By Blanche Evans
California is having another earthquake, but this time a brokerage firm is being rocked to its foundation, and the faultline could crack its way across the nation. Debs VS Coldwell Banker has the potential to abrogate the law of agency, and set in motion a new business standard for the real estate industry.
The fissure in the case is the untested answer to a simple question - does conflict of interest exist for buyers being represented by the same real estate broker? The answer leads only to more questions. If so, should both buyers be disclosed in the same way that buyers and sellers are through transactional brokerage, dual agency, and designated agency? In short, should two agents working for the same broker represent competing buyers on the same property?
Jerome Debs made headlines last year when he paid $1 million over the listing price for a home in Palo, Alto, California. Since then, multiple offers have become so common that homes routinely sell for thousands, and now millions over listing price. That isn't what upset Debs, however.
Through his Coldwell Banker agent, he presented an offer to the seller $600,000 over the listing price. Buyers' agents from several firms were present at the Alain Pinel Realtors office, the firm representing the seller. According to the plaintiff's attorney, Jean McCown, the sellers were also present but secluded from the agents. They decided to accept Mr. Debs offer, and instructed their agent to inform the buyers' agents present that an offer had been accepted. Another Coldwell Banker agent, Hanna Shacham, burst into the room where the sellers were seated, according to reports, and announced that her buyer would pay $3 million for the home. The sellers reopened the multiple offer bidding and an unhappy Mr. Debs was informed that the ante had been upped after he thought he had a deal. He prevailed in the purchase of the home with an offer of $3.2 million, but when he found out that a "friendly," another Coldwell Banker agent, had caused him to shell out almost $400,000 more for the home, he decided to sue.
Is there a basis for such a suit? Buyers routinely pay over listing price for a home, particularly in the Silicon Valley and surrounding areas. What makes this case unique, according to McCown, is that her client can show damages.
Debs and his attorney believe that not only did the Coldwell agent representing the competing buyer interfere with his contract, but that the agent had no right to do so since the offer had been presented by his own agent of the same firm. In other words, both agents were agents of the same broker, and it is the broker who is the agent for the buyer. With an offer in writing, Debs agent had checked the box marked that Coldwell Banker was representing his interests as the buyer. The Law of Agency was in place, regardless of whether the buyer had signed an exclusive agreement or not, according to McGown.
In an exclusive interview with Realty Times, McGown summed up her case. "You can't represent two clients. That is the fundamental principle of agency."
Although he declined to be interviewed due to corporate policy concerning ongoing litigation, counsel for the defense, Mike Davidson, stated in his brief to the court that a real estate broker does not owe a client exclusive loyalty until a contract is signed for the purchase of a property.
McGown counters that her client was never disclosed that the brokerage firm Debs thought was representing his interests might also be representing a competing buyer, and further, never asked his permission to continue representation under those conditions.
Meanwhile brokers and agents from across the country are anxiously awaiting the outcome. The case could mean that agents in the future may have to disclose potential conflicts of interest to buyers, just as they now have to disclose conflicts of interest to buyers and sellers on the same transaction. The case also has implications for franchises, a concern as more and more companies consolidate, creating fewer brokers to supervise the activities of agents. The defendant in the suit is a large real estate conglomerate, Valley of California, doing business as Coldwell Banker. The entity is composed of a number of former independent brokerages Cornish & Carey, and Fox & Curskadon, and Grubb & Ellis, but it is Coldwell Banker's name on the lawsuit.
Another potential issue is the fact that Debs has asked to be awarded Coldwell's commission in the transaction - $96,000. This request clearly states that the buyer pays the commission in the commission in the transaction, a concept which flies in the face of decades of tradition in which listing agents have convinced the public that the seller pays the commission.
"It will be interesting," says Sharon Marsh, a Dallas Coldwell Banker agent. "At the least, this case will clarify a question of ethics. Should she have burst into that room once the sellers announced that they had accepted an offer? Is that something one agent should do to another agent? Or was what she did just greedy?"
According to Davidson, Shacham acted appropriately. He wrote, "the seller certainly had the right to know that Shacham's client would pay $3 million for the property, and she had the clear duty to communicate that offer."
Coldwell Banker filed a motion to dismiss the case, but it was recently denied.
Davidson did go on the record with Realty Times to say, "We continue to maintain that the case has no merit and we are going to continue to defend."
Neither attorney would comment on whether the case would be settled out of court or would proceed to trial.
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