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Building Permit Disclosures Are Not Required for Real Estate Brokers

Updated on March 20, 2015

Building Permits Are a Buyer's Obligation

Real estate brokers are not liable for failing to tell buyers about building restrictions on land they purchase, a California federal court ruled recently.

The ruling shows how court interpretations of brokers’ disclosure requirements differ between cases. Some court rulings say brokers have broader disclosure responsibilities for government regulations.

The California case involved Coldwell Banker salesperson William Moss, who sold an undeveloped lot outside of Malibu to purchaser David Anderson. The purchase agreement warned the buyer in several places that he should determine his authority to use the lot for his intended purpose.

One clause in the agreement said the broker was not responsible for verifying any laws, ordinances, zoning, or governmental permits. It also said the buyer should investigate whether these matters affect Purchaser’s intended use of the Property.

While the buyer was planning to build on the lot, County of Los Angeles officials discovered the lot was illegally subdivided in 1956. They told the buyer that if he would purchase a second lot nearby and leave it undeveloped to mitigate the environmental impact, they would approve his building project.

The buyer could not afford to purchase a second lot. He sued the real estate brokerage.

He accused the broker of fraud for failing to disclose important facts about the property, including the zoning restrictions. Caldwell Banker filed a motion for summary judgment, which the court granted.

The court’s ruling said the broker could be sued for fraud only if he intentionally hid an important fact that the defendant was under a legal duty to disclose. The court said there was no evidence the real estate salesperson intentionally suppressed information.

In addition, the salesperson had no way of predicting the county would require the buyer to purchase a second lot and leave it undeveloped.

Brokers and their agents must conduct visual inspections of the properties and investigate all facts affecting their value and desirability, the court said. However, they do not need to inspect public records or permits.

Responsibility for building permit requirements

Should property buyers or real estate agents have the primary responsibility for finding out about building permits before a property is purchased?

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