Supreme Court ruling could have far-reaching implications for brokerages California Supreme Court ruled buyer and seller agents working for same firm owe fiduciary responsibility to each other’s clients November 21, 2016 05:30PM By Justin Sayles
The California Supreme Court ruled Monday that a real estate brokerage representing both the buyer and seller in a deal owes the same fiduciary responsibilities to each party, potentially setting a significant precedent for how information is shared in so-called “dual-agency transactions.” In a unanimous decision, the court ruled in Horiike v. Coldwell Banker that a when an agent representing a seller is working for the same firm as the agent representing the buyer, they become an “associate licensee” and must properly investigate and disclose all important information related to the transaction.
The case centers on a Chinese millionaire’s 2007 purchase of a Malibu mansion and the manner in which the property’s size was listed. The buyer, Hiroshi Horiike, worked through one Coldwell Banker agent, Chizuko Namba, to purchase the home. The seller was represented by another Coldwell Banker associate — celebrity realtor Chris Cortazzo, who is being sued for $3.3 million in a separate case. After his $12.25 million purchase, Horiike raised issue with the way Cortazzo advertised the property’s square footage, alleging he misrepresented its size by thousands of feet. Horiike eventually sued, losing in a lower court in 2012. However, he emerged victorious in 2014 when the California Second District Court of Appeals ruled that under the state’s Civil Code, Coldwell Banker was operating as a dual agent and owed fiduciary responsibility to Horiike through both of its agents — a decision appealed by the brokerage firm.
Monday’s decision affirms the appeals court’s ruling, creating a “very significant and substantial but not onerous” responsibility for dual-agency brokerages, said attorney Fred Cohen, who represented Horiike before the Supreme Court. “This case makes clear the [selling agent] has to take that duty serious and make sure the buyer goes into the transaction with his or her eyes open,” Cohen said. The dual-agent law and the case’s potential impact The laws the case took into consideration, covered in California Civil Code Section 2079, spell out the responsibility each agent has to the buyer and seller in a transaction.
While a seller’s agent — Cortazzo in this case — owes “[a] fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the seller,” that agent has no fiduciary responsibility to the buyer and must be only “honest and fair” in its dealings with that side. A selling agent must also disclose any issues “known … materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.” The buying agent, in this case Coldwell Banker’s Namba, has a similar fiduciary as it relates to her client, and the same “honest and fair” standard to meet in dealing with the seller.
The Horiike v. Coldwell Banker ruling has the potential to alter the requirements of a company’s fiduciary responsibility when its agents are representing both sides. Coldwell Banker’s attorney in the case, Edward Xanders, admitted as much when he said a ruling against his client would create a “whole new ballgame” for agencies, possibly forcing them to disclose damaging information. It would also apply to commercial brokerages that have dual agent transactions, such as Cushman & Wakefield and CBRE. That potential far-reaching impact drew the attention of the industry — several trade organizations with competing interests at stake in the decision filed briefs with the court.
The California Association of Realtors, a trade group that represents more than 175,000 licensed real estate agents in the state, argued in an amicus brief that a ruling limiting dual-broker transactions would limit a consumer’s choices. Because a buyer working with a broker doesn’t know what property they will ultimately purchase, there’s no way to anticipate whether the seller will be represented by the same firm. “[B]uyers will be restricted in the properties they can explore, and sellers will have a limited pool of buyers,” the association said in a statement. “Allowing all parties to explore buying or selling more properties on the market, not fewer, benefits the consumer.” It’s a view shared by Michael Nourmand, president of Beverly Hills agency Nourmand and Associates, who said in an interview with TRD before the decision was issued that dual agent limitations would be “excessive.” …read more click below
The Demise of Dual Agency: An Analysis of the Recent California Supreme Court Decision Against Coldwell Banker
The Demise of Dual Agent Real Estate Representation? An Analysis of the Recent California Supreme Court Decision in Horiike v. Coldwell Banker November 30, 2016 By Lisa L. Boswell, Alexandria A. Walker Horiike v. Coldwell Banker Residential Brokerage Co., California Supreme Court, No. S218734, Nov. 21, 2016
Last week, the California Supreme Court announced a decision that could modify the way big brokerage real estate firms handle business. In a case of first impression, the Court held that a brokerage company who represents both the buyer and the seller in a real estate transaction owes a fiduciary duty to both parties, even if different agents represent the parties. It is well settled law that an agent who represents both the buyer and the seller owes a fiduciary duty to both parties. In Horiike v. Coldwell Banker, however, the Court extended the fiduciary duty to brokerage companies.
