Supreme Court Clarifies Real Estate Agency Duties

11819116_lIn the last issue of The Dirt, we discussed the California Supreme Court’s consideration of the duties of a real estate agent as we described the oral argument before the Court in Horiike v. Coldwell Banker Residential Brokerage Co. The Court has now rendered its decision, and while clarifying the duties of real estate licensees working for brokers, the decision also suggests that the real estate agents’ lobby may soon move to amend the law, particularly since the Court went out of its way on more than one occasion to explain how different language in the statute would yield a different result.

Chris Cortazzo, a Coldwell Banker agent, listed a large home in Malibu for sale. The tax assessor’s records, the building permit, and the architect all indicated different square footage for the house, and in the case of the architect, the difference amounted to more than 5,000 square feet. In the listing, Cortazzo set out the home’s square footage as that given by the architect, with a disclaimer indicating that interested parties should verify the square footage if it was important to them, as the real estate agents were relying on information provided by others. Before Horiike came along, another couple had made an offer on the property, and for them, Cortazzo provided a handwritten note reminding them that the square footage was approximate, but if the matter was a concern to them, they should contact a professional to verify the square footage. That transaction failed to close, however.

Namba, another Coldwell Banker agent working in the same office as Cortazzo, showed the property to Horiike, who made an offer on it. The offer was accepted. Cortazzo did not provide a similar handwritten note to Horiike, but he did provide a written disclosure advising that the square footage was based on sources that could not be relied upon to be accurate. Horiike did not take any steps to confirm the square footage until after the purchase was completed. As part of an effort to remodel the house, however, he learned that the house had less than 10,000 square feet. He therefore sued Cortazzo and Coldwell Banker, but not Namba, agreeing at trial that Namba had not breached any duties to him.

All parties agreed that Coldwell Banker, Cortazo’s employing broker, owed Horiike a duty to disclose all facts materially affecting the value and desirability of the property, but the question the Court confronted was whether Cortazzo owed Horiike a similar duty, or whether, in the alternative, that duty was limited only to Coldwell Banker, the broker. After reviewing the statute, the Court concluded that Cortazzo did owe such a duty to Horiike. It therefore returned the case to the trial court to determine whether the facts supported a breach of the duty.

The Court suggested two areas in which the Legislature could change the law if a different result was desired. The first was whether the broker’s fiduciary duties should be imputed to the sales associate as opposed to the sale’s associate’s fiduciary duties being imputed to the broker. The significance of this distinction is that with the former, a listing agent would have all of the broker’s duties to both the buyer and the seller, whereas with the latter, the listing agent would only owe fiduciary duties to the seller, which would in turn be imputed to the broker, but the listing agent would not owe such duties to the buyer, even if the buyer was represented by the same broker. The Court found that the listing agent owed all of the broker’s duties to both the buyer and seller but suggested language that could be used to change the law by statutory amendment.

And second, the Court noted that the Legislature has so far refused to address the problem of dual agency in real estate transactions head on by, for example, allowing sales associates for a particular broker to represent either the buyer or the seller in a transaction without owing duties to the other. The Court pointed to statutes in Alaska and Connecticut which did just that, indicating that the Legislature could do so if it chose. Thus, while this case settles the issue of the extent of the agent’s duty for the time being, we can anticipate that the Legislature may be pressured to change the law in the future, and indeed, the Court stated as much at oral argument and drew a map in its opinion as to how to do so.