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.

  • Nikki Holmes Realtor-Broker

    In my opinion, this particular case not as much about dual agency as it is about failure to disclose, though of course I am not privy to internal details.

    Nonetheless, the issue of dual agency is a question that bears consideration. From my years in this business, I note that there are two camps, and very little middle ground. The first, in which most agents prefer to avoid the dual agent role; and the second, in which agents actively seek, even manipulate events to facilitate this particular position.

    Obviously, agents who routinely work to effect fair and ethical dealings and avoid being in the dual agent role are very likely to also be representng their clients fairly and ethically when they DO happen to end up in a dual agent situation. It may still be a challenging role, but still one that can be navigated with professionalism.

    On the other hand, our industry is frought with bad behavior on many levels, and I have regularly observed that there is a substantial list of agents who routinely show a disproportionate percentage of closed transactions where they are in a dual agent role. In digging deeper, it can routinely be observed that there are unusual other activities on the listing, such as notations that the property was placed “temporarily off the market” immediately following the initial listing; listings placed “pending” within one hour–or even as little as a few minutes of listing; and other indicators of manipulation.

    • Esteban Martinez

      Realtor Ca, You have good and evil you cant have one . Dual is a head ache when you have to make a decision to your client . But who is really your client ? The one that called you .” I have a deal represent both of us and get double $720,000/ 12 Million dollar Deal are you thinking be fair or getting it done . What ever it takes in these slow economic times we make a mistake us before client . Get rid of dual agency we cant be fighting our own war against us go and get another deal Referral’s are priceless

  • RE_Insider

    We received this email from one of our readers: Love to provide my opinion!

    I am against dual agency in most cases. Lack of dual agency leads agents to share their inventory more readily and promotes professional teamwork – not to mention much better representation for the seller and buyer.

    With best regards,

    Carol Lee

  • RE_Insider

    Another email from one of our readers: I have represented both buyer and seller many many times in my 49 year career to a successful conclusion. The transaction will more often than not go more smoothly orchestrated than not. Lynne B Wilson. Broker owner .

  • RE_Insider

    And another email from one of our readers: Dual Agency should not be allowed – agents deliberately hold on to offers waiting to get both ends of the commission –

    Barbara Grant

    Realtor

  • RE_Insider

    And another email from one of our readers: I think dual agency should be illegal, period! Not all agents are looking for that “dual agency” opportunity. There are fantastic agents that really care about doing what is right and doing what is best for their clients. But, there are too many agents who try and “double end” their own listings with no regards to the seller or buyer. Anything to make the “deal” work so they can get a big paycheck! I have seen it several times and it only frustrates the buyers and sometimes doesn’t pay off for the sellers.

    The problem is not only on the price of the home, but the negotiations that follow while in escrow; as in request for repairs, who will pay for what inspections, home warranties, credits in escrow, etc.

    It’s a shame that having “dual agency” creates a bad name for real estate agents. Not all of us are in real estate just to get the deal done and move on to the next one, some of us actually like the work and really do care about our clients!

    Thank you!

    Respectfully,

    Elizabeth Willahan

    • The RPA already defines (when executed) which party is paying for ‘inspections, home warranties, credits in escrow’. Request for Repair comes during the due diligence period…

  • Lee Shamblee

    I’m an agent in CA and feel strongly that “dual agency” should be illegal. I can cite several instances where the listing agent refused to accept offers from other agents with the excuse that “we are about to enter escrow” which turned out to be untrue. I’ve seen cases where listing agents don’t advertise the listing on the MLS. The sellers are the real losers in these situations as they undoubtedly feel compelled to accept the one and only offer that has been presented to them and it is well beyond time for it to stop.

  • RE_Insider

    Another comment via email: I am the sole broker in a very small rural community. Water systems are varied and complex. Sometimes wells of widely varying depths are the sole water supply. Sometimes the domestic water supply is sourced from 100 year old acequias, or surface ditch systems diverted from streams. Because I have lived and worked in the area for 35 years, I am far more qualified to assist both buyers and sellers than agents from an hour’s drive away. I recently sold a ranch in which I represented both parties, by mutual agreement. There were water and easement issues which could not possibly been resolved by an “outside agent.” It is only because I had a 40 year friendship with the neighbor that I was able to find a solution amenable to all parties. This is an example of dual agency in which real estate service could not have been successful without it. Generally speaking, I do avoid dual agency. But in some unusual cases, it is the only way to get a deal done. Therefore I am opposed to the idea of eliminating dual agency, as long as there is full disclosure and written consent from the buyer and seller.

    Tom Knight, Broker

  • RE_Insider

    Another email from a reader: I explain to the seller and buyer that my job is to impart information and to then take instruction.

