Caveat Emptor: Buyer Beware Revisited

On July 9, 2021 we posted an article citing two court rulings that determined that the buyers were remiss with respect to their responsibility under New York Law to exercise reasonable care when purchasing a property: “Caveat emptor.” Buyer beware.

In this article we look at a  New York Richmond County case, William McDermott v. Related Assets, September 16, 2014, which provides a more nuanced application of this legal theory.

The buyer, McDermott, filed a claim against the real estate broker, Related Assets, alleging that owing to Related improperly listing the premises as having city sewers when it did not, the buyer was forced to incur the cost of installing a sewer line after taking title to the property.

The buyer testified that he was induced to look at and eventually purchase the property because the house was listed as having city sewers. Related was the broker with whom the property was listed, and also the broker who brought about the sale. The buyer asserted that after he closed on the house he learned that the property did not connect to city sewers but in fact had a septic tank, and that he was required to spend $4,200 to connect to the city line in the street.

The broker admitted taking the listing with the notation that the property did connect to the city system but relied upon the seller for all information concerning the sewer system.

The court detailed numerous reasons why the buyer could have known that the property was not connected to the city’s sewer system, including a check of the public records as required under the doctrine of caveat emptor. The court went on to say that the Counsel for the broker cited several cases holding that New York follows the rule of “caveat emptor,” let the buyer beware, and argued the buyer should be charged with knowledge of any facts which the buyer could have obtained using reasonable means of inquiry and therefore the seller has no liability.

The court contended that the legal theory does not apply to the facts in this case. The buyer is not suing the seller for making misrepresentations as to the existence of sewers. He is suing the listing broker for failure to use due diligence in checking the information being provided by the seller from the easily accessible on-line public record.  The court went on to say, had the broker acted as a “professional” and checked out the public records, the listing would have been corrected and the buyer would not have even looked at the house, according to his testimony. It added, the actions of the broker set the improper information ball rolling and as such the broker must bear the bulk of the responsibility.

The court said: “The Real; Property Law requires an applicant [broker] to show “trustworthiness” and the “competency to transact business of real estate brokers in such a manner as to safeguard the interests of the public.” It added, quoting from a section of the Real Property Law, “disclose all facts known to the agent materially affecting the value or desirability of property except as otherwise provided by law.”

The court ordered the broker to pay the buyer $4,200, the cost of hooking the premises into the sewer line, with interest from the date of the decision, costs, and disbursements.

In a recent New York State Association of Realtors publication, NYSAR General Counsel, Anthony Gatto and Associate Counsel, Liz Celeone, reference this case as one that supports the opinion of the Department of State that “a broker who fails to demonstrate a working knowledge of the property being marketed fails to demonstrate the level of competency required to transact business as a licensee in violation of NYRPL S:S: 441 and 441-c.”

Comment: The broad authority of the DOS to regulate and discipline real estate agents granted to it by the State Legislature is recognized in the decision of New York’s highest court, the Court of Appeals, David C. Gold v. John P. Lomenzo, Secretary of State, February 9, 1972.