California Supreme Court rules on Horiike v. Coldwell Banker

In a much-watched case by the real estate industry, the California Supreme Court has ruled that a salesperson working with a seller owes a fiduciary duty to disclose material facts to the buyer in the transaction when both the buyer’s and seller’s salesperson are licensed under the same broker. In California, listing agents representing the seller have always understood they have a duty to disclose known material facts about a property whether they share a common broker or not.

This law has been on the books since the 1980s and the duty to disclose known material facts affecting the property has long existed in residential transactions. The decision does not change that obligation. It is worthy of note that the jury found that the seller’s salesperson and broker were not liable for intentional or negligent misrepresentation or intentional concealment. The buyer had stipulated that the buyer’s salesperson was not legally responsible. This case does not outlaw dual agency; the law permitting it remains unchanged.

The Horiike v. Coldwell Banker case involved an issue of conflicting information on a Malibu property’s square footage. The Tax Assessor’s information indicated 9,434 square feet, while the building permit indicated a total of 11,050 square feet, including a guest house and a garage. However, the home’s architect stated the City of Malibu defines square footage differently for purposes of development, perhaps including outdoor living area and therefore, the architect indicated that the size was 15,000 square feet by that standard.

A property flier indicated the property had 15,000 square feet. The salesperson provided the buyer with multiple documents on the square footage and statements, which advised that the broker had not verified the square footage. The salesperson used forms that advised the buyer to use an appraiser, architect, surveyor, or civil engineer to verify the square footage. The jury already decided that neither the listing salesperson nor the broker was liable for concealment, intentional or even negligent misrepresentation. The remaining issue is whether that same conduct somehow breached a fiduciary duty that the court stated was "strikingly similar to the nonfiduciary duty of disclosure that Cortazzo [the listing salesperson] would have owed Horiike in any event."

The court further stated that "even in the absence of a fiduciary duty to the buyer, listing agents are required to disclose to prospective purchasers all facts materially affecting the value or desirablity of a property that a reasonable visual inspection would reveal." This is current law, as stated in Civil Code Section 2079.16 and 1102.6.

As always, those representing parties in a transaction, whether with the same brokerage or not, should be vigilant to disclose all known material facts affecting the value and desirability of the property, and conduct a careful visual inspection. When transmitting information, it is best to attribute the source of the information, state that it is not verified and recommend they get an appropriate expert to do so.

Nov. 22, 2016

Central Valley Real Estate News

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