    I take everything that I know about the property from seller information and public data, and explain it to a potential buyer, along with comps and an opinion of market trends, and then I reach a point where I say that portion of the job is complete, and now I take instruction. This is both a ‘close’ and an ethical way to represent. I take instruction from the buyer, put in the offer details as the buyer instructs – with no pressure or sway from me – and then I present the offer to the seller, and prefaced by an explanation as to how I arrived at the point of the buyer giving me that instruction, so the seller then decides and gives me the usual acceptance/rejection/counter.

    There are ways to ethically represent both sides in a transaction, and with full disclosure and specifically not ‘leading’ or ‘persuading’ buyer and seller the job can be done honestly, openly, so that everyone is happy.

    As a general remark, where I can represent both sides I’ve found that I have a very high completion rate since I know what both sides are doing, versus transactions where I have to rely on input from another agent which may be unreliable. Many agents have given me b/s where they have a weak client, leading to dropouts, so I prefer to represent both sides wherever possible (not just for commission reasons).

    Pat Barry

  • RE_Insider

    And another email: I personally think dual agency is an ideal form of a real estate transaction. At this point the buyer and the seller have a common goal: make a sale.

    The way i have done these is by being completely honest and making it clear that I am here to assist both of them in getting to the finish line completely satisfied.

    I tell the Seller to be completely honest in his disclosures and the Buyer to be completely honest on his finances. Have direct contact with Buyers lender communication

    here is crucial….no surprises please.

    The price is negotiated thru the comps and settled with the appraisal. If they can’t agree on a price after looking at the comps and the condition of the home, then it’s not going to happen.

    Plus in a current Seller’s market Buyer has to move quick or get beat out. I’ve always said that a home’s price is validated in the open market. If no action in a week it’s too high, if alot of action then

    too low and if steady action then right on the money.

    I recommend Seller get home inspection and termite report before puts on the market. Make home as easy to buy as possible.

    I’ll take a Dual Agent transaction anytime! Plus I save the seller money by charging less commission for the transaction.

    Less ego’s to work with when only one agent in the deal.

    Al Chavarria

  • RE_Insider

    And another email: This should not be allowed. Do we allow a lawyer to represent both sides? It should not be allowed in real estate either.

    Charles Martines

    Lawyer /Broker

  • RE_Insider

    And another email: I am so happy that something is been done about it, I support this 300%. How could the same agent represent a client/buyer that it is trying to get the best property for the lowest price possible and at the same time represent a client/seller that it is trying to sale the property for the highest and best price possible. It does not make any sense to me.

    Thank you for the information that you bring to us.

    Juan Corzantes

    REALTOR®

    • Jeff Baker

      See above answer from RE Insider

  • RE_Insider

    And another email:I get what you’re saying, but, I have found it depends on the agent’s integrity, experience, attitude and ethics, don’t you?

    My clients have found when I handle both sides, things work out better, smoother for both sides. I explain & disclose that when I am representing both side, I am a facilitator for them. As long as each party is interested in being fair, a good ethical agent can make things a lot better for both principles.

    Thank you for the opportunity to share my experience.

  • RE_Insider

    And another email: I teach Real Estate classes for licensing and this is one of the main things that I teach is about Dual Agency. A lot of states do not allow it, but California does. I think if it is done properly that the listing agent should be able to do it but as an example I would say that the listing agent on a 6% listing should only be eligible for a 4% total commission to them. This would possibly reduce some of the larceny because of the big prize for double ending a large deal and make it fair to the seller. I have seen numerous times that an agent will put a sign up and not put it into the MLS because they are hoping to find a buyer so they can make double commission. This happens a lot with rural property that is not seen other than by potential buyers. This is not fair to agents that have possible buyers for that property.

    Jack Goforth, Owner JLG Training Services

  • RE_Insider

    And another email: Dual agency in normal real estate practice remains a “no brainer”.

    You have hired a brilliant attorney​.

    You have a lawsuit underway.

    You are in Superior Court.

    You are the Plaintiff.

    The Defendant (your opposition) also appears in court.

    The Defendant decided to hire the “same attorney” you hired.

    Now that attorney gets to dance back and forth from plaintiff to defendant

    and talk out of two sides of his mouth! Would the Court tolerate this performance.

    Absolutely not. Neither side could possibly be well (not to mention legally) served.

    So much for dual agency. There is very little difference.

    It remains a “no brainer.”

    Gary Marshall, M.A., Affiliate AIA/LA, Realtor

  • Walt

    Personally the dual agency is a viable asset. In many of my attempted sales they go nowhere as the other agents gets in the way of the sale and acts as if he/she is the owner and states I’m not taking that deal or I’m not letting my client take that less than the list price. However, me as the “intermediary” discloses all the information to both parties explaining to both buyer and seller, my job is to represent and present all the facts so that each party can arrive at their own decision. I do not make decisions for the clients, I provide all the financial calculations and present to both parties and I also provide all the disclosures so each party knows what their duties are.. I get 95% of my sales closed and both parties are happy. Walt

    • EdM

      I could not agree more!!!