Warning to Real Estate Agents:
Be Careful About What You Say About Remodeling
Moore v Teed is a new San Francisco appellate decision arising from the sale of a home on Green Street in 2010 for $4.8 million, which is an important warning to real estate agents to stay in your lane. The real estate agent advertised himself as a former construction contractor with extensive experience successfully completing high-end luxury remodels. He showed Moore several of those remodels. In promoting the home, Teed represented to Moore that Moore could add a basement cinema and wine cellar, and remodel some of the upper rooms, using Teed’s contractors and designers, for $900,000.00. Don’t do that!
Lots of buyers want a house which is not available. They are going to have to buy a different house and remodel it to make it their dream home. As an experienced agent, you have probably sold houses that the buyers radically remodeled. You probably know architects and contractors who have accomplished such jobs. As a new agent, you may be part of a team with members who have those contacts. Make the introductions? Sure. Schedule the interviews? That’s helpful.
Get involved in the design? No. Get involved in prices? No. Schedule the different contractors’ work? No. Inspect their work? No.
Managing construction requires a contractors license. The penalty for providing services which require a contractors license, without having the required license, is that you cannot collect any compensation from the owner, and the owner can get back all compensation she paid you. That includes the cost of fixtures, appliances and materials installed, and all the labor. It can also include your real estate commission.
In Moore v. Teed, the first bad thing that happened after closing, was that the bids came in at $1.6 million, and that was without the architectural and engineering work required to obtain permits. Next, Teed’s chosen contractor did such a bad job on the new foundation under the house to make room for the cinema and wine cellar, that the work had to be completely torn out and done over.
The Moore v. Teed appellate decision stands for the rule that a fiduciary who commits fraud, and all real estate agents are fiduciaries for their clients, is liable to her client for not only the out-of-pocket loss, but also for the benefit-of-the-bargain losses. There was and remains a conflict between decisions by different appellate districts across the state regarding benefit-of-the-bargain damages for real estate fraud. For here in the San Francisco Bay Area, the rule is that such damages can be recovered against a real estate agent or broker.
When selling a home to buyers who are going to remodel, do not tell them how much it will cost. As part of the due diligence, get a licensed contractor to tell your clients what they can do and what it might cost.
Sack Rosendin, LLP