Agency Highlights: 3Q 2019

The agency cases located this quarter predominantly address the scope of real estate brokerage services. Agency issues were identified in eighteen cases.

1. Horiike v. Coldwell Banker Residential Brokerage Company, No. B290819, 2019 WL 4668006 (Cal. Ct. App. Sept. 25, 2019) 

Salesperson had the same fiduciary duty to the buyer and the seller as the brokerage company to learn and disclose material information.

A salesperson licensed under Coldwell Banker was hired by the seller of a residential property. The salesperson informed the buyer that the property consisted of approximately 15,000 square feet of living area and that the owner was the source of the square footage information. At the bottom of the listing an advisement stated, “Broker/Agent does not guarantee the accuracy of the square footage, lot size or other information concerning the conditions or features of the property provided by the seller or obtained from Public Records or other sources.  Buyer is advised to independently verify the accuracy of all information through personal inspection and with appropriate professionals.”  The seller and the buyer both used salespeople from the same brokerage; therefore, the brokerage was a dual agent.  After purchasing the property, the buyer learned that public records listed far less square footage for the house, around 11,000 square feet.  The buyer’s lawsuit alleged misrepresentation, intentional concealment, and breach of fiduciary duty.

The California Supreme Court held that a brokerage that is a dual agent owes fiduciary duties to both the buyer and seller, and the salespeople who are under the brokerage’s license owe equivalent duties.  The seller’s salesperson thus owed the same fiduciary duty to the buyer as the brokerage did. That duty included a duty to learn and disclose material information affecting the property’s price or desirability, including those facts the buyer might have reasonably discovered himself. The case was remanded for a new trial on the claim for breach of fiduciary duty.

At trial, the buyer contended that the salesperson was required to disclose documents that listed far lower square footage for the house, but the measurements in those documents were “incomplete, misleading, and not material, considering the property had approximately 15,000 square feet of living area.” The jury found that there was no evidence that the salesperson breached a fiduciary duty to the buyer, made a false representation of fact, or intentionally failed to disclose a fact that buyer could not reasonably have discovered.

2. Jossund v. Heim Plumbing, Inc., No. 2018AP209, 2019 WL 2997987 (Wis. Ct. App. July 10, 2019)

A seller may be liable for an agent’s representations even if the seller did not know the representations were made.

Buyers purchased a residence in Wisconsin from the bank who was the seller. After moving in, they found defects with the home, including a damaged water tank and broken water pipes, which resulted in sewage in the basement and elevated fungal growth. One of the buyers was rendered ill by these conditions. The buyers sued Heim Plumbing, which had been hired to inspect the house's plumbing system, along with Heim's insurer, the seller's real estate agent, the brokerage firm, and the seller (bank), alleging fraudulent misrepresentation and negligence.

Under Wisconsin law, a seller may be held liable for an agent's misrepresentations even if the seller had no knowledge the misrepresentations were made. In response to the bank’s argument that the complaint failed to sufficiently allege an agency relationship, the court stated: “[v]ery generally, if an individual or company hires someone to negotiate a deal for you, subject to your approval, that someone is your agent.” The buyers alleged that the seller’s real estate agent provided real estate brokerage services for the bank as the seller of the property, which the bank accepted the purchase offer and that the bank was compensated for the purchase price.  The court found that the buyers were able to successfully identify the time, place, and content of the alleged affirmative representation the real estate agent made before the sale of the property and ultimately denied the seller’s motion to dismiss.

3. Dubasso v. LQR Resort Desert Real Estate, Inc., No. E069952, 2019 WL 4439702 (Cal. Ct. App. Sept. 17, 2019)

Salesperson had an obligation to inform buyers that the golf club might reject their membership application.

Buyers were searching for a retirement home in LaQuinta in 2015. During their visit to the Tradition community, the buyers expressed concern that living in a country club community might be “lonely and isolating.”  The broker told the buyers that they shouldn’t be concerned because “the social club at Tradition was amazing” and there “would be plenty of people around…”  Also, at the broker’s suggestion, the buyers visited the Tradition clubhouse and met its general manager.  Through the visit, it was expressed that the buyers intended to become members of the club in addition to purchasing the home.  At no time, however, did the broker or the club general manager explain that the buyers would need to apply for membership, or undergo a vetting process, or suggest in any way that membership was anything other than automatic upon purchasing.  The buyers purchased a home in the Tradition community in LaQuinta with the intention of becoming club members. Following the close of escrow on the purchase of their home, they applied for a membership in Tradition’s Golf Club, which was rejected. Subsequently, the buyers said they “felt like pariahs in their own neighborhood” and brought an action for money damages against LQR Resort Desert Real Estate, Inc., and the individual who served as buyers’ real estate broker and agent (collectively, Defendants), for failure to disclose that membership to the club was not “automatic” for Tradition homeowners. The complaint alleged that the Defendants intentionally or negligently breached their fiduciary duty to the buyers by failing to learn that they did not wish to purchase their Tradition home unless they could be club members, and by failing to advise them to make their purchase contract contingent on Tradition’s approval of their club membership application. The Defendants moved for summary judgment on the sole ground that the covenants, conditions, and restrictions (CC&R) of Tradition’s community association “disclosed” to the buyers that the purchase of a Tradition home did not “guarantee” club membership.

In considering the buyers’ claims, the court noted that as fiduciaries, a broker and its salespersons or agents have a duty to investigate and discover, and to advise the broker's principal of “all material facts that may bear upon the principal’s decision and that will allow the principal to make a well-informed decision in the real estate transaction in question.” Therefore, the language in the CC&Rs was not sufficient to relieve the defendants of their obligation to inform buyers “in some manner” of a fact that the defendants were actually aware of; namely, that the club might reject the buyers’ membership application. The courts ultimately denied the Defendant’s motion for summary judgment.¹

Statutes and Regulations²

No statutes or regulations were retrieved.

1 This case has not yet been fully resolved.
2 This third quarter update reviews legislative activity from the following jurisdictions: North Carolina and Oregon.