Due Care Appropriate in Property Transactions

            Caveat Emptor – it’s a Latin phrase meaning “Let the Buyer Beware.”

Commercial transactions have been around since the beginning of time.  Whether it’s for barter or for cash, people have been trading, buying and selling ever since we’ve been around.

The concept of being cautious in a transaction isn’t new.  Our current phrase of Caveat Emptor is an ancient legal principle.  But whether the phrase comes from Italy, England, or someplace else, the concept is the same.  In any transaction, a buyer takes a risk when they buy a product, including real estate.

Modern American law has considerably limited the application of Caveat Emptor in real estate transactions.  California law imposes significant disclosure obligations on sellers and their brokers.  But there can still be situations where Caveat Emptor still applies, and where a buyer should beware.

Several years ago, a mother purchased a home.  After purchasing the home, this mother noticed a moldy odor in the kitchen and bathroom. An environmental test showed dangerous levels of and mold spores. The exposure to the molds caused the mother to become ill, and caused her minor son to develop asthma.

The son filed suit against the real estate broker who had sold the house. The son claimed that the broker knew that the son would be living in the house with his mother.  The son further claimed that the broker had a duty to conduct a reasonably competent and diligent inspection of the property and to disclose defects to the son, including the presence of dangerous molds and microbes.

The broker defended the claim by claiming that the broker owed a duty only to the parties to the transaction.  Since the son neither bought nor sold the property, the son was not a party to the transaction, and the broker therefore claimed that the son had no legal claim against the broker for any failure to inspect or disclose.

The Court of Appeal agreed with the broker.  The Court held that a broker’s duties and liabilities are limited, and that in this case the broker had no duty to the son to either inspect the property or disclose any defects or dangerous conditions.  Because the broker had no duty to the son, the broker had no liability to the son for the presence of the mold or to any injury that the son may have incurred due to the presence of the mold spores.  This case is reported 117 Cal. App. 4th 158.

The result in this case may have been different if the mother had filed suit for personal injuries due to undisclosed defects or dangerous conditions.  Real estate brokers who sell property are obligated to perform inspections and make certain disclosures to the parties to a transaction.  As a result, the broker in this case may have been obligated to disclose the presence of mold to the mother who was the purchaser.  But in this case, the Court of Appeal held that the broker owed no duty of inspection or disclosure to the son with respect to the dangerous mold at the property.

Most buyers seem to realize that they have the right to have inspections performed in a real estate transaction.  But some buyers may not realize that a broker’s duties of inspection and disclosure may not extend to a buyer’s children in some cases.  Inspections take time and they cost money.  Buyers who buy properties are already spending so much money that they sometimes seem to want to save costs by skimping on inspections.  But if they knew that their children may face additional risks due to possibly limited broker obligations, then such buyers may be more willing to pay for and obtain such inspections. Buyers of real property may reduce their risk when they have their potential purchases fully inspected by licensed, experienced, qualified inspectors who are adequately insured.

In reaching its decision, the Court in this case analyzed and relied on complex principles of duty, negligence, and both case and statutory law. The case does not discuss whether or not the minor son may have had valid claims against persons other than the listing broker.  The Court’s decision in this case is no indicator of how a court may rule in any given situation.  Persons with potential legal claims should always consult professional, experienced, competent legal counsel when evaluating their claims or determining whether or not such claims have legal merit or validity.

Copyright 2023 ROBERT B. JACOBS