For How Long do Real Estate Agents Owe Duties to their Clients?
According to the laws regulating real estate licensees in Virginia, at least two of the duties of a real estate salesperson last indefinitely. These are the agent’s duty to account for all money and property received from the client during the relationship, Va. Code § 54.1-2137(C) (i), and the duty to keep confidential all personal and financial information received from the client. Va. Code § 54.1-2137(C)(ii). There is also a requirement to keep certain records for three years after the transaction. See Va. Code § 54.1-2110.1
But most civil lawsuits against real estate agents allege that a real estate agent failed to warn the buyer about problems with the physical condition of the property. Even when an agent represents the seller rather than the buyer, the law requires him or her to “disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known to the licensee.” Va. Code § 54.1-2131(B). Another question is: how long this duty lasts? Does the agent who learns of a physical problem with the property have a duty to warn the buyer if the agent does not learn about the problem until after the signing of the contract? What if the agent does not learn about the problem until after settlement?
Before answering these questions, agents should know that the answer might depend on the text of the specific listing agreement or buyer-broker agreement signed by the client. The statutory duties of real estate agents and prior court decisions interpreting an agent’s common law duties often provide default rules which the parties are free to modify by agreement. Assuming that the agreement is silent on the subject of a termination date or that the agreement ends upon “performance” – the term used in the statutes defining an agent’s duties – then the answer to whether the agent’s duty to warn extends beyond the date of the signing of the contract may depend on whether a fifty-year-old decision of the Virginia Supreme Court has been overruled by more recent legislation.
In Olson v. Brickles, 203 Va. 447, 452 (1962), the owners of a motel engaged a real estate agent to help them sell it, and the agent helped them negotiate a lease agreement under which the lessees had an option to buy the motel. Olson, 203 Va. at 449. Between the time of the signing of the lease agreement and the lessees’ decision to exercise their option to buy, the defendant agent, without the sellers’ knowledge, advertised the motel for resale on behalf of the eventual buyers. Id. at 450. The Court rejected the sellers’ argument that the agent breached his fiduciary duty to the sellers, recognizing that the agent had completed his contract of employment at the time of the signing of the agreement. “After termination of agency for one person, a broker may act for another adversely interested without breach of trust as to the former.” Id. at 452 (quoting 12 C.J.S., Brokers, § 43, p. 106).
Olson was most recently cited for this proposition by the Richmond Circuit in Bosher v. Hometown Realty Servs., 47 Va. Cir. 1, 2 (Richmond 1998) (“Where a real estate broker is engaged by the seller to obtain a buyer for certain property, the principal-agent relationship terminates at the time the seller executes a binding contract for the sale of the property.”). According to Olson, a real estate agent should not be liable for negligence for any of the agent’s acts or omissions which occurred after the parties signed the contract for the sale of the property. Since the agent can be liable for negligence if he or she owed a duty to the buyer, the buyer should not be able to sue an agent for something that happened after the completion of the agent’s duties. An important exception is that the agent must not do anything to interfere with the original transaction or its closing.
But lawyers who intend to rely on this argument should be aware of a potential attack on Olson. According to this argument Olson was overruled when the Legislature codified certain statutory duties of real estate agents. Va. Code § 54.1-2131(A)(2)(d) requires an agent assisting the seller to provide “reasonable assistance to the seller to satisfy seller’s contract obligations and to facilitate settlement of the purchase contract” which would obviously come after the signing of the purchase contract. Va. Code § 54.1-2132(A)(2)(d) includes a parallel provision which applies to agents assisting buyers. Because the Legislature clearly imposed duties on real estate agents which can only be fulfilled after the signing of the sales contract, the argument continues, Olson v. Brickles may no longer be good law.
This argument is difficult to answer if the plaintiffs complain that the agent did something to interfere with settlement. But remember that the common law is abrogated by the statutory duties of agents only “to the extent inconsistent with this article”, Va. Code § 54.1- 2144 which gives the agent’s lawyer a good argument that any alleged negligence which occurred after the signing of the sales contract violated no duty to the plaintiff unless the agent actively did something to interfere with settlement. This interpretation harmonizes the agent’s statutory duties and Olson v. Brickles, suggesting that the case has been modified, but not overruled, by subsequent statutory enactments.