“Puffing” is an art; but where’s the line from “puff” — to problem?

You want to get attention focused on your listing, as opposed to the swarm of others out there. You’re under obligation to the client is to make the property sound as attractive as possible – from a buyer’s perspective; whether it’s the sunny kitchen, or the stream of rental income. “Puffing” is an art; but where’s the line from “puff” — to problem?

In a recent case we handled, the agent described a property as having “legal duplex” in an MLS listing. The MLS also said “Check w/ City.” The Transfer Disclosure Statement said: “Property was purchased at a trustee’s sale…, and is being sold strictly for profit, tax records show the property as a duplex, however property is being used as a triplex, sellers have not checked county records to see whether or not work was done w/permits.”

When checking with the County tax assessor, the property was assessed as having two units, and when checking with the City, we found there were two, separate-address, permit files for the property, each for an individual unit – one commercial, one residential.

After the close of escrow, the buyer began working on the property, without getting a permit. The City red-tagged the job, and while conducting inspections, discovered the bootlegged 3rd unit in the residential building, and required its removal. The buyer never used or rented the commercial part of the property, and later, it was torn down – thus converting the property into a single family dwelling (SFD).

The buyer then sued the seller, and the seller’s agent for fraud – claiming the misrepresentation in the MLS induced him into buying a property he thought was a “duplex” when it was in fact only a SFD. An arbitration followed. The seller won, but the listing agent lost and was required to pay the buyer $45,000!

The arbitrator held that Civil Code § 1088, which provides that any agent who places a listing or other information in an MLS shall be responsible for the truth of those statements, created a duty between the listing agent and the buyer. (This was not otherwise a “dual agency” relationship.) Since the buyer claimed (without any other evidence than his mere statement to this effect) that he relied on the representation of “legal duplex” in the MLS and since the buyer took that to mean “two residential units” – the arbitrator found the listing agent liable.

This is a cautionary tale on two counts:

First, be careful about what you place in an MLS.
Second, do NOT agree to binding arbitration, ever.

This buyer could not speak English, and when asked to read the errant MLS, did not read or understand the word “duplex.” In addition, the buyer made a profit when he re-sold the property. The buyer also stated in the arbitration that he would have been satisfied with 2 units, of any kind, not just residential units. The listing agent should have been cleared of liability because the buyer could not have “relied” on an MLS statement he couldn’t read, there were no damages since he made a profit, and there was no “material” negligent misrepresentation because the buyer was satisfied with any kind of units, so long as there were two. Yet in this case, the arbitrator found against the uninsured (!) listing agent, for $45,000.

Arbitrators can be arbitrary. And an arbitration has no right to appeal.

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