Applying “Trust but Verify” in a Real Estate Transaction

 

“Trust but verify” is a Russian proverb made famous by former US President Ronald Reagan. In a typical real estate transaction, a great deal of information is exchanged.  When should a party “trust” and when should a party “verify”?   

The Arizona Department of Real Estate (ADRE) Commissioner’s Rule A.A.C R4-28-1101(I) requires that a real estate agent take reasonable steps to assist a client in verifying the accuracy of information relevant to the transaction.. The rule also requires reasonable care in obtaining information material to a client’s interests and relevant to the transaction and that an agent accurately communicates this information to the client.

 

The related ADRE Substantive Policy Statement (SPS) SPS 2005.13 clarifies the Commissioner’s Rule and states that an agent is expected to take reasonable steps to assist their client in verifying information when a reasonably prudent real estate professional has reason to question the accuracy of the information being provided, or where the client has questioned the accuracy of the information.   

 

Thus, the ADRE Commissioner’s Rule and SPS provide guidance on when a real estate agent should assist their client in verifying information.  For example, if the seller states that the roof is in excellent condition and only a roof inspector would have the expertise to determine otherwise, the broker should have no liability for merely passing along the seller’s representation.
 

However, if the seller states the roof is new and in excellent condition, but the agent has reason to believe that the roof is old and in a state of disrepair, evidenced by broken shingles and obvious water leaks, the agent should point out these circumstances to the buyer and recommend that the buyer obtain a professional roof inspection to verify the roof condition.

 

Similarly, if the buyer questions the accuracy of the seller’s representations or other information provided during the transaction, the same rule applies: the agent should assist the buyer in obtaining independent verification.  In other words, if the buyer asks about the roof’s condition, the agent should advise the buyer to have the roof inspected by a roofing expert to verify its condition.

Further, a listing agent can “trust” information provided by the seller, absent a “red flag” indicating the information is inaccurate.  The court made this clear in Aranki v. RKP Investments, Inc.,194 Ariz. 206, 979 P.2d 534 (App. 1999) when it held that the listing agent was not liable to the buyers for passing along information from the seller without proof that the listing broker knew or should have known that the information might be false. The listing broker had no duty to the buyer to verify the information provided by the seller because there was no indication that the information might be inaccurate.   

 

In conclusion, “trust” - but verify if there is any question or doubt.  You can “trust” information provided in a transaction if there are no “red flags,” but you must assist your client to “verify” information if you have any reason to doubt its accuracy or if the client has questions about the information.  In addition to referring the buyer to other professionals to verify information, provide the buyer with the resources such as the Buyer Advisory, so that the buyer can take an active role in the verification of information provided about the property being purchased.

 

 

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  8/25/22

 

Real Estate Tales from the Courtroom: The Designated Broker’s Initials

Does the Designated Broker’s Failure to Initial the Listing Agreement Prevent a Commission Claim?

The sellers owned a house in Chandler and signed a listing agreement with the listing agent to sell the house. When the house sold, the sellers refused to pay the $89,700.00 commission because the listing agent’s broker did not review and initial the listing agreement within ten business days as required by statute ARS 32-2151.01.G.   As might be expected, the agent filed a lawsuit against the sellers for the unpaid commission.    

As discussed in the article about the case of Young v. Rose, a court ruled that a real estate agent who does not sign a buyer’s broker employment or listing agreement may not sue to collect a commission under that agreement due to ARS 32-2151.02.  

However, this case addresses a different issue: whether an agent can sue to collect a commission under a listing agreement signed by the agent, but not initialed by the designated broker within ten business days after it was signed by the parties.  The court in this case decided that the agent was entitled to pursue the claim. 

The court stated that a designated broker's failure to initial the listing agreement within ten business days of the parties signing it as required by subsection ARS 32-2151.01.G “poses no impediment to a civil action for unpaid commissions.”  The statute requires a “licensed employing broker” to keep certain records and to exercise specified controls over the broker's trust fund account.  But the statute does not address an agent’s right to recover a commission. 

Of course, the Arizona Department of Real Estate (ADRE) may sanction a broker who fails to initial the listing agreement within ten days as required by statute.  But ARS 32-2151.01.G has a different purpose than ARS 32-2151.02. The statute requiring the broker’s initials (ARS 32-2151.01.G) is regulatory in nature and exposes the broker to sanctions by ADRE, but the statute does not affect the validity and enforceability of the listing agreement itself.

Therefore, the Court found that a designated broker’s failure to initial a listing agreement within ten business days of the parties signing it as required by statute posed no barrier to the agent’s lawsuit for the unpaid commissions. As a result, the listing agent was entitled to her commission under the listing agreement.

CK Family Irrevocable v. My Home, et al., 249 Ariz. 506

 

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  8/2/22