Your Real Estate Agent’s Misrepresentations Can Come Back To Bite You

So your real estate agent was a little flexible with the truth when selling your property.  Many salespersons colour the truth in selling property, but there is point at which colouring the truth gives way to misrepresentations that the buyer relies upon.  Your first instinct upon learning of this misrepresentation from the aggrieved buyer is that they should talk to your agent.  You were the seller, the sale is done, and if the salesperson made a misrepresentation that’s an issue for the buyer and salesperson.  You’re not liable.  Right?

Wrong.  You are responsible for the negligence and wrongful acts committed by your agent in the real estate transaction.  Thus, you can be liable for your real estate agent’s misrepresentations in the real estate transaction, even if you were not aware of the misrepresentation.

Since you’re liable for your real estate agent’s conduct within the scope of the real property transaction you should hire a real estate agent who understands the law.  To start, try avoiding low-producing agents who are desperate to close a sale.  Agents who live-or-die on your transaction may take risks with disclosures or "colour the truth" when representing your property.

This article is written by Adam Garcia, a real estate agent and attorney based in Santa Rosa, CA.  Adam frequently writes about California real estate law and regulations affecting real estate brokers and salespersons. 

Right To Purchase Property

Not everyone is ready to begin escrow right away.  Sometimes a buyer elects to preserve their contractual right to purchase a home rather than obligate themselves to actually purchase the property.  In these instances the buyer creates a future right to purchase via an option to purchase or preemptive right.

An option to purchase contract obligates the homeowner to sell their home to the buyer if the buyer,within an agreed upon period of time, exercises their right to purchase the home.  In essence, an option to purchase contract makes the seller's offer to sell irrevocable for a period of time.  During this period of time the buyer can accept this irrevocable offer and thereby create a sale agreement.  Alternatively, the buyer can choose to not exercise their contractual right to accept as they have no obligation to purchase the property as a buyer would in a sale agreement.  To form an option to purchase agreement the buyer must give consideration to the seller (ie. some type of bargained for exchange), normally represented as monetary payment to the seller.

The prospective buyer does not have to enter into an option to purchase contract to preserve their right to buy a home.  A prospective buyer can create a preemptive purchase right by creating a right of first refusal.  A prospective buyer with a right of first refusal is given the right to match any third party offers the seller is willing to accept.  For example, if a seller is willing to accept 500k from a third party the seller must give the prospective buyer with a right of first refusal the opportunity to match the 500k offer.  Alternative, a prospective buyer can preserve their ability to purchase the home before anyone else with a right of first offer.  The right of first offer forces the seller to offer the property to the prospective buyer before anyone else.  If the prospective buyer does not accept the seller cannot drop the price and sell to someone else; they have to sell the property on the same or better terms than what was offered to the prospective buyer with a right of first offer.

Overlooking the Practice of Law

We Don't Want To Hire Attorneys For Residential Real Estate Transactions

Attorneys have a reputation for being expensive.  Those who have been unfortunate enough to hire an attorney know that every bill is an unpleasant surprise.  With this aversion to retaining attorneys it should come as no great revelation that we overlook the practice of law by residential real estate agents.  Perhaps even more surprising, even the State Bar of California appears to overlook the practice of law by real estate Brokers and Salespersons.

What Constitutes The Practice of Law?

The practice of law includes giving legal advice and drafting contracts.

Can you see the problem?

Real estate agents frequently tell clients why a provision in a boilerplate contract should be included or excluded.  Some real estate salespersons think back to their course in real estate law and advise their client on "difficult or doubtful legal questions."  Brokers and Agents modify purchase offers and counteroffers that become contracts when accepted.  In theory, these Brokers and Agents are not engaging in the unauthorized practice of law if they only perform a clerical role devoid of judgment.  The situation would entail the Broker "filling in the blanks" at the clients direction; but everyone knows that this situation doesn't align with reality.  In practice Brokers and Agents utilize their own judgment in telling clients why certain provisions should be included in offers and counteroffers and draft the documents accordingly.

