Colorado Supreme Court sets the standard for establishing a professional negligence claim against a transactional real estate broker

Can a transactional broker be held liable to a seller when the seller sells the property for less than he or she otherwise would have because of the broker’s alleged negligence?  The Colorado Supreme Court answered the question of what proof is needed to establish such a claim in Gibbons v. Ludlow, Case No. 2013 CO 49, July 1, 2013. 

In Gibbons, the plaintiffs/sellers sued their transactional real estate broker¹ for alleged negligence in failing to tell them that a counteroffer included a credit to the buyer worth approximately $1.6 million.  The counteroffer was accepted, and the property was sold pursuant to the contract.  The Sellers later sued the attorney and the real estate broker for allegedly failing to tell them about the credit provisions in the contracts.

The Court held that a plaintiff suing a transactional broker for professional negligence must show that but for the alleged negligent acts of the broker, the plaintiff either: (1) would have been able to obtain a better deal in the underlying transaction (the “better deal” scenario), or (2) would have been better off by walking away from the underlying transaction (the “no deal” scenario).   In doing so, the Court used the same framework commonly used in professional negligence claims against lawyers which requires the plaintiff to prove a “case within a case” (i.e., that the plaintiff would have prevailed in the underlying case but for the attorney’s negligence).

The Court further held that the Sellers did not meet their burden in this case under either of the two potential scenarios.  First, the Sellers were unable to show that they would have gotten a “better deal” because the buyer testified that he would not have purchased the property for a higher amount.  Second, the Sellers were unable to show that they would have been better off with “no deal” because they were unable to show that they would have been able to sell to another buyer for a higher price beyond mere possibility or speculation. 

 

The Court offered potential ways of proving the “no deal” scenario: i.e., by expert testimony regarding the market conditions in the area at the time of the sale, and by evidence of comparable sales.  However, just showing that the property had appraised for the higher value or that others were interested in purchasing the property, without showing the price they were willing to pay, was insufficient. 

You can read the Court’s opinion here: http://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Opinions/2011/11SC899.pdf

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC.

¹  Colorado law defines a transactional broker as a broker who assists one or more parties throughout a contemplated real estate transaction with communication, interposition, advisement, negotiation, contract terms and the closing of such real estate transaction without being an agent or advocate for the interests of any party to such transaction.  C.R.S. §12-61-802(6).  A professional negligence claim against a transactional broker arises where the plaintiff alleges a breach of a duty of care in handling the various pieces of an underlying real estate business transaction. Opinion, ¶15.