By Carl Kanowsky
So, you’ve won the lottery, your rich old Uncle Jim died leaving you his estate, and you’ve settled a lucrative car accident case. Now, you suddenly have the millions necessary to put a down payment on your dream home in Malibu.
You’ve asked your real estate agent, George, to find out as much as he can about the Malibu home. George investigates and calls you back. “Mary,” George says, “Great news. The Malibu estate is still available and it’s only $12 million. Also, you’re in luck. Phyllis is the seller’s agent. She works out of the same office as I do, so we share the same broker. This should make things flow smoothly.”
The next step is to actually visit the home and see what you think. It’s beautiful, and you love it. On top of that, you see that the flier for the home lists approximately 15,000 square feet of living areas.
You buy the property. Then, a couple of years later, while doing some remodeling, you find out that the home and guest house is actually less than 10,000 square feet.
You’re upset. Not only don’t you have as a big a home as you thought but maybe you’ve overpaid for it and will have to disclose the correct square footage when you sell. So, you hire a lawyer to bring suit over what you perceive to be a misrepresentation, if not more.
During the lawsuit, you learn that Phyllis obtained public record information from the tax assessor’s office, which stated that the property’s living area was 9,434 square feet, and a copy of the residence’s building permit, which described a single-family residence of 9,224 square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a basement of unspecified area. This is not 15,000 sq. ft., and it looks like Phyllis knew it but she never told you.
It’s undisputed that the real estate agent directly representing you as a buyer has a fiduciary duty of disclosure. That’s been defined as “a duty to learn and disclose all information materially affecting the value or desirability of the property, including the discrepancy between the square footage of the residence’s living area as advertised and as reflected in publicly recorded documents.”
But does the agent representing the seller (who’s with the same broker as your agent, a so-called dual agency) have any duty to disclose such information to the buyer?
In Horiike v Coldwell Banker, the California Supreme Court addressed that exact issue in a fact pattern very much like the hypothetical above. Horiike bought a home in Malibu that was being represented by Chris Cortazzo, an agent with Coldwell Banker. Horiike was using his own agent, Chizuko Namba, also with Coldwell Banker. Cortazzo, according to the court’s opinion, looked at the tax records that showed a combined square footage of 9,970 square feet but advertised in a flier that it was “approximately 15,000.”
Horiike bought the home believing in the 15,000 and later learned the truth. He sued, among others, Cortazzo, saying that since both agents came from the same broker they both had a duty to disclose to the buyer.
Cortazzo said he didn’t have this duty since he represented only the seller. The Supreme Court disagreed, ruling that “when Coldwell Banker agreed to act as a dual agent for both Horiike and the [Seller] in the transaction for the sale of the Malibu residence, Cortazzo, as an associate licensee of Coldwell Banker in the transaction, assumed equivalent duties to Horiike.”
This unanimous decision, handed down on Nov. 21, likely will have a major impact on how property is sold in California.
Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at [email protected]. Mr. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.