the facts of the case but to other contexts as well.