Did you hear that the California Supreme Court decided about...

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Real Estate Agent with Berkshire Hathaway HomeServices 01238708
http://activerain.com/droplet/4XHv

Did you hear that the California Supreme Court decided about Dual Agency: Good intention bad results? What are your thoughts?

In my opinion we are going into uncharted territory with this California Supreme Court decision. (This decision was made this past week and some of you might have missed it due to the Thanksgiving Holidays). I believe it is bad for all involved in a Real Estate Transaction. I am also concerned that this will set a bad precedent and will increase liability as well as more litigation in the coming years for all involved.

Background: in 2007 a Malibu Agent listed a house and a Chinese Multimillionaire bought the house.

 -Just on a side note I have represented a few Chinese buyers over the years and discovered how knowledgeable they were with the listing history as well as the size of the property. I was truly amazed,  how knowledgeable they were about the nearby comparable homes as well. I kept asking probing questions and mentioned to them about the nearby properties. They explained that was the reason they were ready to make an offer. I found the buyers to be very savvy and in my opinion more informed than 40% of the real estate agents in the Greater Los Angles Real Estate Market. -

Back to the Malibu listing agent: it turns out buyer is represented by his own agent.  -very much like my situation, I was the listing agent and the buyer was negotiating directly with me about the property i.e.: the listing agent for over a year. Ultimately when the buyer was ready to make an offer, magically a buyer’s agent appeared. In my case the buyer’s agent was an out of area agent and not the same company I worked for.

I was disappointed by the buyer’s decision, but my fiduciary responsibility was to the seller i.e.:  to properly represent the seller I had to forget the fact that the buyer was sneaky by not disclosing for close to a year while we were communicating that he had his own representation.

Keep in mind this was right at the downturn of the Real Estate Market. It cost me at least 2- 3% commission which I should have received, but the focus was on selling the property to a willing and able buyer.

I had numerous conversations with the buyer’s agent, once he appeared in the transaction. He was apologetic and told me that is how “his people” operate (his words), they are very savvy, have the values all figured out and pick the brains of the listing agent and then instruct their buyer’s agent to write up the offer, since they already did their research. Then to boot, the buyer also ran the boiler plate California Association of Realtor Purchase forms through his own attorney. (keep in mind CA is not an Attorney Closing State it is an Escrow Closing State)

Back to my post, my guess is that the Malibu Agent has been dealing directly with the buyer and ultimately the same scenario occurred. The buyer had another agent write up the offer. In this instance, it happened to be in the same Brokerage but from another office.

 The Buyer felt slighted that he was given wrong information from the listing agent and took legal action against the listing agent and the Broker that he was given incorrect information. Keep in mind he did not take legal action against his agent who represented him in the transaction.   Most buyers if they feel wronged will accuse their own buyer’s agent first before attacking the listing agent and the Brokerage.

My take is that, this was a setup from the beginning, but what do I know. I have a hard time fathoming, that the Multimillionaire buyer was not aware of the history, the size and all the public information about this property. In addition, using the excuse of not being fluent in English does not hold water either, generally the foreign high net worth buyers I have dealt with spoke and wrote better English than I did. Those that did not, well they had interpreters and surrogate team members to clarify the information.  Hence my take is I see deception at work.

My guess is that buyer was trying to achieve something from the get go, i.e.:  possibly a disruption of how business is being done in California. I do not believe that it was about the money, since the Broker has been trying to settle with him on numerous occasions. I am not privy to the numbers they discussed, but knowing the Brokerage, they have a handful of attorneys in house and hire skilled attorneys from outside the Brokerage as well in representing their cases. These attorneys are savvy and know it is easier to make the case go away than litigate for years. In this instance the buyer did not want to settle and continued with his Legal Action.

 Why did the buyer not settle? What was his ulterior motive?

My take is the following:  

 

  •          Buyer did not like the listing agent and wanted to make an example out of him, because he could, since he was a multimillionaire and could afford the time and money to go to the next level.
  •         He did not want to take legal action against his own buyer’s agent, because it would come out that he did all his research in advance and knew that the buyer’s agent gave him good advice but he chose not to take it.
  •         He wanted to make an example of the listing agent for the “misinformation he provided” at the same time he knew the answer in advance and still moved forward with the transaction with malice and forethought.

The accusation:  Buyer claims he “just discovered” that the property was not the size it was disclosed to him.

Keep in mind there are at least three pages of documents in CA, that the buyer signs stating he needs to do his own investigation and not believe the listing agent, nor his own agent…. Anyway, you get the idea.

