POST-INSPECTION REPAIRS AND THE LISTING AGENT'S REPRESNTATIONS

By James L. Goldsmith, Esquire

In a recent article I underscored the licensee's duty at settlement to note the status of all obligations established by the agreement of sale. This article focuses on how a listing agent confirms her seller's completion of those pre-agreement repairs, updates and other obligations.

As is almost always the case, the inspiration for these words of advice comes by way of another's misfortune. A transaction began like most other residential transactions involving inspection contingencies and the need to repair. Though the sellers disclosed that the septic system was working, an inspection of the onsite septic system was equivocal: the inspection occurred after a substantial rain storm and the inspector could not conclude whether his findings were the result of rain or the system's malfunction. He neither passed nor failed the system, but suggested that certain steps be taken and a follow-up examination be performed. The seller heeded the inspector's recommendations, in this case by replacing a pump that was suspected to be a culprit. The listing agent was not present when the repair work was done and never spoke to the repair person; rather, she relied on the seller's representation that the work had been done. The seller even provided a receipt that was forwarded to the buyer's agent. Supported by the seller's words and receipt (which demonstrated very little other than the $1,600 expense to replace the pump), the listing agent represented that the work had been done and that the system was functioning perfectly.

But it wasn't. Not only was the system not functioning perfectly, the real problems had not been diagnosed. Not until after purchase did the real problems surface.

Like most cases, there was no credible evidence of a cover-up; but like most cases, one or more of the parties was culpable and paid damages.

I did say that I was focusing this article on the listing agent, so I ask: what did the listing agent do wrong, if anything? It seems that she merely repeated what was represented to her: the system was repaired and was working. And indeed, that is a reasonable defense and one that may succeed (RELRA does provide that a licensee has no duty to investigate and may rely on the reasonable representations of her principal). The listing agent's objective, however, is not winning a misrepresentation suit but avoiding one altogether.

Making no representation would have kept the listing agent out of the courtroom. But listing agents have an obligation to advise on the status of the transaction and had to say something about the replaced pump.

Making representations of fact and not offering conclusions is much safer. Had the listing agent said that she had been informed that the pump had been suspected of being the problem and that it had been replaced as evidenced by a receipt that she would present to the buyer's agent, she would have been fine. But opining that the system was working perfectly went too far.

When the buyers made their offer they didn't rely on the seller's disclosure that the septic system was working but chose to have an inspection. Why encourage them to rely now? Let them, encourage them, to rely on the inspector. "Sellers made repairs, now have it tested." Had that been the approach, the listing agent would have avoided much strife (and some money). We've come a long way in having buyers conduct their own due diligence reviews and encouraging their reliance on outside experts. We should try to keep it that way for their protection and for that of the listing agent, sellers and the buyer agent.

Copyright © James L. Goldsmith, Esquire, CALDWELL & KEARNS, P.C., 2013 All Rights Reserved

Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.