Jim Porter: Supreme Court dual agency real estate case (opinion)
Those of you in the real estate world know about dual agency, where a real estate agent represents the buyer and the seller. A dual agent owes a fiduciary duty of utmost care, integrity, honesty and loyalty to both the seller and the buyer.
In Hiroshi Horiike v. Coldwell Banker Company, the California Supreme Court dotted that “i” or perhaps put an exclamation point on the difficulties inherent in honoring that fiduciary duty.
Chris Cortazzo, an agent for Coldwell Banker at Malibu, had a listing for a multimillion dollar luxury home. His listing read, “approximately 15,000 square feet of living areas.” An offer came in from another CB office. Escrow ultimately closed.
Cortazzo appropriately made several written disclosures about how the buyer must do his/her own due diligence, square footages are approximate and should be confirmed by an expert and the like; however, Cortazzo also knew there was a discrepancy.
The living area might have been closer to 10,000 square feet. He did not disclose this key information to the buyer or the buyer’s CB agent.
BUYER SUES THE WORLD
After the close of escrow, buyer Hiroshi Horiike soon learned the house had in fact closer to 10,000 square feet of living area. He did what many buyers would do.
Horiike sued the seller and both agents. The trial court ruled for CB. The Court of Appeal reversed and ruled against CB. The case made it to the California Supreme Court.
The Supreme Court decision meticulously went through California’s agency laws in the Civil Code. Dual agency disagreements are not uncommon given the inherent conflict of representing the buyer and the seller. If your office represents both sides, what must you tell the other side and what is confidential?
In 1986, California became the first of many states to enact legislation addressing the practice of dual agency. Almost all of the residential sales in our region are handled using California Association of Realtor forms which contain several dual agency representations, signed by the parties. Dual agency can be sticky and this case may make it even more so.
BROKER EQUALS AGENT
In this case CB admitted that as broker and on both sides of the deal, it was a dual agent with a duty of full disclosure to both the buyer and the seller. But the company (broker) did not know about the square footage discrepancy, only Cortazzo did.
Cortazzo argued that he represented the seller exclusively and had no obligation to inform the buyer or the buyer’s CB agent there was a discrepancy in the amount of square feet in the house.
The Supreme Court determined that if CB’s agent Cortazzo was aware of critical information, then by law the principal and broker CB knew as well.
“It is undisputed that Coldwell Banker owed a fiduciary duty to Horiike, including a duty to learn and disclose all information materially affecting the value or desirability of the residence. That duty extended to information known only to Cortazzo, since a broker is presumed to be aware of the facts known to its sales persons.”
Bottom line, dual/listing agent Cortazzo and his broker CB owed a duty to the buyer to disclose the square footage discrepancy.
PORTER’S TWO CENTS
I’m not sure this is new law, but the case is reported as a significant change in the law. Firms representing both sides of the deal now must be even more careful. The case highlights the inherent conflict of interest in the well-used (but often questioned) practice of dual agency.
WISHING YOU A HAPPY AND HEALTHY NEW YEAR.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee, Tahoe City and Reno. Jim’s practice areas include: development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at firstname.lastname@example.org or http://www.portersimon.com.