Broker Scams His Client
1. Homeowner Who Sues His Broker for Negligence Does Not Need Expert Witness Regarding the Negligence
In the case of Ryan v. Real Estate of the Pacific, the seller’s broker held an open house in La Jolla. At the open house the next-door neighbor came by to let the broker know that he intended to remodel his home, which would permanently obstruct the broker’s client’s westerly ocean view. At no time prior to or during the escrow to sell the subject home did broker disclose the nature of the conversation he had with the neighbor to buyers nor did he tell his clients, the sellers, about the neighbor’s extensive remodeling plan or the impact on the westerly ocean view and privacy of the property. The home closed escrow for close to $3.9 Million, and the broker collected his cool approximate $100,000 commission at the close of escrow. After the close, the new buyers learned of this information and immediately attempted to rescind the real estate contract, claiming the magnitude and scope of the remodel, the proximity of the new expanded structure to the property line, the loss of privacy, and the elimination of the westerly ocean view, were all causes of great concern. In addition, the fact that it would take a two-year construction cycle to build this house, caused the new buyers to want to give the property back to the sellers.
The sellers refused, partly based on the broker’s advice to rescind the purchase. The buyers demanded arbitration, sought rescission or in the alternative, damages. The sellers sued their own broker for negligence. The crux of the broker’s argument at trial was that the sellers’ attorney failed to establish the existence of negligence because he did not introduce expert testimony on that cause of action. The brokers won in the superior court. The sellers appealed and the Court of Appeal agreed with the sellers and reversed the judgment. The Court of Appeal argued that under Civil Code § 2079(a) and under the common law, the broker had a fiduciary duty to sellers of the highest good faith and undivided service and loyalty. Instead, the broker obtained material information, which adversely impacted the value of the property, and that was obtained without any investigation, but which he chose not to disclose. The brokers simply collected their commission and left the sellers to face the repercussions of the lack of disclosure.
California law does not require an expert witness to prove professional malpractice in all circumstances. The Court of Appeal found that disclosure duties of the broker were within the common knowledge of a lay person. No expert was needed because anyone who hired a real estate broker to sell their home would expect that broker to share that information, particularly if it would adversely impact the value of the home.
Comment: Do you think the agent kept quiet because he did not want to see his $100,000 commission evaporating into thin air? So much for holding your client’s best interest paramount. The agent worked at Pacific Sotheby’s International. He might have thought caveat emptor was still good law!
About the Author
Scott Souders is a real estate attorney who has practiced real estate law in excess of 42 years in Southern California. The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.