A common misconception is that the buyer’s responsibility to conduct his or her own due diligence insulates real estate agents from incorrect information that might unintentionally go into a listing’s MLS profile. As it turns out, this isn’t completely true. For this post, we’ll take a look at a statute that creates an agent’s liability for inclusion of incorrect information into the MLS and distill some best practices to lower an agent’s exposure in this area.
Civil Code section 1088 sets out the general rule: “[i]f an agent . . . places a listing or other information in the multiple listing service, that agent . . . shall be responsible for the truth of all representations and statements made by the agent . . . of which that agent . . . had knowledge or reasonably should have had knowledge to anyone injured by their falseness or inaccuracy.” More specifically, liability under this statute turns on an agent’s having “actual” or “constructive” knowledge of the falsity or inaccuracy at issue.
In other words, did the agent actually know the representation was false or inaccurate? Alternatively, was the falsehood or inaccuracy so pronounced that, even if the agent didn’t actually know as much, he or she should have caught it? If the jury answers “yes” to either of these questions, the listing agent could be liable for negligence.
The kinds of information that presents agents with the most risk in this area is square footage and permits.
1. For every new listing, get it professionally measured before going live.
As far as concerns square footage, the risk of violating the statute arises when a listing agent unquestioningly places square footage information into the MLS as heard from his or her seller with no further inquiry or confirmation that the square footage is correct. So, for example, in one lawsuit, the listing agent advertised a property as being approximately 5,500 square feet, when later measurements by the buyer revealed the property to be approximately 4,500 square feet. The buyer sued the listing agent, with reference to Civil Code section 1088, arguing that a competent realtor should have known, based on his or her visual inspection, that the home was substantially less than 5,500 square feet. Importantly, this line of argument based on the constructive knowledge portion of the statute (“should have known”) likely means that attributing the square footage as “per seller” in the MLS isn’t a solution. Imagine that the seller is way off about the square footage and the agent describes it in the MLS as being “per seller.” A buyer could still argue that regardless of the source of the square footage figure used, the agent “should have known” it was wrong based on a visual inspection of the property.
As a result, the best practice to avoid such a claim is to simply have every new listing professionally measured before it goes on market. If a fresh measurement is not possible for whatever reason, then at a minimum the agent should inquire with the seller as to what informs his or her understanding of the square footage. Specifically, the agent is going to be looking for a past measurement actually taken by an appraiser, for example, and not something indicated in a drive-by appraisal, where the appraiser never entered the listing to personally assess its square footage. When relying on an older measurement, an agent should ask the seller whether he or she knows of any additions or other layout changes to the property that might have changed the square footage shown.
If substantial renovations or additions were performed, that would be all the more reason to secure the seller’s commitment to getting a professional measurement. This explains why relying on the square footage shown in public records (even as populated by the MLS) is also something to avoid. Records aren’t always up to date and might fail to take subsequent and major layout changes into consideration that could impact the gross livable area. Especially if the previous renovation wasn’t permitted.
2. Try to avoid talking about permits.
The best practice with regard to advertising permits in the MLS is to avoid doing so. This is because the question of building code compliance and permits are the exclusive responsibility of the seller when it comes to disclosures, as referenced in the TDS: “Are you (Seller) aware of any of the following . . . Room additions, structural modifications, or other alterations or repairs made without necessary permits.” Similarly, the Buyer’s Inspection Advisory warns buyers that real estate agents cannot advise clients as to a structure’s permitting. Therefore, when an agent speaks of permits in the MLS, the agent is taking on the unnecessary risk of making a representation about, and thus taking ownership of, subject matter that is not within the ordinary visual inspection and disclosure obligation to buyers under Civil Code section 2079.
Suppose an agent advertises a listing in the MLS as having a permitted garage to living space conversion. Unless the agent personally reviewed and confirmed the permits, then the agent doesn’t actually know whether your MLS advertisement is true. Suppose further that the agent didn’t personally review the permits relating to the advertised conversion and it turns out that there’s no permits and the conversion is out of code. A buyer then has an argument that the MLS advertisement was false, that the agent had constructive knowledge of the falsity because permits are public record, and that the agent should have been aware that the conversion was without a permit as revealed by such public record.
It’s true that a buyer’s due diligence is still required. By completely omitting representations about permits in MLS profiles, however, the agent will eliminate the grounds upon which a plaintiff-buyer can argue in the first place that the agent “knew or should have known” that a listing’s permits were non-existent or out of order. This will ensure the seller is appropriately taking complete ownership of disclosing to the buyer the status of any permits on the property. As a bottom line, any agent who feels really strongly the need to advertise clean permits should work with their seller to verify this first.
3. Trust your gut and ask the seller.
Practically speaking, Civil Code section 1088 means that to the extent an agent makes representations about a listing in an MLS profile, the agent is taking ownership of that representation—even if the agent is simply passing along what is heard from the seller. And even if the representation being made isn’t required of the agent. As a result, it’s important to double check when the seller gives information that looks incorrect.
Have any questions? Contact Jonathan or find him on LinkedIn, and Instagram.