This story was originally published by CalMatters. Sign up for their newsletters.
Claudia Ochoa and Cesar Gonzalez thought it was odd when they were told to ditch their real estate agent.
Before the married couple could make an offer on the newly built single-family home on the west side of Santa Rosa, they were told that they would instead need to accept the services of a new agent who worked for W Real Estate. That’s the same brokerage, one of the largest in Northern California, that was representing the developer in the sale.
But Ochoa and Gonzalez, first time buyers with full-time jobs and three young kids, were new to this. Having the same team of real estate agents represent both sides of the sale must just be another quirk of California’s mystifying home-buying process, they figured. Plus, this was the only way to make an offer, and they really liked the house, which was close to their kids’ school.
Two years later, they no longer think the arrangement was simply odd. They say it was illegal.
Ochoa and Gonzalez are part of a lawsuit filed against W Real Estate that accuses the company and its owner, Randy Waller, of shunting new buyers into so-called dual agency transactions.
Dual agency, in which both buyer and seller are represented by the same agent or brokerage, is illegal in more than half a dozen states. Though it’s allowed in California, state law requires that both buyer and seller fully understand and consent to the arrangement. The Sonoma County lawsuit argues that buyers like Ochoa and Gonzalez weren’t given a meaningful choice in this case.
Consumer rights advocates worry that dual agency sales are becoming more common across the country amid a wave of mega-mergers in the real estate brokerage industry. Even where legal, the practice occupies an ethical gray area, they say.
“You can’t try to get the highest price for the seller and also try to get the lowest price for the buyer, it’s an inherent conflict of interest,” said Wayne Bell, a former commissioner at the California Department of Real Estate. An agent hoping to represent both sides is inevitably going to leave one side worse off, critics argue.
According to the suit filed earlier this year, hundreds of buyers like Ochoa and Gonzalez spread across at least five new developments were, indeed, left worse off.
Without someone exclusively representing their interests, buyers were less likely to receive credits and other concessions from the seller, the case alleges. Some of the buyers also argue that their W Real Estate agents, who were supposed to be representing their interests, failed to alert them to evidence of shoddy construction that is now the subject of separate construction defect litigation.
Four legal experts with no involvement in the case who were consulted by CalMatters all said the case, if accurately characterized in the lawsuit, raises serious ethical, if not legal, questions.
“Consent under duress or as an unnegotiable precondition to a contract fails the legal requirement for the voluntary informed consent required for dual agency,” Bell said in a follow up email. The arrangement, as described, is “forced, involuntary, and not lawful (or ethical under the Realtor rules).”
Waller, W Real Estate’s owner and managing agent, directed questions to his attorneys, Doug Pettit and Sara Bloch.
“W Real Estate can’t comment on any specifics since one attorney and his clients have sued the company and the matters are currently pending,” Pettit said in a written statement. Referring to both the dual agency lawsuit and a related construction defect lawsuit, he added: “W Real Estate disputes the allegations in those two lawsuits. The work the agents did for the buyers benefited their interests and all buyers had the right to consult with different agents if they wanted.”
Pettit further noted that the arrangement benefited developers who prefer to interact with agents “who have knowledge of the development.”
A jury trial is scheduled for next May.
‘Stop being involved’
The details of the dual agency arrangement were spelled out in a series of legal agreements and email exchanges unearthed as part of the legal proceedings and shared with CalMatters.
“W Real Estate shall represent both buyer and seller in all transactions,” states the listing agreement between the brokerage and City 44’s developer, Dan Morgan. Another document specified that a buyer’s agent would receive a “referral fee” equal to 2.5% of the home sale price in exchange for bringing in their client and then ceasing to represent them.
“An outside agent would not act as a buyer’s agent,” one agent, Nalishma Carvelho, wrote in an email to a prospective buyer who asked whether he could retain his former Realtor. “Randy Waller and I are the agents for buyers and sellers in this community.”
In a separate email to another interested buyer, Carvelho explained that this was part of the “standard contract” and “pretty common” in Sonoma County.
Carvelho did not respond to multiple requests for comment by email, phone and text message.
Stephen Flynn, the lawyer bringing the dual agency lawsuit, said such arrangements are anything but common — and, in any case, illegal. While seller’s agents working a new development will often pay referral fees to Realtors for bringing in new buyers, a rule requiring those agents to then effectively go away and stop representing the interests of their clients is not something he’s seen in his 20 years as a real estate attorney.
