In a tangled case of real estate sales ethics and commissions, a Fairfax County judge has ruled that two Coldwell Banker real estate agents did not adequately represent the interests of a couple trying to sell a parcel of land in Vienna because they were simultaneously representing a prospective buyer for the property.
The case highlights the maze of ethical and legal issues that emerge when a single real estate firm is representing both a buyer and seller. At the same time, the court's ruling makes it clear that sellers are entitled to know all the information that might affect their sales decision, not just a single offer.
The decision, handed down last month by Judge Pro Tempore John J. Karcha, clears the way for Timothy R. and Adele M. McGowan to start building a house on the one-acre parcel after 10 months of delay due to the dispute over the land.
However, Coldwell Banker, the national real estate company owned by Sears, Roebuck and Co., said the case is not over yet. There are four other suits that have been filed concerning the sales transaction for lot 33 on Five Oaks Road, and Coldwell Banker said that when all the facts are presented, it expects the court will rule that the agents fulfilled their responsibilities to both parties.
According to facts agreed to by both parties in the suit decided by the court, James D. and Karla C. Lindstrom, the owners of lot 33, put the tract on the market in December 1984 and hired Coldwell Banker agent Betty Stough as the listing agent to sell the property.
In February 1985, Edwin H. and Wendy L. Allen, a Cheverly couple, made an offer to buy the property through a Coldwell Banker agent, Max Rush. But the $62,000 offer was rejected by the Lindstroms as too low.
On March 10, 1985, the McGowans made an offer to buy the property, through a real estate agent from Jackson-Temple. The Lindstroms also rejected the McGowan offer, but when the McGowans made a better offer several days later, the Lindstroms began negotiating with them over the terms of the contract.
Stough was planning to leave town March 19, and, together with Jackson-Temple agent Mary Ginty, who was representing the McGowans, worked to iron out the details of the contract through a series of offers and counteroffers. In the end, Stough said she believed everything was set and she left town, leaving Rush to handle any problems.
After Stough left, a discrepancy arose over what the McGowans and the Lindstroms had agreed to in a phone conversation, and Ginty said she called Rush to ask him to help clear up the problem.
Rush, in a pretrial deposition, said that when Ginty called she said she did not have the McGowans' final signatures and that she "did not want to hassle with it anymore" that night. Ginty testified that she suggested that she and Rush discuss the problem and that she asked Rush to go with her to the Lindstroms' house. Ginty said that Rush said there was no urgency and that he would meet with her in the morning.
After that conversation, Rush called the Allens and told them that if they were still interested in the property, they should make a bid that night. At that point, Rush asked Anice H. Sutherland, the manager of the Coldwell Banker office in Vienna, to join him in presenting the Allens' bid to the Lindstroms so that there would be an agent to represent each party.
James Lindstrom testified that he did not understand that he had the legal right to see both offers at the same time. In the end, Lindstrom accepted the Allens' $68,000 offer, believing that the McGowans had dropped out of the bidding.
Several weeks later, however, before the Allens had gone to settlement on the property, Tim McGowan met with James Lindstrom to talk about the deal. As a result of that conversation, Lindstrom agreed to open up bidding on the parcel again in order to give both parties a fair chance.
But the Allens refused to bid, saying that they already had a contract. The McGowans were the only bidders and Lindstrom accepted their $72,000 offer and sold them the land on July 31.
Disputing the McGowans' right to the property, the Allens sued the McGowans and Lindstroms, seeking to invalidate the McGowans' claim and asking the court to order the Lindstroms to sell the land to the them.
But Karcha refused, saying that the Allens' claim on the land was not valid because "the actions in obtaining the signatures and approval of the Allens' contract were not only unfair but unreasonable, making the transaction unjust and inequitable."
Karcha also said in his decision that Rush and Sutherland "did not exercise the utmost good faith towards the Lindstroms, in that they failed to disclose all the facts, especially with respect to the McGowans' negotations and contract . . . which would have influenced the Lindstroms in deciding a course of action."
Allen could not be reached for comment, but the Fairfax clerk of the court said Allen has filed a letter saying he intends to appeal Karcha's decision to the Virginia Supreme Court.
Henry F. Brandenstein Jr., the attorney representing the McGowans and Lindstroms, said that according to Virginia law, real estate agents hired by a seller are required to present to the seller all information concerning the sale of a piece of property.
Coldwell Banker lawyer Kevin D. McInroy said he believes Rush and Sutherland met the requirements of the law and that when Coldwell Banker gets a chance to make its case, it will be able to prove that. He said that because Coldwell Banker was not a named party in the suits involving the Allens, Lindstroms and McGowans, the real estate company "has not yet had a chance to cross-examine witnesses, put its own witnesses on the stand, present its own evidence, or make its own argument."
Coldwell Banker has also sued the Lindstroms to get the $4,230 commission it says the Lindstroms owe the real estate company for selling the house.
In response, the Lindstroms have countersued, saying that Coldwell Banker, Rush and Sutherland failed in their responsibilities to fully represent the Lindstroms in order "to assure that the ultimate purchaser of the property would be a party that had been produced by Coldwell Banker . . . and would thereby assure that 100 percent of the sales commission in connection with the sale of the real property would be received by Coldwell Banker and its agents."
Residential real estate sales commissions, which are generally 6 percent of the purchase price, are traditionally split evenly between the seller's agent and the buyer's agent, although the entire commission is paid by the seller. Rush testified that if the Allens had not purchased the property, he would not have earned any money on the transaction, even though he was representing the Lindstroms for Betty Stough.
Coldwell Banker has denied the Lindstroms' allegations. The Lindstroms have asked for $25,000 in compensatory damages and $150,000 in punitive damages.
McGowan has also sued Coldwell Banker and Rush, saying that the agent defrauded the McGowans by not telling the Lindstroms the status of their contract on the night of March 19. The McGowans have asked for $35,000 in compensatory damages and $150,000 in punitive damages.
Coldwell Banker also has countersued the McGowans, saying the couple interfered with the contract between Coldwell Banker and the Lindstroms by "wrongfully and maliciously inducing the Lindstroms to breach the Allen contract and the listing agreement." Coldwell Banker has asked for compensatory damages to cover the amount of the commission and $150,000 in punitive damages.
The attorneys in the case said that all the remaining suits are expected to be tried together later this year.