Real Estate – Multiple Agents From One Brokerage and Their Fiduciary Obligations

by Low, Ball & Lynch
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Hiroshi Horiike v. Coldwell Banker Residential Brokerage Company, et al

Court of Appeal, Fourth District (April 9, 2014)

In real estate transactions, it is not uncommon for one agent to represent both the buyer and the seller.  In such dual agency situations, the agent owes fiduciary obligations to both parties.  This case considered the fiduciary obligations of two agents from different offices of the same national broker.

Chris Cortazzo, a salesperson for Coldwell Banker Residential Brokerage (“CB”), listed a property for sale in Malibu in September of 2006.  In the listing and on a flier, he stated that the home offered “approximately 15,000 square feet of living areas.”  The MLS service that provided public record information stated that the living area was 9,434 square feet.  The building permit indicated a single-family home of 9,224 square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a basement of unspecified area.  The listing agent had or subsequently obtained a letter from the architect stating that the size of the house under a current Malibu building department ordinance was approximately 15,000 square feet.

An offer was made the following March.  Advice was given to the prospective buyer to verify square footage, but because they were unable to obtain building plans or to receive an escrow extension for further investigation, the buyers cancelled.

In July, the listing field for square footage was changed to “0/O.T.” which meant zero square feet and other comments.  A couple of months later, plaintiff Hiroshi Horiike was a potential buyer working with Chizuko Namba, a salesperson in another CB office.  Horiike received a copy of the flyer saying that the home offered “approximately 15,000 square feet of living areas.”  He made an offer and escrow opened in November. Namba was provided with a copy of the building permit which she sent to Horiike along with other documents.

Both parties signed a confirmation of the real estate agency relationships as required by Civil Code section 2079.17.  They also signed a mandated agency disclosure form which describes various agency relationships and the duties of agents.  Among other things, that form says that “A real estate agent, either acting directly or through one or more associate licensees, can legally be the agent of both the Seller and the Buyer in a transaction …”  It also says that an agent in a dual agency situation has a fiduciary duty to both the seller and the buyer.

The transaction closed.  During the course of the transaction, Horiike did not receive advice to hire a specialist to verify square footage, as had the buyers in the previous transaction.  In 2009, Horiike reviewed the building permit in preparation for work on the property.  He could not verify the approximately 15,000 square feet of living area.  He sued CB and the listing agent, Cortazzo for intentional and negligent misrepresentation, breach of fiduciary duty, unfair business practices and false advertising. The trial court granted Cortazzo’s motion for nonsuit on the cause of action for breach of fiduciary duty against him, ruling that Cortazzo had no fiduciary duty to Horiike.  The jury found that the listing agent had not made a false representation of a material fact, hence there was no misrepresentation.  It also found that he did not intentionally fail to disclose an important or material fact to the buyer.  The jury also found that CB did not breach its fiduciary duty to Horiike. Horiike appealed.

The Appellate Court found that the motion for nonsuit should have been denied, and the cause of action for breach of fiduciary duty should have been submitted to the jury. As a fiduciary, the listing agent should have gone the “extra mile” to provide the buyer with information about matters that concerned him.

The Appellate Court said that because CB had fiduciary duties to the buyer, so then did both of its agents.  In short, the Court said that it is a mistake – and a common myth – that when there are two agents from the same company in a dual agency situation, each of them only has fiduciary duties to his/her personal client. They are both the fiduciaries of both.  The case was remanded for a new trial.

COMMENT

Does a real estate agent representing the Seller owe a fiduciary duty to a Buyer who is represented by another real estate agent?  The answer is “yes,” if both agents are employed by the same broker. This case reaffirms that real estate agents who act as dual agents, representing both the Seller and the Buyer in a transaction, owe a fiduciary duty to BOTH parties.

For a copy of the complete decision, see:
http://www.courts.ca.gov/opinions/documents/B246606.PDF

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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