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Thursday, March 27, 2014

Professional Negligence: Real Estate Agent Example

By: Peter J. Lamont, Esq.
New Jersey Business and Personal Law Attorney
Law Offices of Peter J. Lamont

Let's talk about professional negligence. The negligence of a doctor, an architect, a lawyer, but in this case we're going to talk about the negligence of a real estate agent. Let's say that you have a real estate agent who is selling a house. He meets with his client and the client says to him, "Listen, I've got some water stains in the basement. I'm certain that it's a leak. I've seen water come in, I've had to pump it out, but it's not terrible. I'm afraid if we disclose that information, nobody's going to buy the house because one of the selling features of this house is this nice finished basement. So here's what I'm going to do. I'm going to rip out the drywall, I'm going to put new drywall up. It'll take me a day or so. It's not supposed to rain. So when you show the house, nobody will notice that there was water damage or stains on the existing drywall." And the real estate agent thinks to himself, "Well, I want to sell the house. That’s how I make my money. I want to sell it. There's not guarantee that it's really actively leaking. I think that this is okay. So I'm going to go along with this. I'm not going to disclose this information to the other broker. I'm not going to disclose it to the potential buyer, but we're going to give it a go and as long as the guy fixes it and puts new drywall up, we’re good."

Now the purchaser comes in with their home inspector, loves the house, right? They want to move forward with the purchase. The home inspector looks around. There's no visible evidence of any water in the basement, and so he gives his seal of approval that ultimately leads to a finalized contract negotiation and a closing date. We're all set. So closing happens and the purchaser comes in. Within the first month or two, there's a massive, torrential rainstorm. And while he's sitting in his basement watching TV, water starts to drip in through the drywall on the floor, through the drywall. And he's panicked. So he calls in a contractor to make repairs. As the guy is ripping the drywall that's now wet, the new replaced drywall off the wall. He says, "Look at these white marks on the foundation. This is indicative of a number of flooding incidents. This isn't a result of this torrential downpour that we just had. Look at the different levels, the different height of watermark stains. So this is something that has been going on for a while. When you bought the house, did anyone tell you that there was an issue?" And you say, "No." And as your contractor continues to inspect the situation he says, "Ah, look at this. There's a crack in the foundation here and this apparently where the water is seeping in from. You've got a problem. This is going to cost you $30,000 to fix." You go upstairs and you tell your wife. You're afraid that she's going to start yelling at you. You've got your suitcase packed because you're afraid of what she's going to say. Right? "I relied on you. This was your home inspector. You told me this was a good house." Right?

Well, you go and you contact a lawyer. The lawyer says, "You may have a negligence claim, a malpractice claim against your real estate agent. Let's look at how that would happen." Let's assume for a minute that the purchaser files a lawsuit. He files a lawsuit against the prior homeowner, his real estate agent, the seller's real estate agent, and the home inspector. I want to talk about that negligence claim with respect to the brokers. Okay, now, we learn through discovery that the seller made repairs to the drywall and knew that there was a leak. We also learned that the agent was aware of it. Now, let's put that together with the elements of negligence. 1) Does the real estate agent for the seller owe a duty of care to you, the purchaser? And the answer is yes. He is mandated through his license under statute, under the administrative code, to provide you with accurate information to do a certain level of due diligence with respect to the listing and sale of a house. And so it's clearly established that he owes you a duty of care. Now, let's talk about the breach. Can you establish a breach of that duty of care? Well, we know that this broke, he didn't direct the seller to replace the drywall. He didn't direct the seller to hide the condition. He simply omitted the fact about the basement when he discussed the house with your real estate agent. So is he negligent? He didn't do it actively. He didn't actively hide the condition. He didn't suggest to the seller, "Why don't you lie about it? Put up dry wall." He simply knew about it and omitted it. Well, to breach a duty of care it does not have to be an action. It can be inaction as well. So his omission, his knowing omission. He intentionally omitted the fact that there had been water damage in the basement when he discussed the sale of the house with your real estate agent. That is a breach of duty.

How do we know? We're going to look at the reasonable person's standard. Would a reasonable real estate agent under the same set of circumstances have done the same thing? And the answer to the question is no. A reasonable real estate agent, now this is interesting that I'm saying this. A reasonable real estate agent. Why am I saying that? Because when you apply the reasonable person's standard, you must do so based upon the person that you're trying to apply the standard to. So if you were a doctor, the reasonable person's standard is: "Would a reasonable physician under the same circumstances act in a particular way?" If you're an architect, would a reasonable architect? If you're a driver, would a reasonable motorist? If you are a storeowner, would a reasonable business owner? So the reasonable person's standard applies to you in the position and situation that you are in.

So getting back to the example, your real estate or the seller's real estate agent... Would a reasonable real estate agent done the same thing? No, the reasonable real estate agent would have said, "I'm not permitting to omit a material fact about a house that I’m aware of. I've got to disclose that." So in this scenario, it is quite clear that a breach of duty has occurred. Now, damages? Yeah, there's damages. You've got $30,000, $35,000 worth of repair work that needs to be done. And can you show that the breach and the damages were proximately connected, proximately caused? And the answer is yes. Because but for the omission of the real estate agent, you might not have purchased the house.

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If you would like more information about this topic or have general legal questions, please feel free to contact me at (973)949-3770 or via email at plamont@peterlamontesq.com We answer legal questions on a daily basis and would be happy to discuss any issues or questions that you have with you.  Offices in: New Jersey New York, Colorado & Puerto Rico.  Affiliated throughout the country.

© 2014, Law Offices of Peter J. Lamont. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between the firm and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.
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