Dual Representation Case goes to the California Supreme Court

http://www.car.org/newsstand/newsreleases/2016releases/horiikecase

Dual agency in real estate transactions case to be heard by California Supreme Court today

The California Supreme Court will hear oral arguments Sept. 7 in a case,Horiike v. Coldwell Banker, that is being closely followed by the real estate industry, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said.

“At its core, the Horiike case is an issue of a buyer not reading all of the information that was presented to him, but Horiike is trying to turn a normal disclosure case into an agency case,” said C.A.R. President Pat “Ziggy” Zicarelli. “Some groups may believe that dual agency should be outlawed and want to use this case for that premise or as a stepping stone to that end.”

In the case, a homebuyer, Hiroshi Horiike purchased a mansion in Malibu, Calif., and worked with a Beverly Hills, Coldwell Banker real estate licensee. The property was listed by a Coldwell Banker licensee in another office. Horiike complained he was misled about the property’s square footage. The issue is complex, however.  The City of Malibu includes some outdoor living areas in determining square footage, which impacts whether the property may be expanded. Most square footage measurements do not include outdoor living areas in square footage. These facts were fully disclosed, but apparently the buyer never read the information. Horiike sued the seller’s licensee, Chris Cortazzo, stating that Cortazzo and Coldwell Banker breached their fiduciary duty and failed to advise him to hire a third party to verify the actual square footage.  He did not sue the Beverly Hills licensee with whom he was working.

The law has always required disclosure of known material facts about a property for sale. C.A.R. provides many tools and forms to assist in making the transaction transparent as it relates to known material facts. As to duties not involving disclosure, most consumers would not expect a seller’s licensee to duplicate the same tasks and duties of a buyer’s licensee in the same transaction or to be held responsible if they were not done properly.     

In the 2012 jury trial, the jury fully exonerated the seller’s licensee, Cortazzo, and Coldwell Banker on the buyer’s claims for negligent misrepresentation, intentional misrepresentation and concealment.  In other words, after many days of trial and examination of the evidence, the jury felt the information was properly disclosed. Before the jury trial, since the judge ruled that the seller’s licensee, Cortazzo, did not owe a fiduciary duty to Horiike, there was no breach of a duty attributable to Coldwell Banker. An appellate court overturned the trial court ruling. Coldwell Banker appealed to the California Supreme Court.

California law has allowed brokers to represent both parties with their informed consent since well before the 1980s. California even has a specific form to accomplish this. Such consent has been required for many decades and continues to give choice to consumers. However, just because a brokerage represents both buyer and seller in a transaction that should not automatically mean that each individual licensee owes a fiduciary duty to both parties.

“There are many different real estate brokerage models, and the law allows consumers to choose between a big or small firm; and those firms that are exclusive to buyers, exclusive to sellers, or represent both,” Zicarelli said. “Narrowing the business model for a competitive advantage for one model would limit that choice. And the reality is, at the outset no buyer knows for sure what property they will buy, and no seller knows for sure who the eventual buyer will be. 

Therefore, a real estate licensee never knows if there’s going to be a dual agency at the time a listing is taken or when a buyer begins looking for a property. If the eventual consequence resulting from this case is that brokerage dual agency is prohibited, buyers will be restricted in the properties they can explore, and sellers will have a limited pool of buyers. Allowing all parties to explore buying or selling more properties on the market, not fewer, benefits the consumer.