Can a Buyer or Seller Sue her Real Estate Agent? Yes, But…

Two years ago, the Washington Supreme Court issued a ruling in the case of Alejandre v. Bull, 159 Wn.2d 674, that dramatically changed the legal landscape surrounding the purchase and sale of residential property. At the time, everyone quickly realized how this case changed the relationship between the buyer and seller in regards to an allegedly undisclosed defect in the property.  Specifically, this case relieves the seller from liability associated with a negligent failure to disclose a defect. Moreover, and as reflected by the link, many people realized that with this change buyers might be more likely to sue their agents because they no longer had a claim against the seller, and an undisclosed defect (such as a problem with the septic system as in Alejandre) can be very expensive.

What people did not realize was the fact that this case arguably prohibits a buyer from suing the agent as well. As explained in detail in Alejandre, where one party to a contract sues another party seeking “economic losses” only (financial losses unassociated with injury to person or damage to property), then the person seeking compensation is limited to the claims and remedies set forth in the contract. So in the context of a real estate transaction, a buyer can not automatically sue the seller for negligence in failing to disclose a defect, but instead can only sue the seller if the contract allows the buyer to make such a claim. A subsequent case (Carlile v. Harbour Homes, Inc., 147 Wn.App. 193 (2008)) has even expanded the economic loss rule to also bar claims of intentional misrepresentation.

With the passage of time, the virtually unlimited potential of Alejandre has become apparent. After all, when a buyer hires an agent to assist with a property transaction, the buyer and agent are in a contractual relationship (even if only an oral contract). If the buyer were to sue his agent because the agent failed to disclose a known defect (or for almost any other reason, for that matter), then the buyer would be suing the agent under the contract for economic losses only. In that instance, and based on the expansive reasoning of the Court in Alejandre, the buyer’s claim would be barred by the economic loss rule.

It seems likely that the Court in Alejandre did not intend for its ruling to be applied as broadly as otherwise indicated by the decision. Otherwise, virtually every claim of professional malpractice, whether by lawyers, accountants, agents, etc., would be barred by the economic loss rule.

A recent case, Jackowski v. Borchelt, has given some hope to those who believe the Court did not intend such a result. In that case, the defendant agent argued that the buyers’ claim against him was barred by the economic loss rule. In deciding otherwise, the Court noted the implicit limitation to the economic loss rule as set forth by Alejandre:

We are not willing at this time to expand our Supreme Court’s holding in Alejandre to preclude all recovery for economic loss against professional agents, as to do so would be to abrogate professional malpractice claims for all cases not involving physical harm. We do not believe this to the Alejandre court’s intention.

So, there is at least some indication that claims against agents are not barred by the economic loss rule, notwithstanding the broad language of Alejandre. The issue is far from settled however. Thus, it is more important than ever that buyers fully investigate the property they want to buy. After all, the best way to deal with this issue is to avoid the problem entirely by making sure all defects are known prior to closing.

Posted by Marc Holmes

Residential Real Estate Lawyer Marc HolmesMarc Holmes is an attorney in Seattle with a practice focused on residential real estate. In 2009 he merged his life-long passion for real estate with his law practice to create WaLaw Realty. WaLaw is a new and unique model that combines legal representation with the services of a real estate agent while charging much less than a traditional agent. Marc blogs when he has a chance.

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