As an attorney who also practices real estate buyer agency, I sometimes chuckle when I read the latest risk management advice proffered by our trade association, the National Association of Realtors (NAR). The latest advice from NAR, which stems from a recent case in Texas, is "Don't Volunteer Information."
A good summary of the facts of the case can be found here. The case, Coldwell Banker Whiteside Associates v. Ryan Equity Partners, Ltd., 181 S.W. 3d 879 (Dallas, 2006) involved the purchaser of a multi-family housing complex suing its real estate broker after the purchaser discovered that the property it purchased did not have the legal right to exist for the purpose of multi-family housing use. Does this sound like a problem? You bet it does. The purchaser was forced to tear down the apartment building complex because the zoning had previously been changed to prohibit the existing non-conforming use.
The Court dismissed the purchaser's claims that Coldwell Banker failed to disclose material defects in the property known to broker, which it was required to do under the brokerage agreement between the parties, holding that zoning laws did not cause or result from physical defects or imperfections in the property, but merely regulated the use of the property.
However, the Court held that Coldwell Banker breached the brokerage agreement between the parties when it misrepresented to the Purchaser that the property was a "legal non-conforming use" which was "grandfathered" so as to permit its continued use as an apartment complex. The Court held that while Coldwell Banker had no duty to identify the effects of the existing zoning regulations on the use of the property, once they undertook that duty, they had the obligation to do so correctly.
This leads us to NAR's advice: don't volunteer information. If that advice were followed in the present case, Coldwell Banker may very well have managed to escape liability. Whether or not the Purchaser would have been any better off is certainly subject to debate.
The bottom line is that if I am hiring a broker to find help me find suitable properties, I would expect more from that broker than to simply not volunteer information which may be critical to my purchase decision. How about actually contacting the zoning department for the municipality in question to confirm that the existing use will be permitted under current zoning? How about obtaining a warranty from the Seller that the existing use can be continued under the current zoning regulations? How about recommending that the Purchaser consult with a real estate attorney, who is a trained professional, to determine what effects zoning regulations may have on the Purchaser's intended use of the property and specifically to confirm that the existing use can continue?
There are absolute bare minimum legal standards, and then there are higher standards of professional representation. If you are looking to avoid any potential liabilities when it comes to the practice of real estate, then perhaps you should take NAR's advice and "Don't Volunteer Information." However, if you are interested in actually representing your clients, and protecting their best interests, then perhaps you should think about the level of due diligence necessary to help ensure a positive outcome in every transaction. By carefully evaluating the potential risks present in each particular transaction, you can identify those issues for which advice and consultation from industry professionals (such as attorneys, engineers, surveyors, environmental consultants, builders, inspectors, etc.) may be warranted. Be proactive. Don't stick your head in the sand when it comes to problems you may face when representing a client.
DISCLAIMER: The information contained herein is not intended as and should not be construed as legal advice. An attorney should be consulted for legal advice regarding any specific real estate related questions or issues you may have.
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Thanks for this, Stefan. Your pro-active advice rings true with me.