By Chad Wenzelspratt, Lee Santos
E&O Case Study: When the Well Water Isn’t Enough
A real estate agent listed a home that received its water supply from a well. According to the listing agent, the seller claimed that the well produced an adequate water supply and had no problems with water quality. The buyer was interested in purchasing the residential property for his family, but had concerns about the well.
The buyer’s agent passed this information on to the buyer. However, the buyer’s family was much larger than the seller’s.
After taking possession of the property, the buyer quickly discovered the water production from the well could not support increased consumption from bathing and laundry. The water production diminished, and the buyer had to drill another well.
The listing agent assumed he knew the buyer’s needs. He failed to consider the size of the buyer’s family and should have recommended the buyer have the well independently tested.
The buyer filed suit against the listing agent and the seller. An independent test of the well and the water determined that there was an elevated level of bacteria in the water.
A new well was drilled, and the buyer eventually settled with the seller and agent for $20,000, plus attorney fees.
How to reduce your risk
In making representations based on assumptions, you may be putting yourself at risk for litigation if your representations are perceived as being untruthful at a later time.
If water production tests yield certain gallons per minute, that should be represented. Always recommend the buyer hire an independent source to verify the information, and document your recommendations. This will go a long way in removing any perception of deceit and also transfer the risk of litigation to another party. Additionally, a well inspection may lead to the detection of other environmental hazards, such as underground storage tanks.
As in this case, contaminated water can involve significant expenditure if clean water has to be delivered to maintain the property’s legal occupancy.
Chad Wenzelspratt, CIC, is a senior account executive for Pearl Insurance, a TAR errors and omissions risk-management partner. Lee Santos is senior claim specialist-director account management at XL Catlin.
One of our local board forms specifically addresses this sort of thing. It very clearly states that brokers are NOT inspectors and questions about the property and it’s condition should be addressed with a licensed inspector.
That’s a useful form. The only problem is it doesn’t help if you make a “representation” about the property that turns out not to be true.
Why is the buyer’s agent off the hook in this scenario? The information was passed along to the buyer, but the seller and the listing agent are at fault and settled for $20,000 + attorney fees? Do I not understand “Buyer Representation”?
The seller and listing agent were the ones who made the representation which the buyer relied on. We don’t know whether the buyer’s agent advised getting an independent test but even if not, it’s the buyer’s choice whether to include their agent in a suit. In this case it seems they did not, and nobody else has the right to do so.
I agree with Norman. What in the world is a buyer’s agent doing if not protecting the interests of their client and performing their due diligence? That’s their job! In my opinion, the buyer’s agent is at fault here. Unfortunately, I’ve seen too many instances where buyer’s agents perform their duties in a very minimal way.
do you know what that representation actually was? Assuming the Seller honestly disclosed what they knew about the past and current conditions of the property, what is the material misrepresentation? Obviously there is a lot missing here. You don’t believe there is a duty for the Seller and Seller Broker to advise a Buyer (with a larger or smaller family) that the home may not be appropriate for them, based on the amount of space, number of bedrooms and bathrooms etc? Could that be a potential fair housing violation. What about the size,age, unknown conditions of the Onsite Sewer Facility.… Read more »
Join the discussion We see that in some instances buyer’s agents are not sought after by the buyer’s making claims due to personal relationships or contrite on the buyer’s part. However, once in litigation surrounding circumstances as noted here buyer’s agents are often brought into the case via cross/counter claims and/or amendments to the pleadings.
Join the discussion In this instance the buyer’s agent may not have had the resources to contribute to the resolution and economically the matter resolved as such. Agreed some liability exposure would rest on the buyer’s agent.
Whenever a property has a well or a septic system I always have my buyer get them inspected. It does cost the buyer more money but, it has paid off more then once.
What was the actual representation from the Seller/ Listing Broker to the Buyer’s Broker/ Buyer? Was it written and/or verbal? Was it part of the Seller Disclosure? Did the Seller or Listing Broker claim something in addition to what may or may not have been disclosed in the Seller Disclosure documents? Did the Seller represent that the water supply on the property was adequate and safe (in other words, what the Seller was aware of as the owner of the property, and required by state law), assuming they were not lying about what claimed they knew, WHAT was the material… Read more »
What ever happened to buyer responsibility….not just agents. The seller was not a well expert and he and his agent should not be held responsible for something they knew nothing about. The buyer having discovered the issue does not reduce the consumption but rather sues and gets a new well.
CA real estate law, here we come!
Did E&O insurance cover the settlement amount for the seller and/or seller’s agent?
Thanks for the tip about hiring an independent source to verify the water levels. My husband and I are looking to buy a new home this year. We’re thinking about buying a home that has a water well so we can get high-quality drinking water.