Daily Development for
Tuesday, June 10, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BROKER; DUAL AGENCY; DISCLOSURE DUTY: Real estate broker acting as both listing and selling agent owed a duty to disclose to purchaser that property was in the flood plain; however, breach of such fiduciary duty did not entitle purchaser to recover as damages the entire commission paid to the broker by seller of the property.

Enright v. Gonassen, 931 P.2d 1212 (Idaho 1997).

Broker in this case represented both buyers and sellers. Broker's agent signed on as buyer's agent, but broker was the listing broker for the seller. The court does not indicate whether Idaho had enacted any of the recent NAR sponsored statutes designed to authorize such (to a lawyer0 bizarre behavior, and does not rely upon any statutory disclosure provisions.

The buyers purchased land beside a creek in Idaho. They believed that they were getting such a good value on the property that they asked the broker's agent several times whether there were any restrictions or unusual conditions which would diminish the value of the property. The agent replied that there were not. After purchase of the property, purchasers discovered that the property was in a flood plain, and, incidently, in an avalanche overlay area (although the court seemed little concerned about this issue). The location would necessitate certain special permits and extraordinary costs. There was no evidence that the broker or agent had actual knowledge of the special conditions, but the conditions could be found by inspection of the public records.

The Idaho Supreme Court held that the broker and agent owed a fiduciary duty to the purchaser to determine whether the property was in a flood plain district. However, the court held that the purchaser was not entitled to disgorgement of the broker's fees as the broker's fees had been paid from the proceeds of the seller of the property. Instead, the purchasers were entitled to any sums they could recover based on their actual damages.

Comment 1: The trial court had found a breach of both the duty of care and the fiduciary duty, but the Supreme Court's analysis focuses on the fiduciary duty alone.

Comment 2: In this case, there was the special factor, virtually overlooked in the court's discussion, that the broker made a representation to the client that there were no special problems on the property. Such a representation likely would amount to a warranty of condition. But the court makes almost nothing of this, and treats the case as one in which the broker had a duty to investigate independent of any representations the broker made.

Comment 3: There is little question that a buyer's broker has a fiduciary duty to the client to use ordinary care to evaluate the property the client is considering buying or to suggest ways in which the client could carry out the evaluation itself. Here, particularly where the client had indicated a concern about natural conditions, the broker had a clear duty to the client to conduct the evaluation. So far, nothing new.

But the new issue is the fact that the broker was also the broker for the seller. Does this diminish the fiduciary responsibility to the buyer? Not under this case. Thus we have the anomalous result that the seller's agent has the duty to inspect the property for defects and disclose all of them to the buyer. What if the seller discloses defects (discoverable ones) to the broker? Does the broker have a duty to pass this information along, even though discoverable? Does the broker have a duty to tell the seller not to tell the broker anything about the property?

Comment 4: As should be evident from the above, the editor is not a fan of dual agency. But whether one is a fan of the concept or not, one must admit that it goes along with fiduciary concepts like ice cream on pickles. Some of the NAR statutes eliminate fiduciary responsibilities and replace them with specific disclosure responsibilities to both sides of the dual agency, backed up with form consents executed by the clients. The editor liked things better in the old days, but admits that these statutes may be necessary to protect dual agents from inevitable fiduciary conflicts.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

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