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.

Source: The Demise of Dual Agent Real Estate Representation? An Analysis of the Recent California Supreme Court Decision in Horiike v. Coldwell Banker – Wood Smith Henning & Berman – Attorneys at Law

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Buyer and seller beware: Your agent may not represent your best interests

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

Source: Buyer and seller beware: Your agent may not represent your best interests

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