Beware of “Innocent” Misrepresentation

With the new Seller’s Disclosure Law now taking effect, it seems an opportune time to review when an agent or broker is liable for their seller’s misrepresentations.

The rule in Washington State comes from the case of Hoffman v. Connal, 108 Wn. 2d 69 (1987).  In Hoffman, the sellers showed their listing agent their property boundaries.  These included a wooden stake or two, a row of trees, an old fence line, and a new fence line.  The sellers told their agent a corral also was inside their property line, and that a survey of their property probably existed.

The buyers visited the property with the seller’s agent, who pointed out what he believed the boundaries were.  The agent did not recommend the buyers have their own survey done.  The buyers then closed on the property.

Three months after purchasing the property, the buyers discovered their property encroached 18 – 21 feet onto the neighbors’ land.  The buyers learned it would cost nearly $6,000 to move the encroaching fence, corral and other structures back onto their own property.

Not surprisingly, the buyers sued the sellers and their agent, claiming both had misrepresented the correct boundary lines. In resolving the case, the Washington Supreme Court had to address the following two issues:

1.                 Should a real estate agent/broker be held liable for innocently misrepresenting a material fact to a buyer of real property? And

2.                 Was the agent/broker negligent in failing to verify the seller’s statements concerning the property’s boundaries?

As to the first issue, the Court decided that “a real estate broker [including an agent] is held to a standard of reasonable care and is liable for making ‘negligent’, though not ‘innocent’ misrepresentations concerning boundaries to a buyer.”  In short, a broker/agent must still exercise the reasonable care that is standard in the profession.  But, rather than forcing agents or brokers to become liable for even the innocent, misrepresentations of their sellers, the Court will find liability only if the agent/broker willfully or negligently conveyed false information.

After deciding what the rule would be for the first issue, the Court then applied it in the second.  The Court found that, on the facts of this particular case, the agent was not negligent, and thus not liable to the buyers.  The Court reasoned that the natural and man-made boundaries the agent saw reinforced the seller’s representations.  The justices could find nothing in the record at trial that suggested the agent knew the boundaries were other than as represented.  Consequently, the Court ruled that the agent had not been negligent.

So what does this mean to you?  Be careful.  Ask questions.  If a seller represents an item as fact and it is crucial to the transaction, check it out.  While you may be covered if the fact later turns out to be false, and the misrepresentation was “innocent,” don’t put yourself at risk.  In Hoffman, two Justices dissented from the majority, suggesting that the agent should have been found negligent for failing to verify if the alleged survey existed.

The moral here is not to allow the situation to occur in the first place.  Be careful, be thorough, and follow up on questionable items.  In the long run, you will be protecting yourself and your client.

Published January 1995

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.