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Dual Agency Under Scrutiny In California

Written by on Monday, 05 May 2014 1:02 pm
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A recent California Appellate Court ruling is liable to have major long-term consequences for the real estate practice of dual agency in the Golden State. In this case (Hiroshi Horiike v. Coldwell Banker, Second Appellate District, April 9, 2014), the dual agency was not a matter of a single person – real estate agent -- representing both buyer and seller. Rather, it was a case of different agents from different offices (of the same firm) representing the two parties.

Chris Cortazzo, a salesperson for Coldwell Banker Residential Brokerage (CB) listed a property in Malibu in September of 2006. In the listing, and on a flier, he stated that the home "offers approximately 15,000 square feet of living areas." The MLS service that provided public record information stated that the living area was 9,434 square feet. The building permit indicates a single-family home of 9,224 square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a basement of unspecified area. The listing agent had or subsequently obtained a letter from the architect "stating the size of the house under a current Malibu building department ordinance was approximately 15,000 square feet."

An offer was made the following March. In response to the buyers' request for verification of the square footage, they were given the architect's letter. The listing agent also advised that they have a qualified specialist verify the square footage. He also gave that advice on the Transfer Disclosure Statement.

Unable to obtain building plans or to receive an escrow extension for further investigation, the buyers cancelled.

In July, the listing field for square footage was changed to "‘0/O.T.' by which he meant zero square feet and other comments."

A couple of months later, the plaintiff, Hiroshi Horiike, was working with Chizuko Namba, a salesperson in another CB office. She arranged for him to see the Malibu property. Horiike received a copy of the flyer saying that the home "offers approximately 15,000 square feet of living areas." He made an offer and escrow opened in November. Namba was provided with a copy of the building permit which she sent to Horiike along with other documents.

Both parties signed a confirmation of the real estate agency relationships as required by Civil Code section 2079.17. They also signed a mandated agency disclosure form which describes various agency relationships and the duties of agents. Among other things, that form says that "A real estate agent, either acting directly or through one or more associate licensees, can legally be the agent of both the Seller and the Buyer in a transaction…" It also says that an agent in a dual agency situation has a fiduciary duty to both the seller and the buyer.

The transaction closed. During the course of the transaction, Horiike did not receive advice to hire a specialist to verify square footage, as had the buyers in the previous transaction.

In 2009, Horiike reviewed the building permit in preparation for work on the property. He could not verify the approximately 15,000 square feet of living area. He sued CB and the listing agent. He did not sue his agent, Namba, whom he said he liked.

The trial court granted one motion of nonsuit on the grounds that the listing agent had no fiduciary duty to the buyer. Then the jury found that the listing agent had not made a false representation of a material fact, hence there was no misrepresentation. It also found that he did not intentionally fail to disclose an important or material fact to the buyer.

Horiike appealed. The Appellate Court said that:

"The motion for nonsuit should have been denied and the action…for breach of fiduciary duty submitted to the jury." Clearly, CB was a dual agent, and "When an associate licensee owes a duty to any principal…that duty is equivalent to the duty owed to that party by the broker…" Thus, "The jury's findings that Cortazzo did not provide false information to Horiike, or provided false information that he reasonably believed to be true, and did not intentionally conceal information, does not satisfy his duty to Horiike as a fiduciary." [my emphasis] As a fiduciary, the listing agent should have gone the "extra mile" to provide the buyer with information about matters that concerned him.

The Appellate Court said that, because CB had fiduciary duties to the buyer, so, then, did its agents, both of its agents. In short, the Court said that it is a mistake -- and a common myth -- that when there are two agents of the same company in a dual agency situation, each of them only has fiduciary duties to his/her personal client. They are both the fiduciaries of both. The case was remanded for a new trial.

There is a great deal of concern about this ruling in the California real estate community. It runs counter to the way -- rightly or wrongly -- that agents and brokers have thought things were. It certainly raises practical questions. (In the case at hand, for example, the listing agent did not even speak the same language as the buyer.)

The California Association of REALTORS®(CAR) will support CB in a petition for review by the California Supreme Court. But this may be one of those situations where you should be careful what you ask for. It is certainly possible that dual agency, as it is now commonly practiced in California, will become untenable.

Other states have dealt with this type of situation by creating a category called designated agents. Those agents are, respectively, fiduciaries of only one party. To be able to do this in California would require legislative action. That would be a topic for another day.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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11 comments

  • Comment Link Mary McNerney Friday, 30 May 2014 11:46 am posted by Mary McNerney

    In New Jersey, a state that practices Disclosed Dual Agency, with the informed written consent of the Seller and the Buyer. The Seller signs a consent form that outlines dual agency at the time the listing paperwork is signed and the buyer signs a similar form at the time the buyer client relationship is created. I agree, it is a very complex and difficult form of agency. However there is an excellent book that has guided me through the years; "Consensual Dual Agency: a practical approach to the in-house sale by Don Harlan, Gail Lyons and John Reilly.

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  • Comment Link Eve Alexander, Buyer Broker of Florida Monday, 26 May 2014 5:58 am posted by Eve Alexander, Buyer Broker of Florida

    Non-Dual Agency states have Transaction Brokers...just about the same thing with a new name and NO FIDUCIARY duties. No loyalty, no confidentiality and no ful disclosure to either party.

    They are just a middle man, facilitiating the transaction.

