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.
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 firstname.lastname@example.org 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.