Nearly two years ago, Gov. Jerry Brown signed a bill to require real estate brokers and their salespeople to disclose when they are acting as dual agents, representing both sides in a commercial real estate transaction.
Senate Bill 1171 was an important first step to limit conflicts of interest and clarify what duties brokers owe their clients, but as the main architect of that law, I’ll be the first to admit that much work remains to be done.
Now, the California Supreme Court has the opportunity to take a second step in the Horiike v. Coldwell Banker case.
Hiroshi Horiike was represented by an agent of Coldwell Banker, which also represented the seller. He believed he was buying a 15,000-square-foot home in Malibu, only to find that the living area was actually 9,434 square feet. The seller’s agent never reported this discrepancy; the crux of the dispute centers on whether that agent had a duty to do so.
Coldwell Banker says that this was not a case of dual representation, because the seller’s agent and buyer’s agent were on separate teams in separate offices. Horiike argues that the firm was by definition a dual agent, so it had a fiduciary duty to him.
At Hughes Marino, we couldn’t agree more. That’s why we filed a brief with the court in support of Horiike, who is simply shining a light on an ugly practice that has plagued the real estate industry for far too long.
Coldwell Banker argues that upholding an appeals court ruling for Horiike would lead to “a monumental shake-up of the real estate industry that will hurt consumers.” While it’s right about the shake-up, it couldn’t be more wrong that it will hurt consumers.
Being a dual agent puts a brokerage firm and its agents in an almost impossible position, since they owe fiduciary duties to both parties. They’re no longer able to advise either client regarding price since that would violate the duty to the opposing side. If you ask how much you should offer, all they can do is show you comps and let you make your own decision.
Further, if you make the mistake of telling the agent information that could weaken your negotiating position, then the agent would be obligated to share it with the opposing party. Since the dual agent is also obligated to you to keep this information confidential, it leaves you wondering what you can and can’t say to your agent. At that point, the dual agent is a glorified messenger. It would be cheaper and safer to use FedEx.
The Horiike case could be a watershed victory in the real estate industry for consumers.
It would likely cause dual-agent and full service brokerage firms to break up, restoring some semblance of fairness to a system that has favored sellers and landlords for far too long. It’s why I’ve worked exclusively in tenant representation for the past 25 years.
For the public, there is no benefit in fostering an environment that allows conflicts of interest to continue. It’s an environment that preys on small-business owners and startups that end up paying over market value, robbing them of the opportunity to create additional jobs or invest in their companies. It’s an environment that perpetuates backroom wheeling and dealing instead of increasing transparency.
If Horiike loses, we all lose.
Jason Hughes is president and CEO of Hughes Marino, a commercial real estate company in San Diego. He can be contacted at Jason@hughesmarino.com.