Legal Update

WHEN A BROKER IS THE DUAL AGENT OF BOTH THE BUYER AND THE SELLER IN A REAL PROPERTY TRANSACTION, THE SALESPERSONS ACTING UNDER THE BROKER HAVE THE SAME FIDUCIARY DUTY TO THE BUYER AND THE SELLER AS THE BROKER.

  • May 29th, 2014
  • Print

In a dual agency transaction, where the buyer and seller were represented by sales agents working under the same broker, the listing agent owed a fiduciary duty to the buyer and could be held liable for failing to advise the buyer to verify the accuracy of conflicting information on the square footage of the property. Horiike v. Coldwell Banker Residential Brokerage Co., 169 Cal.Rptr.3d 891 (2014)

FACTS:   A residential property located in Malibu, California was listed for sale in September 2006 by Coldwell Banker (CB). The property consisted of a single family residence, a guest house, a garage and a basement. The building permits stated the total square footage was 11,050 square feet. Public records stated the property was 9,434 square feet.  Chris Cortazzo, the listing agent at CB stated on the MLS and in a flyer that “the home offers approximately 15,000 square feet of living area.”

The first interested buyer made an offer to purchase the property and wanted information to verify the square footage of the living areas. Mr. Cortazzo advised the potential buyer to hire a specialist to verify the square footage.  The potential buyer could not verify the square footage and cancelled the transaction.

Cortazzo re-listed the property for sale on the MLS, only this time he changed the square footage from 15,000 to “zero” square feet.

A second interested buyer, Hiroshi Horiike was represented by another CB agent, Chizuko Namba (selling agent).  Cortazzo (listing agent) gave Horiike (buyer) a copy of the flyer that stated the property had 15,000 square feet of living area and also provided a copy of the building permit showing 11,050 square feet.  The listing agent did not recommend to Horiike that he verify the square footage (as he had told the first buyer).

All parties signed a confirmation of the real estate agency relationships which named CB as the listing agent and selling agent of the buyer and the seller (dual agent).  Horiike purchased the property without verifying the square footage.  

After the purchase, Horiike began work on the property and discovered the square footage was not 15,000 square feet. Horiike sued Cortazzo (listing agent) and CB for misrepresentation and breach of fiduciary duty. 

At trial, the jury found that Cortazzo was not liable for any intentional or negligent misrepresentation because he honestly believed and had reasonable grounds for believing, that his representation of the square footage was true.  The court ruled that Cortazzo owed no fiduciary duty to Horiike.  Horiike appealed and the Court of Appeal reversed.

DECISION:  When there is one broker, and there are different salespersons licensed under the same broker, each salesperson is an employee of the broker and their actions are the actions of the employing broker.  When one salesperson obtains the listing and represents the seller, and another salesperson employed by the same broker represents the buyer, they both act as employees of the same broker.  That broker thereby becomes a dual agent representing both parties.

CB acted as the dual agent of the buyer and the seller in this case, as was confirmed on the disclosure forms provided to Horiike.  The duty that Cortazzo owed to the buyer was equivalent to the duty owed to that party by CB.  CB owed a fiduciary duty to Horiike, and therefore, Cortazzo owed a fiduciary duty to Horiike.

‘[A] broker’s fiduciary duty to his client requires the highest good faith and undivided service and loyalty.  “The broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision. He is hired for his professional knowledge and skill; he is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal’s decision, and he has a duty to counsel and advise the principal regarding the propriety and ramifications of the decision.

In this case, Cortazzo advised the first buyer to have the square footage verified by a specialist but he did not give the same advice to Horiike.  A trier of fact could conclude that although Cortazzo did not intentionally conceal the information, Cortazzo may have breached his fiduciary duty by failing to communicate all of the material information he knew about the square footage.  The case was remanded for new trial.

ANALYSIS:  Salespersons commonly believe that there is no dual representation if one salesperson ‘represents’ one party to the transaction and another salesperson employed by the same broker ‘represents’ another party to the transaction.  This case confirms that this notion is legally incorrect. In a dual agency transaction, both sales agents under the same broker, owe the same fiduciary duty to each other’s clients and are legally obligated to counsel, explain and advise both the buyer and seller. 

Full Text of the Decision: http://scholar.google.com/scholar_case?case=17518900701017361395&hl=en&as_sdt=6&as_vis=1&oi=scholarr

***

This case was recently decided and is subject to change by further appellate proceedings or legislation.  You should consult legal counsel to evaluate this legal precedent in the context of your specific facts.  The distribution of the SLF Legal Update does not by itself create an attorney-client relationship with the reader.