Court Rules for Real Estate Brokers in Seller’s DTPA Action Over Incorrect Square Footage
Real estate brokers should take note of the decision in Zhu v Lam and The Household Realty, Inc., 426 S.W. 3d 333 (Tex. App. — Houston [14th Dist.] 2014, no pet history) where the purchasers attempted to recover damages against the broker and employer company after they learned that their new home had 1,967 square feet instead of 2,722 square feet as represented. The purchasers wanted out of the transaction but ultimately closed. They contended that the broker said that if they backed out then the sellers would sue.
The purchasers sued the real estate broker and employer under the Texas Deceptive Trade Practices – Consumer Protection Act (DTPA), negligent misrepresentation and breach of fiduciary duty. All claims were denied following the broker’s no -evidence summary judgment motion.
The case is important because it deals with some common procedural issues faced in many real estate cases such as how to establish proper damages and to submit proper evidence of damages at the summary judgment phase.
No proper Measure of Damages
The broker contended that there was no evidence offered that the buyers were damaged. The court found that under the DTPA the measure of damages was the greater of the out-of-pocket damages or benefit-of-the-bargain damages. These damages are measured by the difference between the value of that which was parted with and the value of that which was received and benefit-of-the-bargain damages are measured by the difference between the value as represented and the value actually received. Both measures require proof of the value of the goods or services as actually received. As for the negligent misrepresentation claim the court found that there had to be value of the pecuniary loss.
The court found that the purchaser would have had to offer value of the house on the sale of sale based on its actual square footage of 1,967 square feet. The court found no evidence of value of the home based on the lesser figure.
No Breach of Fiduciary Duty
To prevail in a breach-of-fiduciary-duty claim, a plaintiff must prove that (1) there is a fiduciary relationship between the plaintiff and defendant, (2) the defendant breached his fiduciary duty to the plaintiff, and (3) the breach resulted in an injury to the plaintiff or benefit to the defendant. The buyers alleged that the broker breached his fiduciary duty to them by failing to disclose or discover the actual square footage of the home. The summary judgment evidence did not identify evidence that the broker knew the square footage or that he was required to measure or investigate the square footage of the house. The court found the allegation that if the purchasers backed out of the transaction that the sellers would sue was not supported by the evidence. The court ruled for the broker on this claim.
Property Owners Testimony of Value Stricken
In Texas a property owner is considered qualified to testify to his property’s value. But this qualification is not the end of the matter. To have probative value the property owner must provide the factual basis on which his opinion rests. His opinion must be substantiated. A naked assertion of market value is conclusory as a matter of law and is not enough to support an opinion of value. The Court found the following testimony was being conclusory and nothing more than an unexplained conclusion:
I am familiar with the market value of the property that I own. It is my opinion that the market value in June of 2010 was $140,000.00. In addition, [the Harris County Appraisal District] now lists the appraised value of our home as $155,000, which is much less than the $174,402 it listed in 2010 and the $180,000 we paid for the home.
The court found that the testimony did not explain how the purchaser determined the property’s true fair market value in 2010.
Print out of Harris County Appraisal District Website Was Untrustworthy
The trial court struck as hearsay a copy of a print-out of a record from the Harris County Appraisal District’s website. The purchaser argued that the document was admissible as a public records exception to hearsay under Tex. R. Evid. 803(8)[Public Records and Reports. Records, reports, statements, or data compilations, in any form, of public offices or agencies setting forth: (A) the activities of the office or agency; (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report, excluding in criminal cases matters observed by police officers and other law enforcement personnel; or (C) in civil cases as to any party and in criminal cases as against the state, factual findings resulting from an investigation made pursuant to authority granted by law; unless the sources of information or other circumstances indicate lack of trustworthiness].
The court found that the broker objected to the document as hearsay and that the purchasers failed to respond. The court found that the proponent of hearsay has the burden of showing that the testimony fits within an exception to the general rule prohibiting the admission of hearsay evidence and that the public records exception was not raised prior to judgment. The issue was the phrase “unless the sources of information or other circumstances indicate lack of trustworthiness.” The court found that the print outs from the Harris County Appraisal District website contained contradictory information that listed two different appraised values for the property after correcting the square footage at both $155,000 and $174,000. The buyer did not establish the reason for the discrepancy. The court found even if the public records exception had been asserted timely that the trial court did not abuse its discretion in determining that the excluded information was not trustworthy and did not qualify under rule 803(8).