Demanding Transparency from your Broker

By Gary Torrell

When traversing the complicated transition into home ownership, buyers often view their real estate broker as a trustworthy, impartial advocate. While brokers offer helpful advice throughout the process, it’s important to recognize the economics of the situation: brokers are only paid when they make a sale, and thus are biased towards closing the deal. And when one broker represents both buyer and seller, a buyer may need to take extra steps to ensure transparency.

A recent court decision over the sale of home in Malibu dealt with the broker’s liability in reporting the size. A salesperson for a brokerage firm listed a home with “approximately 15,000 square feet of living areas.” A couple made an offer to purchase the property. While the deal was in escrow, the buyers hired an inspector to measure the size, and found the property was smaller than listed. After they pulled out of the deal, the property was re-listed as before while omitting the details about the smaller measurements. A second buyer, relying on the measurements in the listing, sued the broker, after entering into escrow and finding the property measurements to be inaccurate.

In the suit, the second buyer contended the broker owed him a fiduciary duty. The court found in favor of the buyer, since the broker chose not to inform buyer of the more recent size.

In the that case, the second buyer entered the deal based on the listed square footage declared by the broker, only bringing in their own home inspector once they suspected something was amiss. It’s important to recognize that when listing a home, brokers will often rely upon — and recommend — their own trusted home inspectors. To level the playing field, buyers should retain their own reputable, licensed building contractor with at least ten years’ experience as a general contractor to do the inspection.

Most home sales in California are based on standard contracts drawn up by the broker group, designed to protect the broker from liability and ensure they receive their commission. Whether buying or selling, the broker’s contract is their “home court advantage.” Hiring your own lawyer to review the contract before signing can help you understand the agreement and potentially save a big headache later on.

Buying a home can easily be the largest transaction of your lifetime, so it’s important to go in knowing your rights, and how to ensure a fair deal. For more advice on protecting your interests in the real estate process, read up on how to avoid eight common mistakes when buying and selling your house.