Liability of Broker for Non-inspection: New Frontiers?
| Publication year | 1985 |
| Pages | 776 |
| Citation | Vol. 15 No. 5 Pg. 776 |
1985, May, Pg. 776. Liability of Broker for Non-Inspection: New Frontiers?
Historically, a real estate agent or broker (realtor) was only responsible to third parties when the realtor had committed actionable fraud. The cases uniformly held that there must be an "intentional" misrepresentation by the realtor.
The leading Colorado case is Lear v. Bawden,(fn1) in which the Colorado Supreme Court held that the material misrepresentation as to price quoted to the buyer by the realtor was actionable. The evidence disclosed that the salesman represented to the purchaser the price to be $5,700 when, in fact, the listed price was only $4,350. The buyer was entitled to the difference between the quoted price and the listed price as damages. Generally, a realtor does not have the affirmative duty to inspect the property for defects, but does have a limited duty to refrain from making intentional misrepresentations.
Many cases have recognized a realtor's liability for misrepresentation regarding a known physical defect in the property.(fn2) The gamut runs from a representation that the house was built to FHA standards when it was not, to statements that the heating system worked adequately when it was known to be otherwise.
Until recently, the cases, including those in Colorado, have not considered the question of a realtor's liability for failing to inspect for latent defects. This involves the tort of misrepresentation from a non-disclosure standpoint. One exception is the opinion by the Maryland Supreme Court which simply reiterated the general rule: no liability attaches to a realtor who had no knowledge of the condition of the property. The court also held that a realtor has no responsibility to inspect the condition of the property.(fn3)
In 1974, the National Association of Realtors adopted a Code of Ethics. Article 9 of the Code states:
The Code and its preamble have been adopted by the many professional organizations controlling real estate agents and brokers, including the Colorado...The Realtor shall avoid exaggeration, misrepresentation, or concealment of pertinent facts. He has the affirmative obligation to discover adverse factors that a reasonably competent and diligent investigation would disclose.
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