· Agents are not negligent in fixing the asking price for a client’s property
· However, they are liable for the failure to keep the client informed about asking prices on comparable properties
While the law reports contain many examples of negligence actions against valuers and surveyors, similar claims against estate agents are far less numerous. Quite why this should be so is not easy to see, since an agent’s negligence is likely to produce the same consequences, namely bad advice leading to a loss-making transaction.
Of those that do reach the courts, few result in judicial guidance on the estate agent’s duties towards its client. It is thus of considerable interest to note the recent case of John D Wood & Co (Residential & Agricultural) Ltd v Knatchbull [2002] EWHC 2822 (QB); [2002] 08 EG 131, in which the scope of an estate agent’s duty to keep a client informed of market developments came under scrutiny.
Knatchbull concerned the sale of the defendant’s mews house in Notting Hill to a buyer introduced by the claimant company. The property had been on the market for around eight weeks and the sale took place at the asking price suggested by the claimant, namely £1.5m. The claimant subsequently sought its commission, but the defendant refused to pay. When sued, he issued a counterclaim alleging negligence.
The counterclaim was based upon two separate allegations. First, the original asking price had been too low, and, second, the agent had failed to tell the defendant that another, comparable house in the same mews had been marketed by another agent at around the same time but with an asking price of £1.95m. According to the defendant, the result of the agent’s failing was that he had been led to sell his property at well below its true value.
Judge Heppel QC, in dealing with the first point, began by emphasising that “advice as to asking price must be distinguished from a valuation”. He pointed out that “the asking price may not mirror the price at which the property might be valued”. Nevertheless, in giving advice as to asking price, the agent would owe a duty of care, because failure to do so might cause loss to the client. For example: “If the asking price is pitched too high, money may be wasted on prolonged advertising, or the tide of opportunity lost.”
The question was whether the claimant’s advice to market the property at £1.5m had been negligent. Having listened to expert evidence both as to asking prices and sales of other premises in the mews, the judge concluded that the value of the defendant’s house, at the relevant time, was in the region of £1.7m. Since the claimant had not had the benefit of information that was subsequently available to the expert witnesses, this meant that its advice (that £1.5m was a reasonable asking price) did not fall below the standard of a reasonably competent estate agent. In short, it was not to be deprived of “the benefit of a margin of error of about 10%”.
Good news for agents. But it provokes the comment that the “margin of error” principle already faces objections as a test of negligence in valuations; to seek to apply it as a test of negligence in setting asking prices (which, as the judge accepted, is a very different matter) borders on the ludicrous.
What the judge described as “the stark facts” included the point that, at the time when the claimant advised the defendant that an appropriate asking price for his house was £1.5m, another property in the same terrace was on the market at £1.95m, approximately 30% more. As the judge put it:
It would be a matter any reasonable vendor would want at least to discuss with his agent. Following such discussion, the vendor might be reassured. He might alter his instructions. The agent might reconsider his earlier advice… the agent has a duty not to ignore fresh information but must consider and exercise judgment upon it.
In the judge’s view, the duty of an estate agent could be formulated thus:
The agent has a duty to exercise reasonable care when marketing a property for sale and if, in the course of doing so, he becomes aware of any significant event in the market that might influence his principal’s instructions, to inform the principal thereof
and to advise him accordingly.
This seems utterly sensible, but agents should note the sting in the tail. As stated, the duty applies only to that information of which an agent is aware when marketing the client’s property. But an earlier remark suggests that the judge would have taken a similar view of information “such as would come to light during the exercise of due care while marketing the property”. If so, an agent may be liable on the basis, not only of what he knows, but of what he ought to have known, a far more stringent obligation.
In a normal negligent valuation case, the vendor’s basic loss would be measured by the difference between what the property was sold for and what it should have been sold for (its true value). But Knatchbull was different; the complaint related, not to the valuation itself, but to the later failure to pass on important marketing information.
To the vital question — what loss did the defendant suffer? — the judge gave the answer: loss of the chance to sell his house for more than £1.5m. And the value of that chance? The judge reasoned that if the £1.5m offer had been rejected, there would have been a two-thirds likelihood of finding a buyer at £1.7m within the following nine months. Take roughly two-thirds of the extra £200,000, and deduct both the interest earned on the sale proceeds over the nine months and the extra commission that would have accrued on the higher sale price. The resulting figure represented the damages payable by the claimant for its negligence.
John Murdoch, professor of law, Reading University