In 2013, the Massachusetts Supreme Judicial Court issued
its most recent decision concerning the liability of real estate
brokers for providing inaccurate information to a Buyer in
the sale of real property. In DeWolfe v. Hingham Centre, Ltd.,
464 Mass. 795 (2013), the Massachusetts Supreme Judicial
Court (“SJC”) held that a broker may be liable for disclosing
inaccurate information provided by a Seller – even if the broker
did not know it was inaccurate.
The relevant facts in DeWolfe are that the Seller of a property
in Norwell, MA, informed his listing broker, Hingham Centre,
Ltd., that the property was zoned for “Residential Business B”
or “Business B.” Relying on this information, Hingham Centre,
Ltd., advertised the property as being zoned for “Business B.”
Daniel DeWolfe (“DeWolfe”) purchased the property with the
intention of operating a hair salon on the premises. However,
the zoning information ultimately proved to be false as the
property was not actually zoned for business at all. Thus, after
purchasing the property, DeWolfe found that he was unable to
operate a hair salon on the property.
When DeWolfe sued the selling broker for misrepresentation,
the trial court made a definitive ruling of the law (“summary
judgment”) in favor of the broker, Hingham Centre, Ltd. The
trial court held that, as a matter of law, the broker cannot
be found liable because the broker relied upon information
provided by the Seller. Thus, the case against Hingham
Centre, Ltd., never reached a jury. DeWolfe appealed the
trial court’s decision, and the SJC issued its ruling in favor
of DeWolfe’s appeal. In its ruling, the SJC held that a broker
may rely on Seller-provided information only where “it is
reasonable in the circumstances” to do so. But where such
reliance is unreasonable, a broker may be found liable for
misrepresentation.
It is important to note that the SJC did not find the broker
definitively liable in DeWolfe. Rather, the DeWolfe court simply
ruled that a broker cannot escape liability simply by relying
on Seller-provided information. The SJC held that the trial
courts must examine each case on the basis of its own facts
to determine whether the broker’s reliance was reasonable
under the circumstances. The court in DeWolfe noted that
the property was surrounded by only residential properties
and that “Residential Business B” was a not an actual zoning
classification in Norwell. Thus, the court felt that a jury
certainly could find that the broker acted unreasonably in
relying upon the Seller’s information (which determination is
a finding of fact to be decided at trial by a judge or jury). As
such, the SJC sent the case back to the trial court for a factual
determination on whether the broker was unreasonable in
failing to verify the Seller’s information.
SO WHAT CAN WE LEARN FROM THIS CASE?
- Real Estate Brokers – The DeWolfe ruling does not represent
a dramatic shift in the law concerning broker liability.
Rather, it serves as the SJC’s written confirmation that real
estate brokers have always been required to act reasonably
in relying on Seller-provided information when marketing
a property. However, with this recent decision in place, real
estate brokers must be more diligent than ever in verifying
information provided to them by Sellers. Certainly, DeWolfe
seems like a relatively obvious case. The zoning was a critical
aspect of the sale, and the zoning information was easily
verifiable through public records. This was a representation
that should have been verified by the broker in light of the
residential nature of the surrounding area. But, there is
no bright line test for “reasonable” conduct. It is a factual
determination that may be different in each case. Thus, I
would recommend the following:
(a) Verify any information that is publicly available (e.g.,
zoning, permits, taxes).
(b) If an aspect of the property is particularly important to
the sale, but the information is not publicly available, ask
the Seller for verification of the asserted fact.
(c) Trust your instincts. If a representation seems
inconsistent with what you see, do not accept it as true.
Ask for more information.
(d) Use indemnity language. The law does not prohibit a
broker from requiring a Seller to indemnify the broker
for inaccurate information provided by the Seller. Is
your office having the Seller execute an agreement
indemnifying you for inaccurate information? Does
your listing agreement provide indemnity for false
information? Review the language that your office is
using, and see if it protects you.
- Buyers – Notably, the SJC in DeWolfe did not discuss the
fact that the zoning information could have been very
easily verified by the Buyer at Town Hall. And whereas the
zoning classification was essential to DeWolfe’s purchase,
it is difficult to see why he did not verify this information.
Although the ability of the Buyer to verify information
through public records has been used as a defense in other
cases, the SJC makes no reference to this potential defense
in DeWolfe. Thus, going forward after DeWolfe, it does not
appear to be an effective defense. But I would argue that it
remains a factor for a trial court to consider. Always do your
own due diligence. Do not rely on the Seller or the Seller’s
broker for critical information about a property. - Sellers – Except in certain statutorily required situations
(e.g., lead paint), Sellers are not obligated to disclose any
defects about a real property. The DeWolfe ruling did not
change the fact that Massachusetts is a “caveat emptor” (or
“let the Buyer beware”) state in regard to real estate. But
if you do represent any information as a Seller, you must
speak accurately and cannot speak in half-truths. Make
sure that your broker has verified important representations
about your property. You may be liable for your broker’s
representations, even if they did not come from you.