The Danger of Disclaimers; A Follow-Up to As-Is Homes
Back in March, my article "As-Is Homes for Sale - Avoid a Lawsuit", pointing out that selling a home "as-is" doesn't alleviate or relieve sellers of legal liability nor their selling agent. As-is properties could be luxury homes, foreclosures, multi-family or even commercial or industrial real estate.
Realtor, Buyer and Seller Tips - Avoid Lawsuits
I wanted to provide some actual real life examples of how disclaimers can lead people (buyers or sellers) and even agents into a false sense of security. This example below which occurred back in 1988 is a perfect example. Here are more Realtor Tips, Buyer and Seller articles to help you.
The John Douglas Company was a large southern California company. In this case, the agent didn't measure the home, using instead a 5,500 sf figure supplied by the seller's daughter from the original architectural plans for the home. The listing contained the disclaimer "information deemed reliable but not guaranteed."
The form contract, which both the buyer and seller signed, contained a provision in which the broker disclaims responsibility for square footage among other things and indicated that the buyer could verify square footage by having a professional appraiser measure the property.
The contract also cited that the buyer had an independent duty, under California law, to use reasonable care to protect her concerning facts about the property within her observation. In some respects, disclaimers can be very misleading so you need to be very careful about them. Courts may or may not rely on disclaimers or may not even allow them. In this case, disclaimers could be characterized as risk avoidance, as opposed to risk management.
There is a famous 1837 case, Vaughan vs. Menlove that defines a standard of care as whether or not the individual proceeded with such reasonable caution as a prudent man would have exercised under such circumstances. Here again we see that the concepts of reasonableness and prudence are important. Someone who is not acting reasonably and prudently may be considered negligent. It is a degree of recklessness.
In certain industries and professions, "standard of care" is determined by the standard that would be exercised by the reasonably prudent professional in that line of work. This means that you may actually have to act at a higher level than a reasonably prudent person would have to act that was not in that particular profession or that type of specialty. A lay person's prudent acts may not meet the level of prudence that a professional would practice. Source: Wikipedia.
Case Study on the Dangers of Real Estate Disclaimers
Furla v. John Douglas Company, California Court of Appeals (1988) Source: Bridgfordlaw.com
The John Douglas Company was a large southern California company. In this case, the agent did not measure the home, using instead a 5,500 sf figure supplied by the seller's daughter from the architectural plans used to build the home.
- The listing contained the disclaimer "information deemed reliable but not guaranteed." The form contract, which both the buyer and seller signed, contained a provision in which the broker disclaims responsibility for square footage among other things and indicated that the buyer could verify square footage by having a professional appraiser measure the property.
- The contract also cited that the buyer had an independent duty, under California law, to use reasonable care to protect her concerning facts about the property within her observation. In some respects, disclaimers can lull people into a false sense of security, so you need to be very careful about them. Courts may or may not rely on disclaimers or may not even allow them. In this case, disclaimers could be characterized as risk avoidance, as opposed to risk management.
- The issue was that the buyer did not receive a copy of the appraisal that was done in connection with his loan. According to the appraisal, the home was 4,300 square feet. The buyer learned the actual size of the home when he decided to list it for sale a few years later.
The homeowner sued the seller and seller's agents on claims of misrepresentation and negligence. The trial court granted summary judgment in favor of the defendant (real estate professionals and their client). On appeal, the trial court was reversed because there had been disputed factual issues which would have precluded summary judgment. Summary judgments are done when there is no dispute as to the facts. When a case is reversed on summary judgment, it does not necessarily mean someone was right or someone was wrong. All it says is that there are disputed facts and therefore must go to the trial court again. In this case it was remanded to the trial court to conduct further proceedings consistent with California law as stated in the opinion.
The trial court was instructed to apply the following law:
A buyer is entitled to rely on a seller's representations concerning the property being sold and is not required to hire an expert to discover the falsity of the seller's representations. In this specific case, the broker may have been unreasonable to rely on those disclaimers to protect himself; the court said that the buyer did have a duty to protect himself concerning issues that were obvious and patent. But whether he failed in that duty would have to be determined by the trier of fact after contemplating all of the presented evidence.
The defendants insisted the square footage figure in the listing had been intended as an approximation, not actual figures to be relied on.
The court wasn't impressed with that argument. They said an approximation is "a little more or less," citing the 5,500 square footage figure as a wild exaggeration and grossly inaccurate. Do not place reliance on disclaimers - they may or may not help you and can actually harm your situation.
- If an agent is writing clauses and contingencies, they should: write it down on a legal pad first, not on the document. It can be revised later before putting it on the formal document; and ask a second person if they can tell what it is that the parties are trying to accomplish by the clause.
- This is a good way to complete documents and if it is done up front, it avoids having to go back and fix it later. The broker should also examine the supporting documents to determine what information they contain and whether they need to be discussed with clients in their decision making process.
- Management file review is a good practice whether required by law or not. This doesn't mean just looking for the blanks and signing them; it means thoroughly reviewing them. Two sets of eyes are always better than one. Watch spelling and grammar - You can dramatically change the intent of a sentence in a clause with a comma. A good risk management policy if you write a transaction is to have another qualified associate review and sign it. Go to your manager, an ounce of humility goes a very long way.
Again, when dealing with "As-Is-Real-Estate" of any type with disclaimers, extra caution is warranted.
If you're buying or selling an as-is home in SW Ohio, my business partner Marty Snyder is adept with these transactions and circumstances and in the top 5% of Ohio Realtors