    However in places like Florida they call it "representation" but then they change the meaning of representation to mean that the buyer or seller cannot be liable for the mis-representations of the agent...oops I mean broker. They do not use the word "agent", because that would mean you actually have someone advocating for you.

    So transaction brokers really don't represent at all in the way that a consumer would think...and yes the consumer is duped.

    If an office lists a seller, they promise him the all the fiduciary duties...why no just stick with that? and make your buyer aware that you cannot represent them on company lisitng?

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  • Comment Link Rochelle Sunday, 25 May 2014 10:23 pm posted by Rochelle

    How do non-dual-agency states handle this?

    Let's say that John Smith owns two brokerages: ABC Realty - Los Angeles and also ABC Realty - Burbank. Mary with one office lists a house; Jane with the other office has a buyer. Jane has been working with this buyer for a year but the buyer is so picky that he has not bought anything yet. Mary's listing comes on the market, the buyer sees the yard sign and calls his agent Jane for a showing. Now we have dual agency rearing its head. What should Jane do now? Tell her long-term buyer that she cannot show the house to him, because of a dual agency situation? Or go ahead and show, but refuse to write an offer when he decides he loves it, because Mary, from a different office owned by the same owner, is the listing agent? Does she give up her long-hand-held client because it's our fiduciary duty to look after the client's interest above our own?

    How do the non-dual-agency states handle this situation?

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  • Comment Link Eve Alexander, Buyers Broker of Florida Sunday, 11 May 2014 6:14 am posted by Eve Alexander, Buyers Broker of Florida

    Practical?

    A nice way to try to dance around the evils of Dual Agency.

    Yes, the Listing Agent CAN tell the buyer to get theiir own agent...why not? Many agents do exactly that.

    Does every LA need to promise every buyer representation that is in direct conflict with what they promised the seller when they took the listing?

    You know... all the baloney they guaranteed the seller just before they changed their mind and decided that making double the commissioon was more important than taking care of their seller client.

    If it were not for greed, there would be no such thing as dual agency.

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  • Comment Link SAm Saturday, 10 May 2014 9:49 pm posted by SAm

    We need to banned greed not dual agency!
    Let's be practical here, if a buyer calls a listing agent off the for sale sign or response to a flyer your not going to send that buyer off to another brokerage. Second, if your the listing agent and another agent from another office but same broker represents the buyer, I've always understood this to be a dual agency.

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  • Comment Link Andi Grant Tuesday, 06 May 2014 6:23 pm posted by Andi Grant

    __
    "The Appellate Court said that, because CB had fiduciary duties to the buyer, so, then, did its agents, BOTH of its agents. In short, the Court said that it is a mistake -- and a common myth -- that when there are two agents of the same company in a dual agency situation, each of them only has fiduciary duties to his/her personal client. THEY ARE BOTH FUDICIARIES OF BOTH. The case was remanded for a new trial."
    __

    The crap is going to hit the oscillating fan. In layman terms, any Realtor/agent that worked one side of a deal with another agent in their office working the other side was suppose to fight tooth and nail for the other agent's client as well as their own. It's a contradiction in and of itself.

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  • Comment Link David A. Tuesday, 06 May 2014 4:19 pm posted by David A.

    Dual agency should be banned. There is conflict of interest where one agent or broker represents both sides. Commercial brokers take on a listing and they don't even co-op and sellers lose on selling their assets do one agent or broker can collect the entire commission and the buyer pays top dollar for that business. This is totally wrong and unconscious. The greed on Wall Street practiced by certain individual is no different than dual agency, let's be honest, Frank and let's not be greedy as agent or brokers.

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  • Comment Link Eve Alexander Tuesday, 06 May 2014 12:57 pm posted by Eve Alexander

    At one time NAR put out a booklet called "Who is my Client? A Realtors Guide to Compliance with the Law of Agency.

    IT SAYS:

    "As a practical matter, real estate brokers should avoid dual agency relationships. Creation of a disclosed dual agency relationship is so difficult that a real estate broker who attemps to conduct his day-to-day affairs as a disclosed dual agent is playing the professional equivalent of Russian Roulette."

    They should have never pulled that booklet off the market, but they had to because no one wants to hear the truth....particularly large offices. Dual Agency is impossible and needs to be banned.

    Every home buyer needs their own agent that is not intertwined in big brokerages or affiliate companies.

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  • Comment Link Jared Tuesday, 06 May 2014 12:15 pm posted by Jared

    In this case sounds like both offices are Coldwell Banker Residential Brokerage offices owned by NRT, thus having same Broker and Dual Agency is very much in play. Listing agents forget that any all reports and information gained by any buyer that cancels should be provided to any new buyer as a part of the disclosure process.

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  • Comment Link Mike, Realtor in NY, previously in CA Tuesday, 06 May 2014 11:22 am posted by Mike, Realtor in NY, previously in CA

    Is it another CB office owned by the same broker, or different CB offices owned by different brokers? If the first, then it is dual agency. If the latter, then there is NO dual agency WHATSOEVER because it is 2 totally different companies that both utilize the same franchise name.

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  • Comment Link Eric Hauge Tuesday, 06 May 2014 10:36 am posted by Eric Hauge

    Sounds like there are a WHOLE lot of folks that don't understand dual agency, including some of the courts, CB and CAR.

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