Easton v. Strassburger: California Court of Appeals Reviews Applicability of Article 2 NAR Code of Ethics

Article 2: REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency duties owed to their clients.

The California Court of Appeals addressed the issue of “whether a broker is negligent if he fails to disclose defects which he should have discovered through reasonable diligence.” In extending a broker’s duty to disclose those facts that the broker should have known, the court noted that many brokers impose such a duty on themselves through their acceptance of NAR’s Code of Ethics. In fact, the court noted, one of the examples provided by NAR to explain Article 9 (Rev. Article 2) of the Code of Ethics was analogous to the facts in the Easton case. The court thus held that the brokers in this case had a duty to warn buyers of potentially serious soil problems. (N.B., This was a broader interpretation of Article 9 than the drafters intended. NAR responded by clarifying and amending Article 9 so that it limits a REALTOR’s® duty to discover only those adverse, non-latent factors that are reasonably apparent to someone with the expertise required by their state licensing authority. The California legislature also responded by providing that a licensee must only conduct a reasonably competent and diligent visual inspection.

Easton v. Strassburger, 199 Cal. Rptr. 383 (Cal.App. 1 Dist. 1984).