Negligent Misrepresentation in Texas Real Estate Transactions

Negligent misrepresentation is one of the most common—and misunderstood—claims in Texas real estate disputes. Unlike fraud, it does not require intent to deceive. Instead, it focuses on whether a party failed to exercise reasonable care when providing information that another party relied on to their detriment.

This article explains what negligent misrepresentation means under Texas law, the elements required to prove it, and how it applies in real estate transactions involving buyers, sellers, brokers, and agents.

What Is Negligent Misrepresentation?

In Texas, negligent misrepresentation is recognized under the Restatement (Second) of Torts § 552. It applies when someone, in the course of business or a transaction, provides false information that another party reasonably relies on, and that reliance causes financial loss.

Elements of Negligent Misrepresentation

To establish a claim, the plaintiff must prove that:

1. The defendant made a representation in the course of business or a transaction in which they had an interest.
2. The representation conveyed false information for the guidance of others.
3. The defendant failed to exercise reasonable care or competence in obtaining or communicating the information.
4. The plaintiff justifiably relied on the representation.
5. The plaintiff suffered pecuniary loss as a result.

This tort is unique in that it bridges the gap between contract and fraud. It focuses on the care used, not the intent behind the misstatement.

Real Estate Applications

Negligent misrepresentation arises frequently in real estate settings where parties rely heavily on information from others. Common scenarios include:

• A seller provides inaccurate square footage or zoning information.
• A broker misstates that an easement can be fenced or developed.
• An agent incorrectly confirms that a structure complies with local ordinances.
• A title company reports an encumbrance inaccurately.

In these situations, the defendant may not have intended to deceive—but may still be liable if they failed to verify the truth of what they said or wrote.

Key Case Example: Tukua Invs., LLC v. Spenst

In Tukua Invs., LLC v. Spenst, 413 S.W.3d 786 (Tex. App. 2013), the court dismissed a negligent misrepresentation claim where buyers failed to investigate tenant issues in a commercial sale. The court emphasized that the seller had no duty to disclose certain facts and that the buyers could have discovered them through reasonable diligence.

This case underscores a key defense: the plaintiff’s reliance must be justifiable. If information was readily available or contradicts other documents, the court may rule against the plaintiff—even if the representation was inaccurate.

Justifiable Reliance and Due Diligence

Justifiable reliance is a critical issue. Courts look at whether the plaintiff could have discovered the truth through ordinary care or inquiry. Sophisticated parties, like commercial investors, are expected to conduct more rigorous due diligence than unsophisticated residential buyers.

In JPMorgan Chase Bank v. Orca Assets, 546 S.W.3d 648 (Tex. 2018), the Texas Supreme Court ruled that sophisticated parties cannot claim justifiable reliance on verbal representations when red flags are present in transaction documents. Courts will not protect willful ignorance or blind trust.

Negligent Misrepresentation vs. Other Claims

It’s important to distinguish negligent misrepresentation from other real estate causes of action:

Negligent misrepresentation can also supplement breach of contract or warranty claims but cannot be used as a backdoor to recover contract damages if the claim is solely about a broken promise.

Limitations and Defenses

Common defenses to negligent misrepresentation include:

• No false statement of fact – Predictions, opinions, or puffery are not actionable.
• No duty of care – If the speaker was not in a position to owe a duty to the plaintiff.
• Lack of justifiable reliance – Especially if conflicting documents were signed.
• Limitations period expired – Typically two years from discovery of the misstatement.

Additionally, if a contract disclaims reliance on prior statements (known as a “merger clause”), courts may hold that reliance was not justified.

Summary

Negligent misrepresentation is a powerful but limited tool in Texas real estate litigation. Plaintiffs must show more than an incorrect statement—they must prove that the speaker had a duty, failed to exercise care, and caused economic loss through justifiable reliance.

In the next article, we’ll explore how intentional misrepresentation and fraud differ and what makes those claims more serious—both in pleading requirements and potential remedies.

Next: Proving Intentional Misrepresentation and Real Estate Fraud