Fortunately for Brokers, Agents, and perhaps the public at large, the courts have been silent on this prevalent exercise of the unauthorized practice of law.  After all, who wants to hire a lawyer?

Real Estate Signs

Many cities allow real estate agents or homeowners to post for sale signs without obtaining a sign permit. However, there are limits to the size, location, and content of these for sale signs.  Each municipality has their own requirements, so be sure to check the local ordinances or codes.

Some cities are very detailed as to which real estate signs can be posted without a sign permit.  Take the City of Santa Rosa for example.  Santa Rosa City Code 20-38.040 allows :

One real estate for sale sign is allowed on any lot or parcel for each side with street exposure without a Sign Permit with the following provisions: 
 1.       Each sign is entirely within the property to which it applies;
2.       No sign is illuminated;
3.       No sign on a lot zoned for single-family residential shall exceed six square feet in area and six feet in height;
4.       A nonsingle-family residential lot that is 20,000 square feet or less shall be permitted a maximum of 12 square feet for each permitted freestanding or wall sign;
5.       Nonsingle-family residential lots in excess of 20,000 square feet shall be allowed up to 24 square feet for each permitted freestanding of wall sign;
6.       No free standing sign shall exceed nine feet in height; and
7.       No wall sign shall exceed 20 feet in height.

This level of detail is in sharp contrast to the County of Marin with one ordinance reciting California Civil Code Section 713 and ordinance 22.69.040I defining “reasonable dimensions” as not exceeding four square feet in size.   

Why Listing Agreements Always Have To Be In Writing

California Civil Code Section 1624(a) invalidates verbal listing agreements to protect homeowners from false agent and broker commission claims. Under Section 1624 an agreement employing a real estate agent to sell a home for compensation is unenforceable unless in writing. Cases in which real estate agents relied upon oral agreements for compensation have reinforced the strict language of the statute by denying these agents compensation. The one instance in which agents may be able to enforce verbal listing agreements is if they were defrauded by the seller, but usually this only applies if the seller made a misrepresentation about signing the listing agreement and the agent reasonably took the sellers word that they had signed. To learn more about listing agreements access the santarosarealestate.info real estate blog. In short, if California real estate agents want to enforce their right to a commission they should always have a written and signed listing agreement.

Verbal Listing Agreements in California

California Law on Verbal Listing Agreements Between Sellers and Real Estate Agents

In short, verbal listing agreements are invalid in California.  California Civil Code Section 1624 is very clear when it states

The following contracts are invalid, unless they… are in writing and [signed] by the party to be charged…(4) [a]n agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate.

If a California real estate agent only has a verbal listing agreement with the seller they will lose their ability to recover a commission.  Some agents and brokers have argued that they deserve compensation even though the agreement was only verbal since they delivered value to seller, and without compensation the seller will be unjustly enriched.  These quantum meruit theories of recovery have been rejected by the courts as their success would circumvent the statute.  One of the primary reasons for Section 1624's prohibition against verbal listing agreements is to protect consumers from unfounded compensation claims by real estate brokers and salespersons.  By requiring listing agreements to be in writing the statute imposes a requirement to evidence the agreement and enhance the authenticity of commission claims by real estate professionals.  Hence, quantum meruit theories of recovery have been unsuccessful for California real estate agents.

Equitable estoppel theories of recovery have likewise been unsuccessful as real estate brokers and salespersons cannot establish reasonable reliance on the verbal listing agreement.  As reasoned by California courts, reasonable reliance (a requirement for recovery under the doctrine of equitable estoppel) cannot be established since real estate licensees are charged with knowledge of Section 1624 as it is part of the law on the exam for licensure.  Since real estate licensees are charged with knowledge that a verbal listing agreement is unenforceable, it is impossible for them to establish that their reliance on a verbal listing agreement is reasonable.  In brief, you cannot claim that you reasonably relied on an agreement you knew was not valid.  Therefore, Section 1624 has set a very clear rule for California real estate agents: verbal listing agreements are invalid and unenforceable.  If you want to protect your right to a commission memorialize your listing agreement in writing.