Still think transactional brokerage works for consumers? It doesn't according to the Palo Alto buyer who paid $1 million over listing price for his home last year. The purchase made news in April 1999, but may continue to merit ink. The buyer, Jerome Debs, is taking a Coldwell Banker brokerage to court for failing to act in his interests when the company was representing him as the buyer. The suit is significant because it raises questions about the clarity and boundaries of agency relationships.

Debs, according to a recent report, had offered $2.8 million for the four-bedroom, 3,700 square foot home, which had listed for $2.2 million, during a bidding war. He later learned that the sellers had accepted his $2.8 million bid, but were convinced by a Coldwell Banker agent to consider a competing bid, forcing him to up his price to $3.2 million. The problem with that is that he was also being represented by Coldwell Banker - and had a signed agreement to prove it.

Asking for damages to the tune of the $400,000 he felt he overpaid, as well as the $96,000 commission that the Coldwell firm received for the transaction, Debs filed suit in October of 1999 accusing the firm of "breaching its fiduciary duties, citing a standard contract in which Coldwell Banker promised to "act as agent for the Buyer only" and to provide "utmost care, integrity, honesty and loyalty."

The suit also seeks an injunction to prevent Coldwell Banker from representing competing buyers without their consent. The company argued that the lawsuit was "frivolous" and that the complaint was "totally contrary to the marketplace realities that have existed in California for decades."

Judge William Martin of the Santa Clara County Superior Court didn't buy it. He ruled in the plaintiff's behalf.

"A real estate broker owes his or her client ... undivided service and loyalty. ... This duty is breached where a broker represents two different clients with competing interests unless he or she discloses such competing interests," wrote Judge Martin.

Although the outcome of the case will most likely be court-ordered mediation, the ruling is possibly going to affect disclosures and brokerage practices around the nation.

What do you think? Does Debs have a case or should the Coldwell brokerage settle and skedaddle? Are "market realities enough of a reason to pit two buyers being represented by the same firm against each other?

Also See: