California Supreme Court to Decide Fate of Dual Agent Debate

How much do you trust your real estate agent? Enough to allow him to represent you, and your potential buyer? What about you and your potential seller? If your agent is batting for both teams, will both buyer and seller get a fair shake?

At some point, you’d like your agent to step up and make a play for you, for your team… a figurative touchdown pass, or homerun. Do you really trust that he’ll put in that kind of courageous effort, if he has incentives to help the other team win, too? Recently, a rift involving what’s known as “dual agency” has reached the California Supreme Court.

Hiroshi Horiike, a Hong Kong multimillionaire, at his mansion in Malibu in 2014. In a lawsuit that could have major implications for many of the state’s real estate brokers and agents, Horiike said the size of his home was inflated when he bought it.

Those on both sides of the argument know the high court’s decision in the case — pitting a Malibu homebuyer against brokerage Coldwell Banker — could shake up the industry.

“There is a great deal of concern about this ruling in the California real estate community,” said Bob Hunt, a San Clemente agent and a director of the California Association of Realtors, of the appellate court’s conclusion. “It runs counter to the way — rightly or wrongly — that agents and brokers have thought things were.”

A FINE LINE

A dual agent must walk a fine line, careful not to favor the buyer or seller. There are details that cannot be shared — for example, the agent can’t tell the buyer the seller is frantic to unload the house because of a divorce or job change. Nor can the agent share with the seller how much the buyer privately said she’s willing to pay.

Lee Stimmel, a San Francisco attorney who opposes double-ending deals, said the rules create a conflict of interest for the lone agent, who must serve two masters as a “superhuman.”

But as Hunt and many other agents see it, a dual agent, privy to what’s motivating each side, is in a position to more swiftly and efficiently get a deal done

“Hiring a real estate salesperson is not the same as buying a burger,” the association says in court papers. “It is all about the relationship … The real estate salesperson is the equivalent of a therapist, a bartender, a friend.”

THE CASE

At the core of the case before the state Supreme Court is a discrepancy about the size of a Malibu manse.

Hong Kong multimillionaire Hiroshi Horiike bought the Tuscan-style home overlooking the Pacific Ocean for $12.25 million in cash in 2007. A high-profile listing agent provided him with a brochure stating the house had 15,000 square feet of living space, but county records said the residence actually was under 9,500 square feet.

The difference in square footage was complicated by Malibu using a different metric than elsewhere, extending the measurements to garages and other spaces beyond the primary residence.

Both Horiike’s agent and the listing agent worked for Coldwell Banker, so the brokerage was the dual agent of the buyer and seller, as confirmed in the disclosure forms Horiike signed.

A couple of years later, when seeking a permit to remodel a room, Horiike discovered the house wasn’t as large as he thought. In 2010, he sued the listing agent, Chris Cortazzo, and Coldwell Banker, stating they violated their fiduciary duty to him. (He did not sue his own Coldwell Banker agent, however.)

The jury disagreed that the listing agent had a fiduciary duty to the buyer or that the broker was liable for a breach of fiduciary duty based on the agent’s acts.

Horiike prevailed on appeal. The justices found that Cortazzo “did not add a handwritten note of advice to hire a qualified specialist to verify the square footage of the home” to a visual inspection disclosure, as he had done with a previous prospective buyer.

“A trier of fact could conclude that although Cortazzo did not intentionally conceal the information, Cortazzo breached his fiduciary duty by failing to communicate all of the material information he knew about the square footage,” the justices wrote in their decision.

They also stated, “When a broker is the dual agent of both the buyer and the seller … the salespersons acting under the broker have the same fiduciary duty to the buyer and the seller as the broker.”

And they cited a finding in another case about confusion in the industry:

“Salespersons commonly believe that there is no dual representation if one salesperson ‘represents’ one party to the transaction and another salesperson employed by the same broker ‘represents’ another party to the transaction. The real estate industry has sought to establish salespersons as ‘independent contractors’ for tax purposes and this concept has enhanced the misunderstanding of salespersons.”

Read the full article here.