W. Cory Reiss
Real estate agents, your mission should you choose to accept it, may be impossible
After a recent ruling by the North Carolina Court of Appeals, I’m going to write a movie script called Enough is Never Enough.
Our hero is a scrupulous, overly cautious real estate agent. When her clients want to buy a home, she digs into public records, squirms through the crawl space looking for signs of trouble, and interrogates neighbors under hot lights about any maintenance vans parked in the street over the last decade. She’s armed with a contract termination notice, ever at the ready.
But she still can’t avoid getting sued. Cue the action.
The Court of Appeals recently decided that a buyer’s agent can breach her fiduciary duties to her clients by failing to do enough to investigate, and potentially discover, hidden problems in a residence for sale. In that case, the house had water intrusion problems that the seller had painted over. After the sale, those problems revealed themselves and the buyers sued everyone involved, including their own agents.
The Court held that a jury would have to decide if the buyers’ agents breached their fiduciary duties to their clients by failing to request and obtain the maintenance records of a rental agency that managed the property and by hiring an inspector who did not perform a moisture test in the house because he didn’t think it was necessary due to the seller’s cover-up.
The Court held that the buyers had a right to rely on their agents, and therefore a jury would have to decide if the agents breached their duties by failing to do more to investigate, even when the seller clearly would be liable for failing to disclose and covering up that very same information, the N.C. Real Estate Commission would not require such levels of diligence, and the contract establishing the agency relationship doesn’t set that kind of standard.
The issue here is whether an agent did everything reasonable to meet the standard of care generally exercised by other agents in order to meet their fiduciary duties of diligence and fidelity that real estate agents generally owe to their clients. That’s a nebulous concept already, but this application of it suggests agents must conceive of every possible problem with a property and play sleuth to investigate them just in case the seller is hiding something.
This case may be appealed to the North Carolina Supreme Court based on a dissenting opinion critical of this extremely high standard for an agent to perform fiduciary obligations to a client buyer.
For now, though, real estate agents should be warned: If you think you’ve done enough investigating, that could just mean there’s something you haven’t thought of yet.