Regulatory Affairs Case Study: Verify Before You List

– By Fred Moreno, Chief Deputy Legal Counsel

The buyer of residential property filed a complaint against the listing agent, who was also the owner of the subject property.

The listing agent purchased the property through his LLC with thoughts of renovating it and reselling it later.  Rather than renovating the property as he typically does, the listing agent decided to market the property “as is” and listed it for sale through his brokerage firm.  The property was advertised as being connected to city water and sewer and the square footage was listed as the exact amount noted in tax records with the disclaimer “Sqft is from tax records”. The Listing agent did not measure the subject property to determine the actual square footage and assumed that the subject property was connected to city sewer because it was located in the center of the city and was connected to city water.

A buyer purchased the property from the listing agent, and began renovations. After adding a bathroom, his team attempted to connect that part of the home to the existing sewer line.  However, after a week of digging all around the house, they discovered that the property was served by a septic system. In order to connect to the city sewer line, the buyer had to pay a connection fee of over $7k and wait one year for the city to run an extension line from the house to the street for an additional cost also of over $7k.

During the investigation, the firm and broker-in-charge were added as respondents due to the misrepresentation of the material fact regarding the septic system and the reliance upon tax records for the advertised square footage.  The buyer agent was also added as a respondent for her failure to discover these issues during her representation of the buyer. 

The Commission closed the case against the buyer agent and warned her that the statement on the listing of “Sqft is from tax records” should have been a red flag that the property was not measured.  Therefore, the buyer agent should have counseled her client and suggested that he have the property measured.  During the investigation, the listing agent, firm, and broker-in-charge have since come to a financial agreement with the buyer to address the issues. The Commission required the listing agent and broker-in-charge to also complete further education prior to closing the case against them. For further information, review the Commission’s “Residential Square Footage Guidelines” brochure. Moreover, it would be good practice to review a copy of the water and sewer utility bill prior to listing a property for sale to ensure your advertising is correct.