ARE REAL ESTATE AGENTS REQUIRED TO CHECK PERMITS OR ZONING?

Are real estate agents required to confirm the zoning classification of a property? Are they required to check City permits? Are they required to review title reports and surveys for easements? The real answer may surprise you!

Most real estate agents are familiar with the language under Civil Code §2079, which declares that it is the duty of the agent to conduct a reasonably competent and diligent visual inspection of reasonably and normally accessible areas. The CAR AVID form states that California law does not require the agent to inspect:

Areas that are not reasonably and normally accessible

Areas off site of the property

Public records or permits

Common areas of planned developments, condominiums, … etc.

The AVID form lists several limitations on what the agent is required to do, including the following statement:

” By statute, Agent is not obligated to pull permits or inspect public records. Agent will not guarantee views or zoning, identify proposed construction or development or changes or proximity to transportation, schools, or law enforcement.”

These limitations were enacted in the mid-1980s in response to the Court’s decision in Easton v. Strassburger 152 Cal.App.3d 90 (1984), which held that the agent must disclose any known material facts that affect the value or desirability of the property. Since factors such as “value” or “desirability” were inherently vague, the Legislature responded by creating a disclosure form – the Transfer Disclosure Statement, or “TDS” – pursuant to Civil Code §1102, along with the Agent’s Visual Identification Disclosure, or “AVID.” The intended effect of these forms was to shift responsibility for full  disclosure to the actual Seller or Owner of the property, and limit the liability of the agent to the prospective buyer.

However, agents often fail to understand that the duty owed to their own clients is substantially more extensive – it is a fiduciary duty to disclose all material information that the broker knows or could reasonably obtain regarding the property or relating to the transaction. This fiduciary duty is set forth in Civil Code §2079.16, which is reproduced in full on the first page of the CAR AD Form, “Disclosure Regarding Real Estate Agency Relationship.” It is the duty of “utmost care, integrity, honesty and loyalty in dealings” with their client.

In Field v. Century 21 Klowden-Forness Realty, 63 Cal.App.4th 18 (1998), the Court declared:

“Thus, depending on the circumstances, a broker’s fiduciary duty may be much broader than the duty to visually inspect and may include a duty to inspect public records or permits concerning title or use of the property.”  (Emphasis added).

In other words, the agent’s duty to their own client is substantially greater than the duty owed to a prospective buyer. Further, in a recent decision, the Court ruled that when the prospective buyer and the seller were represented by the same broker in a dual-agency relationship, the dual-agency broker owed a fiduciary duty to both the buyer and the seller.  Horiike v. Coldwell Banker (2014). In that case, the buyer and seller were each represented by a different salesperson who were working for the same broker – Coldwell Banker – and the Court made it clear that as a consequence, the broker’s fiduciary duty extended to each of the agents. Moreover, the Court pointed out that in these circumstances, the salespersons were considered employees of the same broker, even if they were considered to be “independent contractors” of the broker for tax purposes.

Noting that there was a misunderstanding in the real estate industry, the Court went on to declare that the failure of a fiduciary to share material information with the principal – in this case the failure of the seller’s agent to disclose material information to the buyer – amounted to constructive fraud, which means that no intent needed to be established.

Whenever I ask a group of real estate agents whether they are required to check permits, most will respond “No.” After the decision in Horiike v. Coldwell Banker, I anticipate a lot of brokers will be providing some new training!