Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

Court Narrows Broker Fiduciary Duties in Malibu Home Dispute- Quick Read

In Larry Wade v. Windstar Investments, LLC, the Los Angeles County Superior Court clarified the limits of a real estate broker’s fiduciary and disclosure obligations. Wade purchased a $3.4 million Malibu property that later proved uninhabitable due to unpermitted construction. He sued the seller and Sotheby’s International Realty, alleging negligence and breach of fiduciary duty for failing to disclose the defects.

by Dan J. Harkey

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The Ruling

The court’s decision, which granted summary judgment in favor of Sotheby’s and dismissed Wade’s claims, underscores a critical principle in California real estate Law: brokers are not guarantors of property condition.  Their duties hinge on what they know or should reasonably know, not on exhaustive investigations.  This ruling, in its fairness, upholds the balance of the legal system and provides reassurance to all parties involved, demonstrating the court’s commitment to maintaining its integrity.

Key findings:

  • No Actual Knowledge: Sotheby’s had no evidence of unpermitted work and no red flags that would trigger further inquiry.
  • Limited Disclosure Duty: Under California Civil Code §2079, brokers must conduct a “reasonably competent and diligent visual inspection” and disclose material facts that such an inspection would reveal.  They are not required to uncover hidden defects in the absence of warning signs.
  • Fiduciary Duty Boundaries: California Civil Code §2295 defines a fiduciary as one who undertakes to act on behalf of another in matters of trust.  The court found no evidence that Sotheby’s breached this duty through concealment or misrepresentation.

Why It Matters

This ruling narrows the interpretation of fiduciary duty for brokers in California, reinforcing that:

  • Brokers are advisors, not insurers.
  • Buyers bear responsibility for due diligence, including inspections and permit checks.
  • Courts will not impose liability for unknown, latent defects when brokers act in accordance with standard practice.

Lessons Learned

  • For Brokers:

    • Document all disclosures thoroughly.
    • Encourage buyers to obtain independent inspections and permit reviews.
    • Avoid making assumptions—stick to verifiable facts.

  • For Buyers:

    • Never rely solely on broker representations.
    • Hire qualified inspectors and review city permit records before closing.
    • Treat due diligence as your responsibility, not the broker’s safety net.

  • For Attorneys:

    • Cite Civil Code §2079 for disclosure duties and §2295 for fiduciary obligations.
    • Use this case to illustrate the line between fiduciary duty and buyer responsibility in luxury transactions.

The Bigger Picture

California Law imposes high standards on brokers, but this case confirms that those standards are reasonable, not absolute.  Brokers must act honestly and disclose known material facts, yet they are not expected to uncover every hidden defect.  For buyers, the lesson is clear: trust but verify.