Buyer Agency as we know it today exists, in part, because ofphysically unstable Californian real estate. In May of 1976, Leticia Easton bought a house in the city of Diablo, California. It was a sweet house, with a swimming pool and guest house and improved 3,000 square foot home [total sale price — $170,000. It was a different time]. Back in this time, there were no Buyer Agents, rather, the listing agent would hire a subagent and assign them to the Buyers. The Buyers would then have a seller’s subagent running them through the contract provisions and such, functionally just scribing for the Buyer. Anyways, the Seller Agent+subagent had done several inspections and were aware of “red flags” [netting on the slopes, uneven floors, a retaining wall under construction near the guest house] but did not think to look more deeply into those issues nor did they request official testing for soil stability or inform Ms. Easton of the concerning signs. A landslide shortly after thepurchase caused $20,000 in damage and remediation efforts would have cost another $213,000. The landslide was caused by poor compaction and poor engineering of the property. Theprevious owner, Strassburger, knew about a minor slide in 1973 but didn’t tell the agents. Easton sued and claimed that the agents owed her a duty of care, but the agents argued that there was no duty to prevent injury to the Buyer, and that a reasonable diligence test of a seller’s agent would normally ask the agent to look into desirability and such and would not normally lead a broker to inquire into soil stability. Basically – that looking into the safety of the property was a Buyer thing, and therefore they were not required to do it.
Several dozen pages of legal jargon later, the court came to the conclusion that competent brokers had a duty to conduct diligent inspections and disclose material facts, but that the brokers could be held liable for negligent disclosure only under rather tortured analysis of previous fraud cases. The resulting court order was ambiguous and vaguely worded, creating absolute uncertainty as to what was required of a broker beyond the need for them to conduct a “reasonably competent and diligent inspection.” One interpretation of the outcome was that it imposed an inspection and disclosure requirement on the broker representing the seller, but not on the subagent. Another interpretation was that it mandated the broker to act as a professional inspector and that the broker could be punished for failure to provide adequate, professional understanding of the inspection report [i.e. the broker could be held liable if they failed to notice cracked shingles or to inspect the soil for stability issues]. Nonetheless, the Realtors® in the Easton case were held liable for failure to disclose a reasonably discoverable defect through their failure to notify Easton about clear issues that would have tipped off a reasonably prudent person about stability problems.
To fix the muddle of judicial uncertainty, California’s legislature enacted a bill in 1986 that clarified the duties of an agent. In particular, the bill settled the court’s uncertainty and affirmatively stated that the inspection was the purchaser’s duty. For all intents and purposes, the bill created a requirement that the listing agent conduct a diligent visual inspection of the property and disclose material facts they found, but that there was no imposition of a requirement that the seller’s broker do deeper or further inspections. Real estate licensees would only be held to a standard of understanding and training representative of a “reasonably prudent real estate licensee exercising the degree of knowledge, experience, and examination required to obtain a license.” Other states followed in suit shortly thereafter and passed similar bills. “Buyer Beware” became the law of the land by the late 1980s. As a result, the industry started to slowly roll out the concept of Buyer Agency, to allow Buyers their exclusive representation in light of the Seller Agent protections ensconced in the law.
Unsurprisingly, the story doesn’t end there. A 1993 class action settlement in Minnesota over the dual agency disclosures in a Seller Agent+Subagent transaction resulted in a brokerage paying out over $18.2 million. [the question was whether the seller agent+subagent party needed to provide absolute disclosures about their role and duties in the representation and about the risks that Buyer’s confidential information could be used by the Seller] The lawsuit ignited a 5-alarm fire in the industry and pressed brokerages around the United States to reconsider the vulnerabilities of Seller Agents operating within dual agency settings without adequate disclosure to the client as to the nature of the agency relationship. A pressure campaign by Realtor® Associations led to passage of reform laws that clarified the Seller Agent’s duties and created the Buyer Agent’s duties. What began as an experiment after Easton v. Strassburger turned into the industry norm by the mid-1990s.
At the core of the current lawsuit and settlement is this history: that Buyer Agency was once an outgrowth of Seller Agency, suddenly born into the world by legal necessity, however its genetic legacy cannot be denied – Buyer Agency has its basis in Seller Agency. Change is hard, especially when trying to change a 40-year legacy, but change is simply a truth of real estate.