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Limiting Disclosures to Identification of Defects as Opposed to Diagnosis

Type Matter:  Limiting Disclosures to Identification of Defects as opposed to Diagnosis
Issue:  Does a Broker create greater risk by diagnosing defects as opposed to simply identifying such defects.
Answer:  Yes

Facts:  Approximately two years after a major earthquake, a property is listed for sale.  In her AVID, the Listing Broker states “Cracks in the driveway caused by earthquake.” Buyer agrees to go forward with the purchase of the property after reviewing the AVID and TDS. A year later, after repairing the cracks, they reemerge. It turns out there was a soil problem which was a primary cause for the cracks in the driveway. Buyer sues Listing Broker stating she would not have purchased the property had she known the cracks were based upon soil problems.

Results:  The matter was ultimately settled to avoid a likely successful claim by Buyer. The settlement was for the agreed upon amount to treat the soil problem and replace the driveway.

Lesson:  Brokers should not diagnose problems, but rather simply identify the issues and advise Buyers to have the cause, severity and other such issues evaluated by an appropriate expert. When the Brokers diagnose defects, they will be held to the standard of care of an expert in related area. In this case a structural engineer and soils expert.

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