The most interesting cases for this update involved buyer representation and dual agency issues. In an Ohio case where the broker seems to have simply ignored the lawsuit, the court made a default judgment of over a million dollars that was affirmed on appeal. The lesson? If you receive court papers, it’s a good idea to respond!
1. D&J Real Estate Servs. v. Perkins, No. 05-13-01670-CV, 2015 Tex. App. LEXIS 5720 (Tex. Ct. App.–Dallas June 4, 2015)
Buyer’s representative did not know a mold test was insufficient, and so could not be held liable for false representation.
A home inspection report showed damp areas at the garage ceiling and around the water heater. Seller refused to pay for a professional mold test and did his own test by setting petri dishes on the kitchen counter and in an upstairs bathroom. Seller told the buyers that the mold test was negative. After closing, buyers learned that the house was full of mold. Buyers sued the buyer’s representative for breach of fiduciary duty and misrepresentation. A jury verdict in favor of the buyers was reversed on appeal, because the buyers did not prove that the buyer’s representative knew that the mold test being performed was insufficient or invalid. The representative’s lack of knowledge caused the buyers’ deceptive trade practice claims to fail as well.
2. KMM Invs., LLC v. Ritchie, Nos. 2014-CA-000627-MR, -000739-MR, 2015 Ky. App. Unpub. LEXIS 347 (Ky. Ct. App. May 15, 2015)
Licensing statutes that impose penalties are not used to calculate damages.
Buyer wanted to purchase property that consisted of two lots, one of them unimproved. Agent allegedly told buyer that the property could be subdivided into two lots, and that the unimproved lot could be sold for $100,000. Buyer bought both lots and planned to sell the unimproved one, but the carport and driveway were on both lots, preventing the sale of the unimproved lot. Buyer sued agent, asking for over $100,000 in damages in lost profits for not being able to sell the unimproved lot. The court did not allow buyer to pursue the claim for that amount, because those damages are only available where there was an underlying breach of the sales contract, which did not occur in this case. Statutes authorizing the Real Estate Commission to impose monetary sanctions did not authorize a cause of action against agent or an award of civil damages to third parties. The court limited buyer’s damages to a $500 surveyor's fee, based on the agent's offer of judgment for that amount.
3. Adar Inv., LLC v. Bayview Loan Serv'g, LLC, 87 Mass. App. Ct. 112, 2015 Mass. App. Unpub. LEXIS 698 (June 26, 2015)
Seller was not responsible for statements made by the seller’s broker because the broker’s statements were just sales talk.
We’ve been following the Adar case for quite a while. You may recall that buyer purchased four properties from the seller. The broker who handled the transaction gave the buyer estimates of the value of the properties that included an estimate of the rental income from the properties. The properties were not as profitable as expected, so buyer sued. In a resolution to an important issue, the court ruled that seller was not liable to buyer for the allegedly false estimates, because the broker was not in an agency relationship with the seller. The broker’s statements were just sales talk, and could not seriously be considered as a representation of the property’s rental income.
4. Gartner v. Rifflard, No. A-2920-12T4, 2015 N.J. Super. Unpub. LEXIS 861 (App. Div. Apr. 14, 2015)
Judgment in favor of a dual agent was granted when buyers waived objections to the condition of the property, and could not prove any damages.
A dual agent recommended that the buyers pay full price for a home before it was listed because the home would sell “within a day.” The agent also said that buyers had to use a particular inspector or they would not get the house. The agent recommended an attorney to represent the buyers, and the buyers retained that attorney. The buyers were not permitted to be present during the inspection. After they received a copy of the inspector’s report which indicated a number of items in need of repair, buyers did not ask the sellers to make any repairs.. The house had numerous defects. The buyers brought a lawsuit against the agent, the inspector, and the sellers; the buyers also sued their attorney for malpractice. The buyers’ suit was dismissed. The correct measure of damages would have been the difference in value between the house as it was and the price paid, but the buyers did not show any evidence of the current value of the house. The cost of repairing the deficiencies is not the correct way to determine damages. The claim against the attorney was dismissed on a technicality.