The case began in 2007 when Hong Kong millionaire Hiroshi Horiike purchased a Malibu mansion for $12.25 million. Chris Cortazzo, one of the most successful agents at Coldwell Banker, represented the seller. Horiike was represented by a different Coldwell Banker agent. Both parties agreed to dual representation. Horiike claims Cortazzo told him the house was 15,000 square feet. However, after he moved in, Horiike realized that the house was only 10,000 square feet. Horiike sued Cortazzo and Coldwell Banker, alleging that both Cortazzo and Coldwell Banker breached their fiduciary duties when they sold him the house because they falsely represented the size of the house to him. Cortazzo argued that he could not be held liable because his sole duty was to his client, the seller.
The California Supreme Court sided with Horiike and expanded the 1986 state law that authorizes and regulates dual agents in real estate transactions. The Court held that Coldwell Banker owed a fiduciary duty to Horiike, which included a duty to learn and disclose all material information that would influence the transaction. The Court extended the duty to the information that Cortazzo knew because Coldwell Banker was presumed to be aware of all facts known to its salespersons. The Court declined to decide whether or not either party actually breached their fiduciary duty.
This decision could affect the future of big brokerage real estate transactions. Now a real estate transaction in which a big brokerage company represents both sides is ripe with possibility for conflict. Agents in a dual-agent transaction can no longer only consider their client’s interest when selling a house; they must also consider the interests of both the buyer and seller. As a result, big brokerage companies will need to be more cautious before they enter into a dual agent relationship for a particular transaction. Only time will tell, but this could lead to a limitation in sales involving big brokerage firms and/or restructuring of big brokerage houses into smaller firms.
Buyers Trust & Sellers Trust are global leaders of this concept.
By MATT CARTER and ANDREA V. BRAMBILA Homebuyers sometimes gripe that their real estate agent seems more interested in closing a sale and collecting a commission check than in helping them find the right home at the right price. Sellers, too, may feel pressured by their broker to make price reductions or accept an offer that’s less than what they’d hoped to receive for their home. What buyers and sellers alike may not realize is that, in many cases, real estate brokers and agents actually have no legal obligation to look after their best interests. Laws in 25 states now allow brokers to provide services to buyers and sellers as “transaction brokers” or “facilitators,” without traditional fiduciary duties of loyalty and obedience.
All 50 states also provide avenues for brokers to “double end” a deal, working with both the buyer and seller in the same transaction and avoiding the need to split commission income with a cooperating broker. In such instances, neither the buyer nor seller is fully represented, critics say. Because they rely on referrals and repeat customers for much of their business, scrupulous real estate brokers and agents strive to provide a high level of service, whether they are representing clients individually in “single agency” relationships or double-ending deals.
See related report: Beyond Dual Agency But consumers shouldn’t assume that their broker or agent is obligated to represent their interests, and their interests alone, until they have seen a written disclosure describing the agency relationship under which services are being provided to them.
Homebuyers and sellers looking to negotiate the best commission rate, obtain the highest level of service, and protect their legal rights in the event of a dispute can start off on the right foot by making sure they understand the form of representation their broker or agent is providing. Agency relationships Agency relationships are created when one person agrees to act on another’s behalf, or represent them in dealings with a third party. Once an agency relationship is established, agents owe their clients “fiduciary duties” of loyalty and obedience.
