The California Supreme Court ruled unanimously this week that a real estate professional who represented a seller of a home owed a fiduciary duty to not only the seller but also the buyer if the buyer’s agent happens to work for the same brokerage.
Some in the industry are closely watching the case and questioning whether it could have widespread implications for the real estate industry when it comes to dual agency roles.
The case centered on the $12.25 million sale of a luxury home in Malibu in 2007, in which the listed square footage became a source of dispute. The buyer and seller were represented by real estate professionals from different Coldwell Banker offices. Following current California law, a broker may act as a dual agent for both buyer and seller in a transaction as long as both parties consent to the arrangement after full disclosure that the broker owes a fiduciary duty to both.
However, the current case questioned whether that duty should extend to “associate licensees,” those that are individual salespeople who operate under that broker’s license. The California Supreme Court this week ruled that it does extend to it.
In 2009, following two years after the sale, the buyer Hiroshi Horiike reviewed the building permit and noticed a contradiction in the seller’s agent description with the square footage. As such, Horiike sued Chris Cortazzo, a salesman in Coldwell Banker’s Malibu West office, who had represented the seller of the home, as well as Coldwell Banker, accusing them of breaching their fiduciary duties they owed him. He did not sue his own agent, Chizuko Namba, a saleswoman in a separate Coldwell Banker’s Beverly Hills office.
In 2012, a jury ruled there was no evidence of misrepresentation among Cortazzo, and that Cortazzo had no fiduciary duty to Horiike. But the Court of Appeal’s reversed the trial court’s decision. The California Supreme Court then affirmed the appellate court decision, and the case will now return to trial court to determine whether the defendants violated their fiduciary duty to the buyer.
The Supreme Court’s ruling stated: “It is undisputed that Coldwell Banker owed such a duty to the buyer. We now conclude that the associate licensee, who functioned on Coldwell Banker‘s behalf in the real property transaction, owed to the buyer an ‘equivalent’ duty of disclosure.”
During the case, Coldwell Banker argued that “each salesperson owes a duty only to the person they are directly working with, not the opposite side.”
“[We don’t agree] that duty flows back to every single agent in the transaction,” says June Barlow, the California Association of REALTORS® general counsel. CAR had filed a brief in support of the defendants in the case.
Nevertheless, CAR officials do not believe the Supreme Court’s ruling will have a major change in the real estate industry.
“We were more worried about an unwarranted expansion” of fiduciary duty that essentially would have outlawed dual agency, says Barlow. However, under California law, listing agents already are required to disclose all material facts that could affect the value or desirability of a property to buyers. That is the case regardless of who is representing the buyer. Still, the Court’s decision may mean that listing agents who owe a fiduciary duty to the buyers may need to do more than just a cursory inspection of the property or just provide a blitz of disclosures to buyers.
Source: “California High Court Decision Favors Real Estate Buyers,” San Francisco Chronicle (Nov. 21, 2016); “Home Buyers’ and Sellers’ Interests Must be Protected When the Same Firm Represents Both, State Supreme Court Rules,” The Los Angeles Times (Nov. 22, 2016); and California Association of REALTORS®