CACI 4109 Duty of Disclosure by Seller’s Real Estate Broker to Buyer

New December 2013; Revised May 2020

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This instruction should be read after CACI No. 400, Negligence—Essential Factual Elements, if a seller’s real estate broker’s breach of duty of disclosure to the buyer is at issue. A broker’s failure to disclose known material facts to the buyer may constitute a breach of duty for purposes of a claim for negligence. Causation and damages must still be proved. This instruction may also be used with instructions in the Fraud and Deceit series (CACI No. 1900 et seq.) for a cause of action for misrepresentation or concealment. (See Holmes v. Summer (2010) 188 Cal.App.4th 1510, 1528 [116 Cal.Rptr.3d 419].)

For an instruction on the fiduciary duty of a real estate broker to the broker’s own client, see CACI No. 4107, Duty of Disclosure of Real Estate Broker to Client. For an instruction on the duty of the seller’s real estate broker under Civil Code section 2079 to conduct a visual inspection of the property and disclose to the buyer all facts materially affecting the value or desirability of the property that an investigation would reveal, see CACI No. 4108, Failure of Seller’s Real Estate Broker to Conduct Reasonable Inspection—Essential Factual Elements.

•“ ‘[W]here the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer. [Citations.]’ When the seller’s real estate agent or broker is also aware of such facts, ‘he [or she] is under the same duty of disclosure.’ A real estate agent or broker may be liable ‘for mere nondisclosure since his [or her] conduct in the transaction amounts to a representation of the nonexistence of the facts which he has failed to disclose [citation].’ ” (Holmes, supra, 188 Cal.App.4th at pp. 1518–1519, original italics, internal citations omitted.)

•“Even in the absence of a fiduciary duty to the buyer, listing agents are required to disclose to prospective purchasers all facts materially affecting the value or desirability of a property that a reasonable visual inspection would reveal. And regardless of whether a listing agent also represents the buyer, it is required to disclose to the buyer all known facts materially affecting the value or desirability of a property that are not known to or reasonably discoverable by the buyer.” (Horiike v. Coldwell Banker Residential Brokerage Co. (2016) 1 Cal.5th 1024, 1040 [210 Cal.Rptr.3d 1, 383 P.3d 1094].)

•“The real estate agent or broker representing the seller is a party to the business transaction. In most instances he has a personal interest in it and derives a profit from it. Where such agent or broker possesses, along with the seller, the requisite knowledge … , whether he acquires it from, or independently of, his principal, he is under the same duty of disclosure. He is a party connected with the fraud and if no disclosure is made at all to the buyer by the other parties to the transaction, such agent or broker becomes jointly and severally liable with the seller for the full amount of the damages.” (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 736 [29 Cal.Rptr. 201], footnote omitted.)

•“A breach of the duty to disclose gives rise to a cause of action for rescission or damages.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1383 [89 Cal.Rptr.3d 659].)

•“The ‘elements of a simple negligence action [are] whether [the defendant] owed a legal duty to [the plaintiff] to use due care, whether this legal duty was breached, and finally whether the breach was a proximate cause of [the plaintiff’s] injury. [Citations.]’ We have already stated that the buyers alleged facts sufficient to impose a legal duty on the brokers. Furthermore, they have alleged facts sufficient to show a breach of that duty. Finally, the buyers alleged that the breach caused them harm. In short, the buyers stated facts sufficient to constitute a cause of action on a negligence theory. Our cursory analysis of this one theory is enough to demonstrate that the trial court erred in sustaining the brokers’ demurrer without leave to amend, but is not meant to preclude the buyers’ pursuit of their other [fraud] theories.” (Holmes, supra, 188 Cal.App.4th at p. 1528, internal citation omitted.)

•“Despite the absence of privity of contract, a real estate agent is clearly under a duty to exercise reasonable care to protect those persons whom the agent is attempting to induce into entering a real estate transaction for the purpose of earning a commission.” (Holmes, supra, 188 Cal.App.4th at p. 1519.)

•“[A] seller’s agent has no affirmative duty to disclose latent defects unless the agent ‘also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer.’ ” (Peake v. Underwood (2014) 227 Cal.App.4th 428, 445 [173 Cal.Rptr.3d 624], original italics.)

•“[W]hen a real estate agent or broker is aware that the amount of existing monetary liens and encumbrances exceeds the sales price of a residential property, so as to require either the cooperation of the lender in a short sale or the ability of the seller to put a substantial amount of cash into the escrow in order to obtain the release of the monetary liens and encumbrances affecting title, the agent or broker has a duty to disclose this state of affairs to the buyer, so that the buyer can inquire further and evaluate whether to risk entering into a transaction with a substantial risk of failure.” (Holmes, supra, 188 Cal.App.4th at pp. 1522–1523.)

•“[W]e do not convert the seller’s fiduciary into the buyer’s fiduciary. The seller’s agent under a listing agreement owes the seller ‘[a] fiduciary duty of utmost care, integrity, honesty, and loyalty … .’ Although the seller’s agent does not generally owe a fiduciary duty to the buyer, he or she nonetheless owes the buyer the affirmative duties of care, honesty, good faith, fair dealing and disclosure, as reflected in Civil Code section 2079.16, as well as such other nonfiduciary duties as are otherwise imposed by law.” (Holmes, supra, 188 Cal.App.4th at p. 1528, internal citation omitted.)

•“Real estate brokers are subject to two sets of duties: those imposed by regulatory statutes, and those arising from the general law of agency.” (Coldwell Banker Residential Brokerage Co. v. Superior Court (2004) 117 Cal.App.4th 158, 164 [11 Cal.Rptr.3d 564].)

•“In enacting section 2079 [see CACI No. 4108], the Legislature did not intend to preclude a real estate agent’s liability for fraud. However, because a seller’s agent has no fiduciary relationship with a buyer, the courts have strictly limited the scope of an agent’s disclosure duties under a fraudulent concealment theory.” (Peake, supra, 227 Cal.App.4th at p. 444, internal citation omitted.)

•“The primary difference between the disclosure obligations of an exclusive representative of a seller and a dual agent representing the seller and the buyer is the dual agent’s duty to learn and disclose facts material to the property’s price or desirability, including those facts that might reasonably be discovered by the buyer.” (Horiike, supra, 1 Cal.5th at pp. 1040–1041.)