Brokers Beware – New Case Creates Dangers to Brokers From Inspection Reports

July 25, 2013Article

In Pinda Hall, et al. v. Rockcliff Realtors, et al., the Court of Appeal of California held a real estate agent liable for failing to notify the potential buyer’s agent about dangers of which the listing agent was aware. The court further held that the agent’s knowledge was imputed to the owner. (EDITOR’S NOTE: Referencing the case, Dresie said, “Even though this case arose in a residential context, these rules and the holding apply equally to commercial brokers, and is consistent with what brokers strive to do anyway in making certain that prospective buyers and tenants are made aware of all material information.”)

While neither holding is new law, the underlying facts broaden an agent’s responsibility beyond what seems reasonable. In particular, the agent and the owner were held potentially liable based on an innocuous statement buried in an inspection report. As a result, all California real estate agents and brokers should be aware of this case.

Pinda Hall, a real estate agent, was injured when a pull-down ladder to an attic collapsed as she was showing a home to potential buyers. Mrs. Hall sued the listing agent and the owner of the property. Based on these facts, the trial court granted summary judgment against Mrs. Hall. She appealed that decision. The Court of Appeal addressed two questions: (i) “Did the agent and the owner know (or have reason to know) that the ladder was unreasonably dangerous? (ii) If so, did they take appropriate steps to put visitors on notice?”

The owner of the house previously had the property inspected by a licensed contractor. In his report, the contractor listed the pull-down ladder among more than 50 cosmetic and substantive items under the heading “Health and Safety Required Repairs-Group 1.” The listing agent admitted looking at the report, but the ladder appeared to be in good working order when he used it during a prior walk-through. Further, the property had been visited by about 100 other agents and buyers without incident.

During his deposition, the contractor said that the pull-down ladder did not appear to be dangerous. He included it in his report because he believes these devices are “crummy” products that look “poor.” The contractor stated that if he believed the ladder was unsafe, he would have noted that in his report.

Some evidence suggested that Mrs. Hall was aware of the danger associated with the pulldown ladder. First, Mrs. Hall had reservations about climbing up into the bonus room, The Court focused on the question of whether the agent had reason to know that the ladder was a concealed danger. It determined that the answer was “yes.” Although the appellate court made clear that it was not directing the trial court to rule in favor of Mrs. Hall, it nonetheless overturned the lower court’s pre-trial dismissal of her case. The decision represents a dramatic expansion of a real estate agent’s responsibility to scrutinize inspection reports and other available material and warn invitees of any actual or potential dangers. According to the Court, those dangers include what might be implied from innocuous statements buried in an inspection report.

In light of this case, what steps should a responsible broker take to avoid or defeat this type of claim? It would not be reasonable to expect a real estate agent to discuss everything contained in lengthy reports with each prospective buyer, tenant or agent. Conversely, an injured visitor can justifiably argue that laying a 30-page report on a table at the property does not go far enough. A middle ground between these extremes, which recognizes the real-world limitations on a real estate agent’s time, would be for the agent to provide property condition-related reports to potential visitors prior to their arrival at the property. This could be done via email as appointments are made, or by including access to the reports in the listing itself. However accomplished, taking the simple step of early distribution may help avoid the potential liability suffered by the agent and his property owner principal in this case.