“That’s a level of brazenness that is quite astonishing to me,” he said.
Kerrin Shettle, a veteran Petaluma-based agent who entered into one of these contracts on behalf of an interested buyer, said she found the rule strange, too. She remembers calling W Real Estate shortly after signing with a question about the property. “‘You shouldn’t be calling us,’” Shettle recalls being told, though two years after the fact she said she doesn’t remember which agent told her this. “‘You’re not involved, so we need you to stop being involved.’”
Getting independent agents like Shettle out of the picture ended up benefiting the seller at the expense of the buyers, said Flynn, the attorney.
At a single W Real Estate brokered development where dual agency was not required of buyers, those with their own agents were four times more likely to receive concessions and credits, such as waived closing costs or appliance upgrades, Flynn said, summarizing sales date shared with him by W Real Estate as a part of the lawsuit’s pre-trial discovery process. Of those that did receive credits, the ones with their own agents got nearly six-times more on average: $3,252 compared to $554.
Those sums aren’t much by California home price standards, Flynn admitted. But they prove that his clients were not receiving the representation they paid for.
Other costs
There can be downsides to not having a dedicated representative that go beyond a home’s price tag.
Danny Matranga, a personal trainer and gym owner, had been saving to buy a home for nearly a decade. With interest rates hovering at historic lows in early 2022 he finally saw his chance. He and his fiancée fell in love with the model home at City 44 and put down a deposit.
Then they waited.
Months went by as construction dragged on past schedule. Carvelho, the W Real Estate agent officially representing him in the deal, was hard to reach and offered only occasional updates, he said.
“This person is my Realtor, but it sure doesn’t feel like it,” Matranga thought to himself at the time. “If these people were Realtors that I had hired I would have fired them immediately.”
Things got so bad that Matranga’s loan officer stepped in on his behalf, asking Carvelho in an email why Matranga was being required to purchase solar panels at extra cost and why Carvelho had repeatedly failed to give him a firm close date.
Three months went by before Matranga finally closed. By then borrowing rates had nearly doubled. Matranga says he now pays more than a thousand dollars more each month than the amount he’d initially budgeted.
What did they know?
Even so, he and his fiancée were happy to finally join the ranks of California property owning class — until they moved in.
First, the guy next door cracked a joke that the whole development was built out of “paper clips and bubble gum.” Another neighbor, who shares a wall with Matranga, texted a picture to the block of mushrooms growing out of cracks in her window frame. That winter he said he watched a bubble of water form in his ceiling. He later found more water pooled beneath his laminate flooring.
Matranga also learned that shortly after his purchase, a City 44 construction superintendent had quit in a rage, explaining in a text message to one of Matranga’s neighbors that buyers were “being sold homes that are substandard.” Court records show that those texts were also shared with the builder, Morgan, and with W Real Estate’s head, Waller.
“Where homeowners have raised concerns, we are working through the legal process to evaluate those claims and address any valid issues,” Morgan wrote in a statement.
“My own experience working with W Real Estate has been entirely positive and straightforward, but W Real Estate is best positioned to speak to its agency relationships and practices in individual transactions,” he added.
Matranga said he now spends a lot of time wondering exactly how much the team at W Real Estate knew about the construction issues at the same time they were purporting to represent him in the sale.
“I don’t want to say ‘impossible,’ but it seems super improbable that they would have not been aware,” he said.
In an additional statement, Pettit, W Real Estate’s attorney, flatly denied that: “W Real Estate was not aware of any construction defects at any developments that its agents hid from buyers.”
Is dual agency always a bad deal?
Having a buyer and seller represented by the same person does tend to speed things up.
There’s reduced wait time as the two parties exchange information and negotiate, since all the haggling is passing through one intermediary, not two. With only one agent collecting a fee from both sides, there’s also room for an “educated consumer” to negotiate down the total commission, said Bennie Waller, a professor of real estate at the University of Alabama.
Dual agency is also a favored practice when a home is being sold between two friendly parties — say, between members of the same family. (In many states that ban dual agency, such sales can be facilitated by a specialized “transaction broker,” who mediates between buyer and seller without representing either).
But dual agency comes with the obvious downside that a single agent, even one operating in good faith, may struggle to represent the interests of both buyer and seller simultaneously.
