Many real estate agents representing buyers or sellers encounter differences or discrepancies in a property’s square footage, which may vary greatly depending upon the source. Representations by a seller or a seller’s agent may differ from other sources because there may be no one official size source or a standard method of calculating exterior structural size, interior space, or square footage. To make matters more complicated, builders, appraisers, architects, floor-plan designers, and county assessors employ a wide variety of methods to calculate the size of a dwelling.
While understanding that many sellers wish to maximize the price of their home and that one of the components to maximize that price is square footage, the problem lies in what real estate agents should do when encountering such discrepancies. From a listing agent’s perspective, should the agent list the higher square footage, the lower square footage, or disclose both? From a buyer’s agent perspective, if there are discrepancies disclosed, then how should they advise their clients? The answers may seem clear. However, ambiguities occur because potential buyers rely upon the MLS, marketing materials, fliers, internet postings, and verbal representations of agents about square footage when deciding whether to purchase the property. When, during escrow or, most often, after the close of escrow, the buyer learns that the property may have a lower square footage than the buyer relied upon when making the purchase, disputes may arise.
Real estate professionals and most sellers know that they are required to disclose anything “material” relating to the property. In the case of disclosures, the seller's agent has obligations to both the buyer and the seller to exercise reasonable skill and care, as well as a duty of fair dealing and good faith, and a duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. (Civ. Code, § 2079, et. seq.; Easton v. Strassburger (1984) 152 Cal.App.3d 90, 102; see Robinson v. Grossman (1997) 57 Cal.App.4th 634, 640; Loken v. Century 21–Award Properties (1995) 36 Cal.App.4th 263, 269–270.)
If there are discrepancies in square footage, then they should be disclosed to any potential buyer. While this is good practice, a broker is not required to review public records or to pull permits to determine the precise square footage. (Code Civ. Proc., § 2079.3.) In the case of a selling or listing agent, there is no duty under Civil Code Section 2079 to verify independently or to disclaim the accuracy of the seller's representations, but, rather, to act in good faith and not to pass the seller's representations on to the buyer without a reasonable basis for believing them to be true. (Robinson v. Grossman, supra, 57 Cal.App.4th at p. 634.) Where a seller is pressuring an agent to promote and to market the higher square footage or it is ambiguous as to which calculation is correct, it may not be clear what to do.
The Statewide Buyer and Seller Advisory (“SBSA”), which may limit exposure for a seller’s agent, does require a buyer to investigate various conditions, including property square footage. (See, e.g., Robinson, supra, 57 Cal.App.4th at p. 644 (“it is incumbent upon the potential purchasers to investigate and make an informed decision based thereon”); Assilzadeh v. California Fed'l Bank, FSB (2000) 82 Cal.App.4th 399, 413.) The buyer’s agent also has a fiduciary duty of inspection and disclosure, as set forth in the Agent Visual Inspection Disclosure (“AVID”), which may be more expansive than a “cursory type of visual inspection”. In transmitting information from the seller (or others) to the buyer, the buyer's broker must either verify the information or disclose to the buyer that it has not been verified.
Dual agents have even higher duties to both the buyer and the seller. (See, e.g., William L. Lyon & Assocs., Inc. v. Super.Ct. (Henley) (2012) 204 Cal.App.4th 1294, 1311 (dual listing agent's failure to disclose material defects supported buyer's action for breach of fiduciary duty, fraud, negligence and negligent misrepresentation); Michel v. Palos Verdes Network Group, Inc. (2007) 156 Cal.App.4th 756, 762 (fiduciary's failure to disclose material information constitutes negligent misrepresentation and constructive fraud).)
The recent Horiike v. Coldwell Banker case, in which the agent representing the seller was working for the same firm as the agent representing the buyer, illustrates this point. In Hoiike, the public records listed the property at 11,050 square feet with 9,434 square feet of living area, while marketing fliers listed approximately 15,000 square feet of living areas. (Horiike v. Coldwell Banker (2016) 1 Cal.5th 1024, 1032.) The seller retained Coldwell Banker as the listing broker. (Id. at 1028.) The buyer retained another agent at Coldwell Banker. (Ibid.) The parties agreed that Coldwell Banker acted as a dual agent. (Id. at 1028-1029.) After discovering a discrepancy in the square footage after the close of escrow, the buyer filed suit against the listing broker and the associate licensee (salesperson) who marketed the property for Coldwell Banker (the listing broker). (Id. at 1029.) The trial court, in granting nonsuit, found in favor of the listing broker on the grounds that the salesperson did not have a fiduciary duty to the buyer. (Id. at 1034.) The court instructed the jury that it could find Coldwell Banker liable only if another agent of Coldwell Banker had breached his or her fiduciary duty to the buyer. (Ibid.) The jury returned a verdict in favor of Coldwell Banker on the remaining causes of action. (Ibid.)
