The California Supreme Court recently ruled in a case called Horiike v. Coldwell Banker that a seller’s agent who works within the same brokerage as the agent representing the buyer—thus becoming a “dual agent”—owes a fiduciary duty to the buyer, as well.
The dispute that gave rise to the lawsuit concerned square footage. Homebuyer Hiroshi Horiike purchased a Malibu, California property through an agent at Coldwell Banker in Beverly Hills. The property had been listed by a Coldwell Banker agent in its Malibu West office.
The listing agent, Chris Cortazzo, advertised the property as having “approximately 15,000 feet of living areas.” This was despite having obtained various documents containing contradictory information.
The ad Cortazzo placed in the Multiple Listing Service (MLS), which he also printed out and gave to Horiike, contained language saying “Broker/Agent does not guarantee the accuracy of the square footage.” Similar language also appeared in a copy of the residence’s building permit, which the agent gave Horiike.
Horiike took no steps to have the square footage measured—until, that it, after the purchase was complete. In getting ready to have work done on the property, Horiike discovered the various contradictions, and claimed he’d been misled about the property’s square footage.
Horiike then sued on various grounds, one of which was that Cortazzo and Coldwell Banker had breached their fiduciary duty by failing to advise him to hire a third party to verify the actual square footage.
Lower courts ruled against some of Horiike’s claims, but the California Supreme Court agreed with Horiike’s claim of breach of fiduciary duty. The court said that “. . . Cortazzo, as an agent of Coldwell Banker in the transaction, owed Horiike a duty to learn and disclose all facts materially affecting the value or desirability of the property.“
This case is a bit of an oddball, but one with far-reaching implications. Ordinarily, such a case would center around whether the seller was legally responsible for fraud or nondisclosure of home defects or other facts material to the transaction. But Horiike apparently got nowhere with that type of claim in the lower courts.
Coldwell Banker naturally argued that under Horiike’s theory, “buyers and sellers would not have the benefit of the undivided loyalty of an exclusive salesperson,‖ and, worse, [s]alespersons would have a duty to harm their original client by disclosing to the other side confidential information about the client‘s motivations or the salesperson‘s beliefs.”
The court acknowledged that these were “significant concerns.” However, it felt that they were no different than the concerns always faced in matters of dual agency.
Perhaps that’s true, but let’s remember that there are two types of dual agency: one where the exact same person represents both buyer and seller (in which case yes, it’s a delicate balancing act), and two, where brokers in the same office represent buyer and seller. As a matter of practice, in the latter case, California buyers and sellers have felt reasonably comfortable giving their consent to dual agency, knowing that the two agents probably wouldn’t share every piece of information, and each would represent their interests to the fullest. (See Pros And Cons Of Using a Dual Agent to Help Buy a California Home.)
Now that that separation is gone, buyers and sellers will have to think twice before, for example, signing up with a large brokerage where chances are good that another agent might represent the eventual other party in the transaction. Or buyers and sellers might actually pass on worthy transactions in order to avoid the information-sharing possible with this new definition of dual agency. We no doubt haven’t heard the last of this case.Effective date: November 22, 2016