5. Duncan v. Maag, 2015-Ohio-505, 2015 Ohio App. LEXIS 511 (Ct. App. Feb. 5, 2015)
Judgment against a broker for $1.2 million was upheld when the broker did not file a timely response to a motion for summary judgment.
Broker arranged for buyer to purchase land, but did not disclose to seller the value of the mineral rights on the property, or that buyer intended to exploit those rights. Seller settled with buyer, and brought suit against broker. Broker did not respond to requests asking him whether he admitted that he breached his fiduciary duty to seller. Because the broker failed to respond to court filings seeking certain factual admissions, the court deemed broker to have admitted the breach of fiduciary duty. Once the admissions were entered against the broker, the seller obtained a judgment for $1,206,100, the difference between the price paid and the value of the property, less the amount of the settlement paid by the buyer. An appellate court affirmed the award.
6. DeWitt Londre, LLC v. Investment Real Estate Specialists, LLC, No. 2014AP1164, 2015 Wis. App. LEXIS (Wis. Ct. App. June 2, 2015)
Violating subagency laws does not necessarily disqualify the violator from receiving commission.
A salesperson joined an investment group that was interested in buying a property. Later the salesperson withdrew from the group and the group proceeded to purchase the property. In the meantime, another representative from the same brokerage approached the listing broker about co-brokerage. The listing broker verified that he would split the commission with the firm but later declined to split the commission. The listing broker argued that there was not a valid co-brokerage agreement. The brokerage argued that the salesperson acted as a subagent and so was entitled to a portion of the commission. The listing broker countered that the salesperson violated the statutory duties of a subagent by trying to get the best price for buyer, rather than the best price for the seller. The trial court granted the listing broker summary judgment, saying that the Wisconsin statute should be interpreted as disqualifying the salesperson from obtaining a commission. The Court of Appeals reversed, holding that the statute was intended to protect the clients of brokers, not to provide a defense to claims for unpaid commissions. The case was returned to the trial court level for further proceedings.
B. Statutes and Regulations
Three states made particularly notable changes to their agency laws during second quarter. Hawaii and Louisiana made their laws slightly more strict, while New Hampshire added a definition for “facilitator” to its law. Louisiana also added a definition for “net listing agreement.”
Hawaii added a provision to its statute listing acts that subject real estate licensees to discipline. A licensee “acting on behalf of a seller or purchaser” cannot “act[ ] in a manner that prohibits a prospective purchaser or a prospective seller of real estate from being able to retain the services of a real estate broker or salesperson.”1
Louisiana enacted a statute regulating net listing agreements. It defines “net listing agreement” as “a listing agreement that authorizes a broker to take as his commission the difference between the higher sale price at which the real estate property is sold and the stipulated net price agreed upon to be received by the seller.”2 Licensees are prohibited from advising, encouraging or entering into a net listing agreement for a residential property or for lands described in La. Rev. Stat. § 47:2302, including “bona fide” agricultural, horticultural, and timber land devoted to production “in reasonable commercial quantities,” as well as marshland.3
Louisiana also amended its statute requiring licensees to present all offers to and from the buyer or seller. The statute has been amended so that the licensee may no longer obtain a waiver of that duty from the client.4
3. New Hampshire
New Hampshire added a provision to its statute describing the duties of a facilitator. Specifically, a facilitator has a duty to present all offers and agreements in a timely manner.5
C. Volume of Materials Retrieved
Agency issues were identified 29 times in 20 cases. (See Table 1.) Some cases addressed more than one Agency issue, but most of the cases addressed Breach of Fiduciary Duty, as seen in prior updates. Dual Agency, Buyer Representation, and Agency: Other showed up multiple times in the case law. (See Table 2.)
Seven statutes and four regulations addressing Agency issues were retrieved6 (see Table 1).
6This update covers the 2015 legislative sessions for the states in Group II. The Group II states are Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Hawai’i, Louisiana, Maine, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, and Vermont.