 Also, keep in mind the buyer has his own appraiser that can provide him with the information he is mostly concerned about i.e.: size and value. Since the property was over $12 million usually in my experience buyers use two separate appraisers just to make sure there is no improprieties.

The Result:

This Court decision is not a win for the buyers, it is not a win for the agents and not a win for the sellers, this is truly a bad ruling for all involved with the purchase and sale of a property in California. To illustrate my point:

  •          Let us use an example: The buyer has been working with a buyer’s agent for a year or longer and is about to make an offer on a property now the Brokerage gets a new listing buyer loves it, what are you to do as the buyer’s agent? Do you refer the buyer to another agency or take on the potential liability?
  •         There is another concern:  what if a seller feels slighted that the listing agent sabotaged the transaction by “over disclosing” and scarring the buyer. (personally, I do not think there is ever too much disclosure) My concern is about the potential liability and litigation from the sellers about ‘over disclosure’.

In conclusion: Real Estate Transactions are not like some people like to equate the Fiduciary Responsibility to a Law firm’s fiduciary responsibility. Law firms do conflict checks and if they discover that they represent the party that the new client is about to litigate against, they will not take on the client. As I said above, what are you supposed to do if you are a Realtor and the buyer happens to like a property that is from the same brokerage? Since there is an increase of listing inventory by the larger brokerages this will be sending a bad precedent to the Real Estate Sales, because the odds are very likely that the purchase will be from the same Brokerage.

So back to my original question what are your thoughts about this decision? Please let me know if you agree or disagree, I would be interested.

 

If you are considering buying or selling a home, a luxury home, luxury investment real estate, luxury vacation homes, or luxury beach properties in Southern California, Los Angeles, Century City, Westwood, West Hollywood, Beverly Hills, Marina Del Rey, Venice or Malibu, feel free to contact me at310.486.1002 (m) or homes@endrebarath.com or visit one of my websites at  http://www.endrebarath.com.  I am a Pet Friendly Realtor and I contribute a portion of my commission to local animal rescue organizations.

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Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Lisa Von Domek  I agree, unfortunately this decision was a  bad  decision by the Court, buyers and sellers disclosures will not be enough to protect all the parties in a transaction actually they make it redundant, Endre

Nov 27, 2016 08:41 PM #15
Rainmaker
460,728
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

Endre Barath, Jr. - I think the outcome of this lawsuit makes sense as to dual agency. I've always thought that having a different agent in the same agency be a buyers agent for a listing of a brokerage, was walking a very fine line. I presume the buyer client doesn't even know he's in a dual agency.  Like many other brokers in California, I get into dual agency transactions a lot and, as long as both sides agree and sign off on it, there is no problem. In fact, it really simplifies and speeds up the process.

Nov 28, 2016 12:20 AM #16
Rainmaker
1,626,640
Patricia Feager
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

This is one for the history books. I'm sorry you were taken advantage of by that deceptive buyer too. 

Nov 28, 2016 03:14 AM #17
Rainmaker
2,784,848
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
Los Angeles Pasadena Area Real Estate 818.516.4393

Hi Endre -- when will yet another disclosure be added to our already lengthy list?

Nov 28, 2016 08:01 AM #18
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Hella M. Rothwell, Broker/Realtor® in the aspect of walking the fine line I agree with you. As to the buyer he was extremely savvy he intentionally only went after the listing agent because evidently in the Civil Code the implication was that the listing agent bears the responsibility vs. the buyer's agent...then to boot he would have gotten into a some landmines if he would have went after his buyer's agent, hence I am confident he was very knowledgeable about the Dual Agency....Endre

Nov 28, 2016 08:45 AM #19
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Patricia Feager  thank you and indeed both same nationality, same super savvy both super knowledgeable and both playing ignorance when convenient to their cause....and lastly both using the system to their advantage......

Nov 28, 2016 08:47 AM #20
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Michael Jacobs  I agree that we will get another disclosure to the 30 other pages of disclosures, sadly this ruling indicates that the disclosures are not a protection from malicious and malcontent buyers or seller....Endre

Nov 28, 2016 08:49 AM #21
Ambassador
2,626,334
Anna Banana Kruchten CRS,CRB
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana of Real Estate!

Endre I smell a rat. That so called ' extremely savvy buyer' knew exactly what his angle was and going to be. It's like a chess game and he knew his moves far in advance, didn't he.  As  for the ruling.....here we go again.  AZ isn't far behind in CA rulings.  There are going to be some big changes on how business is handled, especially for the big box brokers.