They are typically required to place their clients’ interests ahead of their own, providing services with honesty and good faith while avoiding conflicts of interest or “self-dealing.” But the rules governing agency relationships between consumers, real estate brokers and their agents vary from state to state, and all have been rewritten in the last 25 years. Depending on the laws of the state they are licensed in, brokers can provide services in one of six relationships:
Single agency: A broker or agent represents the interests of the buyer or seller alone in a transaction — either as the listing agent or as a “buyer’s agent.” Consumer advocates and agents who work exclusively with buyers say single agency is the best form of representation.
Designated agency: One broker designates two of their agents to represent the buyer and seller separately. When states require that brokers implement safeguards to protect clients’ confidential information, designated agency is the next best alternative to single agency, academics and consumer advocates say.
Disclosed dual agency: A lone agent provides services to both the buyer and the seller in a limited agency relationship, without an obligation to represent the best interests of either. In states with no provisions for designated agency, when two agents affiliated with the same broker represent both sides of a transaction, the broker may be considered a dual agent. Although controversial even among real estate brokers and agents, disclosed dual agency does present opportunities for experienced sellers to negotiate discounted or “variable rate” commissions in advance.
Transaction brokerage: One agent or two agents at the same brokerage may provide services to the buyer, the seller, or both, in a non-agency relationship, owing no fiduciary duties of loyalty and obedience. In addition to having the same disadvantage as dual agency — neither the buyer nor seller can expect an agent to represent their interests during negotiations — consumers served by transaction brokers have little leeway to file claims for professional negligence.
Provision of “ministerial” services to unrepresented “customers”: A listing broker may avoid splitting a commission with a cooperating broker by providing limited services to an unrepresented buyer. Every state in the union provides avenues for brokers and agents to “double dip.” Of the eight states that ban dual agency outright, four allow designated agency (Alaska, Colorado, Maryland and Texas), three allow transaction brokerage (Florida, Kansas and Oklahoma), and three allow both (Alaska, Colorado and Texas). Subagency: The listing broker represents the seller in an agency relationship. “Selling agents” who work with buyers are “subagents” of the listing broker. All of the agents involved in a tran
“But consumer advocates say [dual agency] cheats both buyers and sellers, denying them an agent’s allegiance and undivided attention at a time when they’re making a major financial decision. ‘You’re either loyal or you’re not. It’s like being slightly pregnant,’ says Maureen F. Glasheen, former counsel to the New York Secretary of State, who opposes dual agency.” Wall Street Journal “Could Your Broker be a Double Agent” September 8, 1995 http://www.balchbuyersrealty.com/wsj.html
But buyers no longer have to fend for themselves. You can hire a buyer agent to work on your behalf. U S News and World Report “ 10 Rookie home buyer mistakes to avoid” Ted Guarino May 07, 2010 http://money.usnews.com/money/personal-finance/real-estate/articles/2010/02/18/10-rookie-home-buyer-mistakes-to-avoid/comments
“A TRUE AGENT is one who provides 100% loyalty to his/her clients 100% of the time. No dual agency; no “designated agency”, no “transaction brokerage;” no “Chinese walls;” no weasel clauses!” International Real Estate Directory “ Agency and True Agents” 1995 http://www.ired.com/trueagent/
“…A Buyer’s Broker is prohibited from disclosing to a Seller that the Buyer can, or will, pay more than what has been offered…
To eliminate conflict of interests, exclusive buyer agents do not take listings. Buyer’s Broker make a great deal of sense” The New York Times “Buyers Seek Brokers of Their Own” March 13, 2009 http://www.nytimes.com/2009/03/15/realestate/15lizone.html?scp=3&sq=buyersbroker&st=cse
Sellers’ agents and dual agents do not and cannot by law give a buyer the same degree of loyalty as an agent who acts on behalf of a buyer. … A buyer who relies on the seller’s agent or on dual agency does not receive the same degree of legal protection as that afforded by an agent acting solely on behalf of the buyer. Realty times “Oklahoma Supreme Court slams real estate commission” dated 9/24/1999