In California it’s considered dual agency whether buyer and seller are represented by the same individual agent or by different agents working for the same brokerage, an arrangement sometimes referred to as a “double-ended” transaction. In the Sonoma case, most transactions were double-ended, though at least two prospective buyers at City 44 signed agreements in which the same individual agent represented both buyer and seller.
Double-ended arrangements also raise ethical red flags, said Wendy Gilch, a fellow at the Consumer Policy Center. Because the same brokerage is set up to receive commission fees from both ends of the transaction, the firm has a strong incentive to close the deal as quickly as possible, not necessarily to get the best outcome for either client.
Consumer advocates like Gilch worry that such arrangements are becoming increasingly common across the United States. The last decade has seen a wave of consolidation sweep across the industry. Compass, most notably, now stands as the largest brokerage in the country, owning smaller brand names such as Coldwell Banker, Century 21 and Christie’s International Real Estate.
When one firm dominates a market, the odds that two of its agents represent both sides of the same deal become much more likely. Critics say Compass has been boosting those odds further by encouraging sellers to first list their properties on Compass’ private listing networks where only other Compass agents can see them. The issue has become the subject of congressional inquiries, state probes and lawsuits.
“Private listing is a way to basically create a mechanism for dual agency,” said Mischa Fisher, chief economist at Zillow, which has been feuding with Compass in both the courts of law and of public opinion for more than a year.
The ultimate goal of this strategy is to capture commissions from both sides of each sale and “make each transaction more lucrative to help the stock price,” said Jonathan Miller, a real estate consultant and frequent critic of Compass.
A spokesperson for Compass responded in an email that the company’s goal is not to produce double-ended deals, but to give sellers flexibility in the way they list their homes. Even if “private” listings aren’t found on Zillow or Redfin “all Compass listings are publicly available on our website or by contacting Compass,” wrote Devin Daly Huerta. “Our goals are to sell more homes and fulfill our fiduciary duty to our clients.”
Experts weigh in on Sonoma case
By out-and-out requiring buyers to agree to dual agency and paying the buyer’s independent agent to withdraw, the alleged W Real Estate arrangement represents a more extreme version of an industry wide problem, said Gilch at the Consumer Policy Center.
“Oh gosh, this case is bad,” she said when shown a copy of the complaint.
Bess Freedman, the CEO of the New York brokerage Brown Harris Stevens and a public critic of Compass’ private listing strategy, agreed. “That sounds to me very un-kosher,” she said.
Anthony Ventura, a veteran real estate attorney in the Bay Area who is not involved in the case, said the alleged arrangement may not clear the legal bar that requires that both buyers and sellers understand and agree to dual agency contracts.
“The buyer has the right to pick their own agent or to not have an agent at all, so I don’t think you can condition someone’s right to make an offer on having you as their agent,” he said. “I’m pretty certain that that would not be legal.”
Though one could argue that the buyers did consent, as they could have walked away, the arrangement, at the very least, runs counter to the spirit of how real estate transactions are typically regulated in the United States.
“There should be a free market where everything is negotiated,” he said. “The idea that an agent can come in and say ‘you can only make offers through me’ is just counter to that entire public policy.”
‘We just trusted a lot of people’
Christopher Ortiz, Ochoa and Gonzalez’s original agent, said that in his decade of work as a Santa Rosa-area Realtor he’s come across dual agency arrangements at new developments at least twice before. “It was as easy as just bringing them in there and I got paid for it,” he said of those deals. “It was almost too good to be true. I almost didn’t feel right about it.”
In Ochoa and Gonzalez’s case he said he nevertheless continued to advise them informally, explaining certain terms or hopping on the occasional phone call, even after he no longer officially worked for them. “I was basically just being a communicator,” he said, a characterization that Ochoa and Gonzalez confirmed.
Since buying the house, the couple have spent a lot of time wondering what, if anything, they lost by not having Ortiz at their side at all times.
Would they have gotten a lower price? A better deal on the home’s appliances? Would Ortiz have spotted the alleged defects they say have left them with a leaky roof, a persistent mold problem or a downstairs bathroom that has twice flooded with raw sewage? And what, exactly, did they get in return for the $17,500 in commissions they paid to their new agent?
“I’m certain that anyone who has a little bit of experience buying a house probably would have caught some funky things,” said Ochoa. “We just trusted a lot of the people involved in this process when in reality they were not in our corner.”
