Do listing agents have a duty to discover the existence of a utility easement?

QUESTION: I represent a seller. After the property went under contract, the buyers obtained a survey which disclosed the existence of a utility easement which restricts the use of a portion of my client’s property. The buyers have elected to terminate the contract and have asked for a refund of their due diligence fee plus all of their expenses incurred during the due diligence process. They claim that they would not have signed the contract had they known of the existence of the easement. My seller did not tell me about the easement and I was unaware of its existence until the buyers informed me. Is the existence of a utility easement a material fact that I had a duty to discover and disclose?

ANSWER: The Real Estate Commission has identified several categories of facts that are considered material and must be disclosed to all parties. Those categories include facts about the property itself and facts that relate directly to the property. In the Commission’s words, the latter category includes “external factors that affect the use, desirability or value of a property such as a pending zoning change (and) the existence of restrictive covenants.” The existence of a utility easement which restricts the landowner’s use of the property falls squarely within this definition and is therefore a material fact that must be disclosed.

But what if an agent does not have actual knowledge of a material fact and, consequently, does not discover that fact? The duty of an agent is to be “reasonably prudent.” What does that mean? Keep in mind that the existence of easements is one of the many subjects covered in the Residential Property Disclosure Statement. Under the Residential Property Disclosure Act, real estate agents have a duty to inform their clients of their obligation to complete the disclosure statement. The Real Estate Commission expects licensees to do more than what is required by statute. Specifically, the Commission expects listing agents to assist their seller-clients in assessing the property and completing the form.

In our view, a reasonably prudent listing agent should have a discussion with each seller-client about each question on the Residential Property Disclosure Statement, and should therefore ask whether those clients are aware of the existence of any easements affecting the use of their property. Also, many listing agents make a practice of pulling the deed to verify property ownership before marketing the property for sale. We encourage listing agents to follow that practice, and to review the deed to see if it refers to any easements or other restrictions. In our view, if a listing agent asks their client the appropriate questions, reviews the deed, and has no other reason to believe that there is a utility easement in place (i.e. there are no “red flags”), that agent has done everything necessary to comply with the License Law.

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