Proposed law has commercial brokers in an uproar

AB 1059 would do away with dual agency, the practice of one broker representing both sides in a commercial transaction. Brokers call the proposal unfair and have vowed to fight back.

A bill proposed by a state legislator in San Diego has some of the state’s commercial real estate brokers, including several in the Inland Empire, ready to do battle.

AB 1059, proposed by Democratic Assemblywoman Lorena Gonzalez-Fletcher would outlaw dual agency, a common practice for years in residential and commercial transactions.

If passed, Gonzalez-Fletcher’s initiative would make it illegal for a brokerage house, broker or any of its licensed associates from representing the seller and the buyer in the same commercial real estate transaction.

Gonzalez-Fletcher’s bill would also outlaw those three entities from acting as a dual agent when representing the principal – meaning any person or agency with which the brokerage has an “agency relationship” – in a transaction.

When that happens, AB 1059 states that any broker or brokerage is obligated to put the interest of the principal first, a legal requirement known as fiduciary duty.

The California Supreme Court ruled on fiduciary duty last November when it upheld a lower-court ruling in connection with a lawsuit filed by Hiroshi Horiike, a Hong Kong businessman.  Horrike sued Coldwell Banker and its agent, saying they did not inform him of the correct square footage of a home he bought in Malibu in 2007 for $12.2 million.

The court agreed that Coldwell Banker, which was acting as a dual agent, breached its fiduciary duty and ruled in favor of Horiike.

AB 1059 is a long way from becoming law. It’s scheduled for a hearing before the assembly’s judiciary committee May 2, meaning it hasn’t been voted on by either the Assembly or the Senate, much less reached the governor’s desk.

It’s not known if Gov. Brown would sign the bill were he to get the chance, said John Vigna, spokesman for Gonzalez-Fletcher.

“I don’t think we’ve gotten far enough into the process to speculate on that,” Vigna said.

The bill does note that a broker may act as a dual agent only if both parties agree to that arrangement, and if the agent makes “certain affirmative obligations” to both sides. It also notes that state law restricts what a dual agent can tell a buyer and seller regarding the price of a property, i.e. whether either party will go below the listed price in order to complete the deal.

So what’s the issue, asks one long-time Inland Empire commercial broker with a reputation for being outspoken?

“This is potentially a cancer on our entire industry,” said Joseph Brady, president of The Bradco Cos. in Victorville, one of the largest and most successful commercial real estate brokerages in the High Desert. “If this becomes law, it will drive a lot of brokers out of the business.”

Brady, a frequent critic of the state legislature and its perceived anti-business policies, sent out a “red alert” e-mail this week to approximately 5,500 commercial brokers in Southern California urging them to take action against AB 1059.

Brokers in California already have to deal with too many regulations placed on them by Sacramento, which seems to go out of its way to make life as difficult as possible for business owners, Brady said.

“Do they really believe we don’t have enough disclosures already?,” Brady asked. “Do they have any idea the amount of paperwork we have to sign whenever we do a deal? We have disclosures on top of disclosures on top of disclosures.

“Assemblywoman Gonzalez-Fletcher should be worried about all of the criminals being let out on the street, or people who are having their homes broken into, instead of making life more difficult for the real estate industry.”

Irvine-based WD Land, which specializes in negotiating the exchange of residential infill sites, uses dual agency in at least 90 percent of its transactions, said David Harbour, senior land advisor with the company.

The company which conducts much of its business in Riverside and San Bernardino counties, could be hurt badly if Gonzalez-Fletcher’s bill becomes law, according to Harbour.

“It would be terrible for us,” said Harbour, whose territory includes southwest Riverside County, with an emphasis on the Interstate 15 and 215 corridors.  “This is something the whole industry will have to fight.”

Dual agents are not biased toward either party, according to Harbour.

“The only bias I know of is a bias in favor of who’s paying your fee,” he said.

Dual agency has been around for years, and it does not breed a conflict of interest or lead a broker to favoring one side more than another, said Ryan Miller, vice president with Voit Real Estate Services.

“If you’re a broker and you haven’t done dual agency at some point, then you haven’t been around very long,” Miller said.