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Listing Broker Not Liable to Buyer for Validity of Outdated Geologist’s Report

Listing Broker Not Liable to Buyer for Validity of Outdated Geologist’s Report – Henry Walker

 

This case, Saffie v. Schmeling, stems from statements in a Multiple Listing Service (“MLS”) listing regarding the development potential of a commercial lot in an earthquake zone in Riverside County. The listing broker included statements in the MLS listing that 1) the parcel was declared buildable by the investigating licensed geologist and 2) the geologist’s report was available for serious buyers. After the sale, the buyer learned that the property was not, in fact, buildable. The buyer sued the listing broker (among others), claiming that he purchased the property in reliance on the MLS listing which wrongfully suggested that the property was buildable and that the listing broker should have disclosed that the geologist’s report was, in fact, almost 25 years old and not based on current standards put in place after the 1994 Northridge earthquake. The trial court, after a bench trial, found the listing broker not liable to the buyer. The Court of Appeal affirmed the decision.

 

This case is different from many “disclosure” cases in that it involves the interpretation of section 1088 of the California Civil Code, which holds real estate brokers and appraisers responsible for the accuracy of all information they place on the MLS. Since its enactment in 1982, only two prior cases have interpreted section 1088.

 

Two important holdings came out of the court’s decision in this case: First, the court carefully examined the language of the statements made in the MLS and found that they were not false. Crucial to this determination was the broker’s attribution of the “buildable” statement to the geologist’s report. The court found the broker’s description was correct, even if the report had been rendered invalid in the intervening years since its issuance. The court noted that, had the listing broker failed to clearly attribute the statement to the geologist’s report, the result may have been different.

 

The court’s next holding rejected buyer’s arguments that the listing agent’s reference to the geologist’s report implied it was current and valid, and that he should have at least warned that the report was almost 25 years old. The court found the buyer was not damaged by the statement in any event because he received a copy of the report during escrow which included the 1982 issuance date on the front page. In the court’s words, “notification that the report itself was available for ‘serious buyers,’ and actually providing the report, cured any such mischaracterization.” While the listing broker had a duty of “honesty, fairness and full disclosure to all parties”, including a duty to ensure the information it provided was correct, once the report was provided the buyer and his own broker were charged with determining its validity.

 

Although the listing agent in this case avoided liability, the buyer’s broker did not. In a portion of the judgment which was not appealed, the buyer obtained a judgment for damages of $232,000 for his agent’s failure to properly advise him regarding the implications of the report, and thus breaching his fiduciary duties to the buyer. This outcome serves as a strong reminder of the distinctions between duties owed to one’s own clients as opposed to those owed to parties on the other side of the transaction.

 

Saffie v. Schmeling (2014) 224 Cal.App.4th 563.