A couple embrace each other as they speak to a realtor about purchasing a house for sale

Remedies for Buyer if Seller Fails To Disclose Defects In Sale Of Residential Real Estate

Sellers of residential real estate property and their agents and brokers have a duty to disclose everything that a buyer would consider material to the purchase. Otherwise, they are liable for damages incurred by the Buyer.

Seller’s Obligations

The Purchase Agreement and related Contract Documents state the rights and obligations of the sellers which can be summarized as follows:

  • General Disclosure Duties: The Seller must affirmatively disclose to the buyer, in writing, any and all known facts that materially affect the value or desirability of the Property whether asked or not asked.
  • Statutory Duties: The Seller must timely prepare and deliver to the buyer a Real Estate Transfer Disclosure Statement (“TDS”). The Seller has an obligation to honestly and completely fill out the TDS form in its entirety. The Seller must also fill out the Seller Property Questionnaire.

If the Sellers fail to properly disclose they may be liable to Buyers for damages.

Real Estate Brokers/agents Have a Fiduciary Duty To Their Clients

Real estate brokers and agents are fiduciaries. (Michelson v. Hamada (1994) 29 Cal. App. 4th 1566.) The law imposes on a real estate agent the same obligation of undivided service and loyalty to a client that it imposes on a trustee in favor of the beneficiary. (Rattray v. Scudder (1946) 28 Cal. 2d 214.) As a fiduciary, a real estate broker must disclose to his or her client all material information that the broker knows or could reasonably obtain regarding the property or relating to the transaction. If the brokers/agents fail in their duty to disclose they may also be liable for the Buyers’ damages.

Buyers Can Address Non-Disclosure Issues through Mediation, Arbitration or Civil Litigation

The Purchase and Sale Agreement contains a mediation clause which requires that both Buyers and Sellers participate in Mediation if a dispute arises and before filing a lawsuit. Thus, the first step would be to send out a Demand for Mediation with a response deadline. If the Sellers fail to respond they would forfeit prevailing party attorneys’ fees, which are also permitted by the Agreement. It would be advisable to consult with an attorney regarding the procedural aspects of a non-disclosure case.

Additional resources provided by the author

The measure of damages in a non-disclosure case is diminution in value or cost of repair. It is therefore important to keep good records of any repairs or repair estimates while the case is proceeding. Civil Code Section 3343 provides in relevant part: “One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that which the defrauded person parted and the actual value of that which he received.”

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