California court orders increased protection for home buyers, sellers

In a decision that could shake up the practices of California’s real estate industry, the California Supreme Court Monday sided with a home buyer who sued a seller’s agent, alleging he was misled about the size of the house he purchased.

If two agents work for the same real estate company — one representing the buyer, the other the seller of a house — each must safeguard the interests of the other’s client as well as his or her own, the court decided unanimously.

The California Association of Realtors had urged the court to reject that argument because agents would be required to disclose information harmful to their clients.

The ruling stemmed from a lawsuit filed by a Hong Kong man who paid $12.25 million for a house in Malibu, Calif., in a deal in which he was represented by a Coldwell Banker agent.

The seller’s agent, also with Coldwell Banker, said in a flier that the house had 15,000 square feet of livable space, but the building permit put the square footage at under 10,000.

When the buyer learned of the difference two years after purchasing the house, he sued the seller’s agent and Coldwell Banker.

Justice Leondra Kruger, writing for the court, said the seller’s agent owed the buyer “a duty to learn and disclose all facts materially affecting the value or desirability of the property” because Coldwell Banker was representing both sides in the transaction.

Real estate industry experts said such a decision would hurt large brokerage houses and interfere with the agents’ representation of their clients.

A seller’s agent who knew the seller was having financial problems and needed to sell quickly might have to disclose that to the buyer, the industry said. Similarly, a buyer’s agent might have to inform the seller that the buyer was ready to pay even more for the property.

Frederic Cohen, who represented the buyer in the case, said the ruling would help ensure that brokerage companies “actually take their responsibility to represent both sides more seriously.”

“If the brokerage company owes a fiduciary duty to both sides, then the sales people do as well,” Cohen said.

Hiroshi Horiike, Cohen’s client, purchased the Malibu property with an ocean view in 2007.

Horiike was represented by a Coldwell agent based in Beverly Hills. The seller was represented by Chris Cortazzo, a Coldwell agent who worked out of Malibu and who Horiike said was known as “the agent to the stars.”

Horiike charged that Cortazzo and Coldwell Banker breached their fiduciary duty by failing to advise him to verify the actual square footage of the property.