Thirty Percent of House Disappears after Purchase

Chinese Millionaire Hiroshi Horiike just lost 5,566 square feet from his California Tuscan-style mansion.  After looking at more than 80 estates, Horiike settled on a 4 bedroom Malibu home with a reported 15,000 square feet of living space.  However, after purchasing the home, he discovered that the actual living area was only 9,434 square feet.  The 15,000 sq. ft. was confirmed by the seller’s brochure as well as his agent representing him on the purchase.

Horiike paid cash for the $12.5M home, making an appraisal unnecessary.  He also did not order a measurement when he had the foundation tested prior to the purchase.  Only when he decided to remodel a portion of the home did he learn about the square footage.  The agent listing the home explained that Malibu allows the square footage calculation to include basement, garage and patio space in a post-2005 ruling.  Including these spaces does bring the house up to 15,000 square feet, explained the listing agent.

Further complicating the matter is that the transaction was done with dual agency.  Both the seller and the buyer were representing by the same Coldwell Banker office.  Horiike feels that he was scammed and has denied to arbitrate the matter.  He feels it is important to make the case public for justice and to act as a warning to others.

This case brings about two important considerations for real estate agents liability.

  1. The first is the importance of disclosing all relevant details about a home as accurately as possible.  Horiike was not a native speaker and did not know the local codes regarding square footage.  While the ongoing court case revolves around the agent’s intent to deceive, it is necessary to go the extra mile and intend to inform.  Home buyers and home sellers that are not familiar with the process may need that extra hand-holding.  This will not only mitigate lawsuits in the future, but also make clients more ready to use a firm again or refer their friends there.
  2. Secondly, the dual agency aspect of the case necessitates consideration.  Horiike won a case in appeals court that the seller’s agent has a fiduciary duty to the buyer when the buyer’s agent and seller’s agent work for the same brokerage.  This is only a California state decision currently, but it could have ripple effects in the future.  Real Estate firms that allow dual agency may be inviting lawsuits that are increasingly harder to defend.  Care must be taken when allowing these transactions.

Protecting your firm is paramount in today’s complex litigious environment.  Proper risk mitigation techniques as well as properly structured Realtors Professional Liability insurance is necessary.  Contact us to discuss how to best protect your firm.