Court Finds That Selling Agent Has No Duty To Seller To Advise on Price

In Greif v. Sanin (4th Cal.Ct.App. Case E07028), a California appellate court recently ordered a seller to sell property to a buyer pursuant to a purchase and sale agreement.  The court also found that the agent representing the buyer had no duty to advise the seller on the price.

                        In Greif, the seller was an elderly man who had had a stroke and a number of health issues.  He had impairment to his cognitive abilities and faculties.  He owned approximately ten (10) acres in Riverside.  The buyer and buyer’s agent approached him about selling his property.  There were discussions about the value of the property potentially being in the range of $3,300,000 to $4,000,000.  The buyer’s agent and buyer heard the seller say he would sell his property for $330,000.  Thereafter, they prepared a purchase and sale agreement in that amount.  The seller signed the purchase agreement.  The seller was not represented by an attorney or another agent.  Several days later, the seller reviewed the purchase price and was distraught at the price.  He felt it was significantly below the fair market value of the property.  He then refused to close the escrow.

                        The buyer’s attorneys wrote at least two (2) letters to the seller seeking resolution and to close the escrow.  The seller ignored the correspondence.  The buyer then filed a lawsuit and recorded a notice of pendency of action.  A complaint was then filed against the selling agent for negligence and elder abuse.  For inexplicable reasons, the cause of action for elder abuse was dismissed.  The court dismissed the negligence claim finding that the agent representing the buyer had no duty to advise the seller on price or the fair market value of the property.  Subsequently, the trial court ordered the seller to sell the property pursuant to the purchase and sale agreement and awarded the buyer more than $700,000 in attorney’s fees.  The seller appealed. 

                        On appeal, the Court dealt with three (3) different questions, including the following:

                        1.         Did the selling agent have a duty to the seller to advise on price when the seller was unrepresented?

                        2.         Was the order for specific performance appropriate?

                        3.         Was the attorney’s fees award appropriate when no mediation took place prior to filing suit?

                        The appellate court held that an agent representing a buyer has no common law duty to advise the seller on the fair market value of the property.  However, the appellate court also found that Civil Code Section 2079, which contains an obligation of honesty and good faith, did not apply because this transaction took place three (3) years before the enactment of that provision.  (Any court case now could be decided differently.)  As a reminder, agents representing buyers cannot defraud sellers and have an obligation of honesty and good faith to all parties.  It should also be noted that inexplicably, the seller’s attorney dismissed the elder abuse claim.  Had that claim remained intact, the decision could have been different.

                        The court affirmed the decision of specific performance ordering enforcement of the contract at the price negotiated.

                        The final issue is whether the attorney’s fees award was appropriate.  The purchase and sale agreement contained a provision requiring mediation before filing suit or the filing party forfeits the recovery of their attorney’s fees.  Notwithstanding, the court noted that an exception to this rule is when a notice of pendency of action is required.  The court found the exception to be applicable and therefore, affirmed the attorney’s fees award.

                        Despite this decision, listing agents should refrain from advising buyers who are unrepresented.  No agent should ever take advantage of a party, particularly, if that party is over sixty-five (65) years old.  Further, the law now requires that agents act in good faith and honesty toward parties they are not representing.  Had this transaction closed three (3) years later, the decision likely would have been different.