FAILURE TO INVESTIGATE

The broker’s duty to disclose information goes beyond information already in his or her possession. The broker must investigate facts, which are material to the transaction. The broker may not simply accept information received from others and pass it on to his or her client. The broker must either verify the information or tell his or her client that the information has not been verified.

In Ford v. Cournale, (1973) 36 Cal. App. 3d 172, the seller gave the buyer’s broker an income statement from the property. The broker passed it onto the client, without investigation. The statement overstated the income of the property; it assumed that the property was 100% occupied, which was not true. The statement also understated the expenses of the property. The Court of Appeal held that the broker had a duty to investigate the income statement; it held him liable for the damages to the buyer.

In Banville v. Schmidt(1974) 37 Cal. App. 3d 92, the seller’s agent told the seller that the buyer was “financially responsible” and that the security the buyer was giving for his promise to pay was adequate. In fact, the buyer was not financially stable, and the security he gave did not protect the seller. The Court of Appeal found the broker had been negligent in not further investigating the matter.

In George Ball Pacific, Inc. v. Coldwell Banker & Co., (1981) , 117 Cal. App. 3d 248, a buyer paid to buy property, only to discover that the seller did not own the property; the seller only leased the property. The broker had relied upon the general understanding of people in the area that the seller owned the property. The broker was found liable to his client for not investigating.

Share