Nov 28, 2016 09:36 AM #22
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Anna Banana Kruchten  I agree with your Chess Analogy (I play the game and I am usually 5-7 moves ahead in my head which makes me an average player).... and I absolutely agree this is a big changer of the business and I am not confident that it is good for anyone accept the attorneys involved. As to the fallacious argument that this will make buyers be more cautious?.... They are already cautious almost paranoid if they are first time buyers....Endre

Nov 28, 2016 11:15 AM #23
Rainmaker
1,322,150
Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

Not enough information... did I miss the link to the story or the outcome?

Nov 28, 2016 06:17 PM #24
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Georgie Hunter R(S) 58089  the Ruling by the California Supreme Court ruled against the Listing Agent as well as the Broker... it has been big news in California, since Monday when the decision was published....If you would like I could send you additional details privately if you feel there is not enough information for you in my post and my comments clarifying it...Endre

Nov 28, 2016 08:32 PM #25
Rainmaker
1,269,067
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Los Angeles CA

Wow, got to love some of our high end deals and human greed.... 

Nov 28, 2016 11:31 PM #26
Rainmaker
4,042,257
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

And so it goes, there's always another lawsuit that really accomplishes nothing more than add more pages to our disclaimers and unnecessary complexity to the real estate business.

Nov 29, 2016 04:49 AM #27
Rainmaker
1,926,661
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

Brokerages and agents don't seem to fare very well in court. The consumers typically have an edge, and not to mention, it also appears deep pockets was a motivating factor. I'm not so sure it was revenge as a way to make more money.

It is a wakeup call to listing agents. You think the MLS protects us but it doesn't. We still need to be accurate or reasonably accurate. If a house seems 1/3 smaller, that should be a sign.

I put a fork in dual representation by demanding buyers get their own agent, but none of us can escape dual agency.

Nov 29, 2016 08:54 AM #28
Rainmaker
1,322,150
Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

I did a little reading about the case. Basically the listing agent represented that it had 15,000 sf when it was really 10,000 plus garages and other spaces. I can totally see that he was not completely truthful in his marketing and that's what this is about. A hard lesson learned. Dual agency or not, that was a stinky thing to do.

Nov 29, 2016 10:09 AM #29
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents  I agree with your comment. Interestingly we already have the requirement to disclose what we know, an example neighbor has a loud barking dog etc. in this instance I do not understand why the Main Listing Agent did not provide the same information that he provided the first buyer with? On another note I do not understand why the Attorney representing the Broker and the Listing Agent did not familiarize himself with the Civil Code that pertains to Fiduciary responsibilities? Why he said " that the buyer's agent should be here instead of the listing " instead of saying "IN ADDITION TO the listing agent the buyer's agent should be here as well"... but what do I know I am just a Beverly Hills Realtor not an attorney...Endre

Nov 29, 2016 08:25 PM #30
Rainmaker
2,034,831
Robert Bob Gilbert
Berkshire Hathaway HomeServices Anderson Properties - Katy, TX
Your Katy TX ( West of Houston) Real Estate Expert

Endre, I did not find your Email and I did a search. When did you send it? I have to spend more time reading about this issue.. 

Nov 30, 2016 02:13 PM #31
Ambassador
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Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

I'm with you and I think there was some deception at work here. I don't know what the buyer hopes to gain. BTW...dual agency isn't allowed in CO, but you can work both sides as a transaction broker. I'm very careful and make full disclosures to both sides when I do this. 

I also found your story very interesting and how disappointing to have the buyer finally make an offer and bring forth their own agent...after a year. 

I recently had this happen with an online lead I received. I did ask the buy up front if they were working with another agent as I didn't want to step on anyone's toes. The buyer tells me NO. 

Then about six weeks later tells me she has been talking with another broker, and will use the agent that shows her the homes she is most interested in buying. Then about two weeks after that she asks to be taken off of my email list as she won't be buying anytime soon due to personal issues. 

Nov 30, 2016 06:12 PM #32
Rainmaker
2,554,161
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Debbie Laity  my protocol is like yours the questions are the same...are you working with an agent? and the list goes on and on... when the agent magically appears I always discuss and reprimand the agent that where was he before? Needless to say I will not jeopardize my fiduciary duties to the seller as much as I would like to.... hence the buyer and his agent get a pass.... at the same time like you I am very cognizant of providing everything I know about the property.... just in case I get asked by the Judge "so why did you not tell that or share that"??? Endre

Nov 30, 2016 09:54 PM #33
Rainmaker
2,034,831
Robert Bob Gilbert
Berkshire Hathaway HomeServices Anderson Properties - Katy, TX
Your Katy TX ( West of Houston) Real Estate Expert

I just saw your message and I will lok for your message. 

Dec 01, 2016 03:06 PM #34
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Endre Barath, Jr.

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