Legal Fight Over Malibu Mansion Square Footage Could Upend Real Estate Industry

MALIBU, CA — A man buying a mansion in Malibu claims he was misled by a real estate agent over the property's square footage and his case will be heard by the California Supreme Court. If the court outlaws dual agency, it may limit the choices buyers and sellers could have in the selling and buying of homes.

The court has agreed to hear oral arguments in the case of Hiroshi Horiike v. Coldwell Banker. The case gets even more complicate as both Horiike's agent and the seller's agent are with Coldwell Banker, but work in different offices. The case is being followed closely by the real estate company because of the dual agency issue, according to the California Association of Realtors.

"At its core, the Horiike case is an issue of a buyer not reading all of the information that was presented to him, but Horiike is trying to turn a normal disclosure case into an agency case," CAR President Pat "Ziggy" Zicarelli said. "Some groups may believe that dual agency should be outlawed and want to use this case for that premise or as a stepping stone to that end."

Horiike bought the Malibu mansion through a Beverly Hills Coldwell Banker agent while the property was listed by another Coldwell Banker in another office. Horiike alleges he was misled about the property's square footage. The city of Malibu uses both indoor and outdoor living areas to measure square footage but most square footage measurements do not include outdoor living spaces in square footage. This fact was disclosed to the Horiike, according to Coldwell Banker.

Horiike sued the seller's agent saying Coldwell Banker breached their fiduciary duty and failed to advise him to hire a third party to verify the actual square footage. He did not sue the Coldwell Banker agent he was working with, however.

In the 2012 jury trial, the jury fully exonerated the seller's agent, Chris Cortazzo, and Coldwell Banker on the buyer's claims for negligent misrepresentation, intentional misrepresentation and concealment. The jury felt the information was properly disclosed. Before the jury trial, since the judge ruled that the seller's agent, Cortazzo, did not owe a fiduciary duty to Horiike, there was no breach of a duty attributable to Coldwell Banker. An appellate court overturned the trial court ruling. Coldwell Banker appealed to the California Supreme Court.

California law has allowed brokers to represent both parties with their informed consent since well before the 1980s. California has a specific form to accomplish this. Such consent has been required for many decades. Just because a brokerage represents both buyer and seller in a transaction that should not automatically mean that each individual agent owes a fiduciary duty to both parties, according to Zacarelli.

"There are many different real estate brokerage models, and the law allows consumers to choose between a big or small firm; and those firms that are exclusive to buyers, exclusive to sellers, or represent both," He said. "Narrowing the business model for a competitive advantage for one model would limit that choice. And the reality is, at the outset no buyer knows for sure what property they will buy, and no seller knows for sure who the eventual buyer will be."

A real estate agent does not know if there's going to be a dual agency at the time a listing is taken or when a buyer begins looking for a property. If the eventual consequence resulting from this case is that brokerage dual agency is prohibited, buyers could be restricted in the properties they can explore, and sellers may have a limited pool of buyers.

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