By Neil Kalin
About the Author: Neil Kalin is the Assistant General Counsel for the California Association of REALTORS®. He works with C.A.R.’s Legal Action Fund in evaluating appellate cases for C.A.R. involvement as amicus curiae, and in many cases writing the approved amicus briefs. He is currently the Co-Chair of the Real Property Law Section of the California Lawyers Association.
In Ryan v Real of the Pacific, (2019) 32 Cal.App.5th 637, 244 Cal.Rptr.3d 129, filed on February 26 of this year, the California Court of Appeal for the Fourth Appellate District held that expert witness testimony is not required in order to establish a claim that a broker breached its duty to its client, the seller, by not disclosing to the seller a known material fact affecting the value of the property. In this case, the fact necessitating disclosure was that the neighbor informed the broker that the neighbor was going to remodel the property, the project would take about 2 years, and the remodeled property would overlook the seller’s pool and interfere with the seller’s ocean view. On the surface, the case stands for the proposition that laymen (i.e., the jury) can just as easily as an expert decide if a fact requires disclosure.* While the case may not be good news to experts marketing their services, and in this case was certainly bad news to the broker defendant, it is nonetheless good news to litigants hoping to minimize expenses in either the prosecution or defense of a claim.
But just as important to this primary holding on expert witness testimony is the explicit acknowledgment by the Court that a seller’s broker not only has a duty to disclose known material facts to buyers (Civil Code 2079, Easton v Strassburger (1984) 152 Cal.App.3d 90) but also has a duty to disclose the same known material facts to the seller. We have known for many decades that buyers are entitled to reliable and dispassionate information about the property in order to ensure fairness between buyer and seller. But, why is the seemingly self-evident proposition of disclosing to one’s own seller client important as well? Two reasons come to minds.
First, since the knowledge of the agent (in this case the real estate broker) is attributable to the principal (See, Civil Code sections 2332 and 2338), if the seller had full information, even if no timely disclosure to the buyer was made, the seller presumably could have used that information to make a (better) informed decision when the buyer immediately confronted the seller and sought rescission shortly after the purchase was complete. Thus, even if the seller or broker made the calculated decision not to disclose in the hopes the buyer would never find out or would never sue, once faced with the buyer’s ultimatum, the informed seller could have decided to accept the buyer’s offer to rescind and saved years of litigation, and attendant costs, and damages, which in this case amounted to $1,000,000.
Second, having an affirmative, citable, case requiring disclosure of known material facts from broker to the seller-principal can be helpful to brokers in many cases. It is not unusual for brokers to be approached by neighbors while attending the property, either while holding an open house or otherwise. Sellers often don’t want to be told about these conversations, preferring to believe that if they don’t know something themselves, no disclosure is required. Published cases involving disclosure between sellers and their brokers are rare (see Carleton v Tortosa (1993) 14 Cal.App.4th 745 and Roberts v Lomanto (2003) 112 Ca;.App.4th 1553) compared to cases between buyers and brokers (either their own or those representing the seller) (See, “Caveat Emptor? ‘Caveat Broker’ Is More Like It: A Historical Overview of Statutory and Common Law Seller and Broker Disclosure Requirements in California Residential Real Estate Transactions.” California Real Property Law Journal, Volume 36, No. 3, 2018.) Undoubtedly some brokers, hoping to appease, and keep, a seller-client, pretend that the seller’s “hear no evil, speak no evil” approach to disclosure is an accurate representation of the law. The Ryan case makes clear that it is not. Having such direct authority gives the broker cover. No longer is the broker the ‘bad guy” for telling the seller something the seller does not want to know but rather it’s the law’s fault. Any broker with the same knowledge will have to make the disclosure, not just this one. Further, the severity of the negative consequences ($1,000,000 in damages in the Ryan case, for example) can be emphasized. And if the seller then chooses not to disclose to the buyer, the broker can use the same Ryan case, as well as numerous others, for the proposition that disclosure to the buyer is compelled as well, notwithstanding the seller’s protestations to the contrary.
One case, two messages. And the second may be just as, if not more, important than the first.
- Congratulations to the Fourth Appellate District for resisting the temptation to cite to the lyrics from Bob Dylan’s Subterranean Homesick Blues, “You don’t need a weatherman to know which way the wind blows” that courts in all areas of the law have mentioned in cases involving expert witness testimony for the better part of a half a century. See, for example, Jorgensen v Beach ‘N Bay Realty, Inc. (1981) 125 Cal.App.3d 155.