In reversing, the Court of Appeals remanded the case, after which the defendants petitioned the Supreme Court for review. (Horiike v. Coldwell Banker, supra, 1 Cal.5th at p. 1035.) Upon granting review, the Supreme Court considered the issue of whether the associate licensee, who functioned on Coldwell Banker’s behalf in the transaction only on behalf of the seller, owed to the buyer a duty, where the buyer stipulated that he was not seeking damages for breach of fiduciary duty against his own agent (also employed by Coldwell Banker). (Ibid.) The trial court had instructed the jury that, in order to find Coldwell Banker liable for breach of fiduciary duty, the jury had to find that an agent of Coldwell Banker other than the salesperson named in the lawsuit, or the buyer’s agent (who was not named in the lawsuit), breached a fiduciary duty. (Id. at p. 1034.) In affirming the Court of Appeal, the Supreme Court ruled that, when an agent representing a seller is working for the same firm as the agent representing the buyer, he or she owes a duty to the buyer to learn and to disclose all facts materially affecting the value or desirability of the property. (Id. at p. 1038; 1042.)
The Supreme Court did not express a view as to whether, as a factual matter, the agent breached the fiduciary duty. (Horiike v. Coldwell Banker, supra, 1 Cal.5th at p. 1041.) Rather, the Court observed that, to disclose such information, or to alert the buyer that the representations were unverified, would not have required the agent to reveal any confidential information or compromise the ability to fulfill his fiduciary obligations. (Ibid.) The Court noted that the California Legislature could, like in Alaska, “uncouple” the associate licensee’s duties from that of the broker. (Ibid.)
Ultimately, the Court remanded the case to the trial court for a new trial on the issue of whether the buyer was prejudiced by the erroneous rulings on fiduciary duty. Coldwell Banker then prevailed after a twelve-day jury trial on all issues. Specifically, the jury answered “no” on the questions of whether Coldwell Banker breached the fiduciary duty, or misrepresented or concealed information, and concluded that no damages were owed.
The Horiike verdict and the Supreme Court’s decision present practical problems of dual agency in that agents may now have to consider whether, for example, disclosing to a buyer that a seller needs to sell quickly, or to a seller that a buyer must be in that particular house because it is the only one in the desired school district. While the decision was fact-specific and not appropriate for Demurrer or Non-Suit, it puts the question of whether the SBSA or other advisories provide protection. An appeal is possible, but unlikely.
The local San Diego case of Serochi v. Bosa Development California II, Inc., though not a published opinion, illustrates the potential for damages in square footage cases. Bosa involved a class action of downtown San Diego condominium owners against the builder, which resulted in a settlement totaling $16,250,000 after five years of intense litigation. The issue in Bosa was condominium square footage that was marketed in sales brochures using a “gross method” shown on the floor plans included in the brochures, which differed from the residential unit square footage derived from dimensions in the applicable condominium plan filed with the State of California Bureau of Real Estate for the actual “as-built” measurements of each residential unit. Like Horiike, the buyers filed suit for damages over the discrepancy in square footage. Bosa demonstrates that expert may have differing opinions over how to measure square footage, but the discrepancies should be disclosed. (See, e.g., Furla v. Jon Douglas Co. (1998) 65 Cal.App.4th 1069 (broker must disclose gross discrepancy); Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555) (broker must disclose minor discrepancy.)
Given these rulings, listing agents need to be cognizant of square footage discrepancies (whether from a seller’s own representations, property tax records, an appraisal, or any other professional opinion) and disclose them to the buyers in the AVID, as well as instruct their sellers to disclose them in the Transfer Disclosure Statement (“TDS”) or Seller Property Questionnaire (“SPQ”). Further, the listing agents should obtain written confirmation from their sellers of representations of square footage in the MLS, and obtain “Receipt for Reports” (“RFR”) from the buyer for any report or other written source of square footage. Finally, careful buyer’s and seller’s agents may require separate stand-alone disclosures and advisories regarding lot size and square footage. Even though the purchase price of a home may not be based entirely upon square footage, many buyers utilize it as a guide when assessing the value of a home. For this reason, listing agents should be advised to disclose all square footage discrepancies, and, if overly cautious, list the lower one on the MLS, with an explanation of any higher estimates. Buyer agents should confirm in writing that their buyers will inquire further, if a discrepancy is disclosed, with an expert. The result: the buyers will probably buy anyway!