Real Estate Broker Liable for Giving Erroneous Zoning Information to Buyer

This case involves a real estate buyer who wanted to buy a piece of property to use for a hair salon. An appraisal of the property reflected a valuation of $1,000,000. The listing agent told the buyer that the property was zoned “Business.” The listing agent represented on the Multiple Listing Service (MLS) and in the newspaper that the property was zoned “Business,” which would have allowed the buyer to put her hair salon there. The listing agent placed at the property copies of pages from the city’s zoning by-law that listed hair salons as “Permitted Business Uses,” in the business district. The property was actually zoned for residential use and not for business use. This meant that the buyer could not open a hair salon there. The seller had originally told the listing agent that the property was zoned “Residential Business.” The listing agent knew that no such zoning district existed in the city even though he went ahead and advertised the property as zoned “Business.” The seller had also personally observed houses–not businesses–adjoining the property on either side. The buyer sued the listing agent for misrepresentation.

Question(s) For Expert Witness

1. Does a listing agent owe a duty to a buyer to exercise reasonable care in making representations about a property’s zoning designation?

Expert Witness Response

In general, when a listing agent is relying upon information from a seller about the zoning designation of a piece of property, the determination of whether the listing agent’s reliance was reasonable is made by looking at the circumstances of the particular case. In a misrepresentation case involving real estate, a buyer must prove that a listing agent: (1) had a pecuniary interest in the transaction; (2) supplied false information for the guidance of the buyer; (3) that caused and resulted in a pecuniary loss by the buyer; (4) by the buyer’s justifiable reliance on the information; and (5) that the listing agent failed to exercise reasonable care or competence in obtaining or communicating the information. The listing agent’s reliance on the seller’s information, in this case, was probably unreasonable since he already knew that the property was probably zoned “Residential” because he had seen residential homes adjoining the property. This means that the listing agent was on notice that the seller’s information about the zoning designation was unreliable and he acted unreasonably in representing to the buyer that the property was zoned “Business” without conducting further investigation on his own. The listing agent was probably guilty of misrepresentation in this case because he made false representations in the newspaper, the MLS listings, and the zoning by-law placed at the property about the zoning designation.