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Dual Agency Ruling: What You Need to Know

In Horiike v. Coldwell Banker et al., the California Supreme Court left intact the practice of dual agency but imposed additional requirements on associate licensees in dual agency situations.

By Tony Capitelli
Government Affairs Director

The California Civil Code defines an “associate licensee” as “a person who is licensed as a real estate broker or salesperson … and who is either licensed under a broker or has entered into a written contract with a broker to act as the broker’s agent in connection with acts requiring a real estate license and to function under the broker’s supervision in the capacity of an associate licensee.”

While dual agency is treated differently in different states, this practice is legal in California provided that it is properly disclosed and consented to. Horiike v. Coldwell Banker et al. was a dual agency case involving luxury property in Malibu.

Chris Cortazzo, from Coldwell Banker’s office in Malibu, was the listing agent for the property. Both on the Multiple Listing Service and in a marketing flyer, Cortazzo described the property as having approximately 15,000 square feet of living areas. The buyer, Hiroshi Horiike, who purchased the property for $12.25 million, was represented by Chizuko Namba, an agent from the Coldwell Banker office in Beverly Hills.

The public record obtained by Cortazzo from the tax assessor’s office states that the property’s living area is 9,434 square feet, and the building permit obtained by Cortazzo states that the property is 9,224 square feet. Horiike signed all of California’s required dual agency disclosures; and through Namba, Cortazzo presented Horiike with a copy of the residence’s building permit and with an advisory form stating that only an appraiser can verify square footage and that a broker does not have that expertise. 

While the court in Horiike does not go so far as to impose complete liability on associate licensees in a dual agency situation, it does define a fiduciary duty of disclosure. Here is what you need to know:

  1. An associate licensee in a dual agency situation now has “a duty to learn and disclose all facts materially affecting the value or desirability of the property” in question.
  2. An associate licensee still has loyalty to his or her client. The disclosure requirement includes “facts materially affecting the value or desirability of a property that are not known to or reasonably discoverable by the buyer.”
  3. An associate licensee acts only on the broker’s behalf and has no relationship with clients independent of the broker.
  4. A broker is still not liable for the tortious acts of his or her associate licensee. The additional fiduciary duty in Horiike is limited to disclosure.

Although Horiike is a landmark dual agency case, it is limited in its scope. The court even states, “The fiduciary duty of disclosure that Horiike alleges Cortazzo breached is, in fact, strikingly similar to the nonfiduciary duty of disclosure that Cortazzo would have owed Horiike in any event.”

Disclaimer – The content in this Government Affairs section is intended as a general advisory, and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.

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Guest Friday, 22 September 2017