DUAL AGENCY IN REAL ESTATE SALES REACHES THE CALIFORNIA SUPREME COURT

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sgh-photo-4COne of the areas of real estate law that is most often litigated in California is dual agency.  Our State permits a single agent or agency to represent both the buyer and seller in the negotiation and sale of real estate.  A case regarding dual agency has just reached the California Supreme Court, and the decision by the Court could have serious implications on the real estate industry in California.  The case pits a Malibu homeowner, Hong Kong multimillionaire Hiroshi Horiike, against a Caldwell Banker affiliate.  The same Coldwell Banker brokerage was hired on both sides of the transaction, for Horikke as buying agent, and for the seller as listing agent.

There are good arguments on both sides of the coin when it comes to dual agency.  Dual agents often require lower commissions. They can streamline escrows and reduce the “game playing” of multiple agent deals.  The flip side is that the client often does not reap the benefits arising from single party representation. Brokers are in many instances called upon to act like lawyers, looking out for their client’s best interest when the other side appears to be taking advantage. When the same agent handles both parties, the adversarial aspect of the representation arguably disappears.

In the case involving Horikke, the t0pic of disclosures created a serious problem for the dual agent.  Horrike bought a stunning Tuscan style house overlooking the Pacific Ocean for $12.25 million cash in 2007.  The listing agent provided Horikke with a brochure that stated the house was 15,000 square feet, but county records showed that the house was only 9,500 square feet. The discrepancy in square footage resulted from various factors.  Notably the City of Malibu’s measurement metric is different than other cities and municipalities.  It includes garages and other spaces beyond the primary residence.

When Horikke was in the process of applying for permits to remodel his residence in 2010, he discovered that the house was not as large as he thought it was.  After making this discovery, he decided to sue.  Horikke’s agent, the “selling agent” or “buyer’s agent,” was associated with the same firm as the listing agent, Coldwell Banker, ergo, the “dual agency.”  Hirokke thus sued the listing agent, Chris Cortazzo, arguing that Cortazzo owed him fiduciary duties because he was associated with the same firm representing Hirokke.  In paricular, Hirokke argued that Cortazzo had given another prospective buyer a handwritten note, encouraging the buyer to hire a specialist to verify the square footage of the residence.  Horikke argued that Cortazzo and Coldwell Banker owed him a fiduciary responsibility to provide the same such note.  The case went to trial and the trial court disagreed with Horrike. It found that the listing agent had no fiduciary responsibility to the buyer and that the brokerage itself was not responsible for breach of fiduciary responsibilities based on the actions of individual agents.

The Court of Appeal disagreed with the trial court. The justices found that Cortazzo was in the wrong even if his actions were unintentional.  The justices wrote, “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.”  Cortazzo and Coldwell Banker thus petitioned the California Supreme Court to review that ruling.

Cases like this give the real estate industry reason to keep a close eye on their dual agency practices. When the Supreme Court provides its decision on this most recent case, agents should take note.

Contact Orange County real estate attorney Stephen Hammers for more news and relevant information regarding dual agency in California real estate transactions.

Stephen Hammers
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