FAILURE TO EXPLAIN

In addition to disclosing all information which he or she knows about the transaction, and investigating material facts, the broker also has a duty to explain the implications of facts to his or her client. The broker is a licensed professional. The law assumes that he or she has more knowledge of real estate transactions, and real estate law, than does the client. Thus, the broker has a duty to explain to the client the implications of the facts, so that the client can make an informed decision.

In Alhino v. Starr (1980) 112 Cal. App. 3d 158, the buyer purchased the property, but did so in a number of ways that deviated from the norm and should have aroused concern. First, the purchase-money note was not secured by the property. Second, the buyer borrowed the down payment. Third, the purchase money note did not contain a number of the usual provisions, such as an acceleration clause (holding that the entire debt comes due when one payment is missed) and an attorney fee clause.

The seller’s broker knew all of this, but he did not disclose it or explain it to the seller. The Court of Appeal found the broker liable to the seller. Note that the knowledge, which the broker was assumed to have, and faulted for not passing on, was a mixture of business and legal understanding.

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