Three cautionary tales of real estate agents successfully sued

Tale one (from New Zealand)

Consumer advocate Neil Jenman says treacherous "bird-dog" real estate agents, who locate deals for investors and speculators while still charging their sellers commission, should be busted "big time" – as ultimately happened to the agent in this first tale.

Warrenand Rose West's New Zealand home had been on the market for some time, but they received only one low offer despite reducing their price. Then they became motivated, if not desperate, sellers when they contracted to buy another home subject to selling their own. Their "window of opportunity for an advantageous sale" (as one judge subsequently put it) was limited, if they were to proceed with that purchase. So they quickly sold for $2.75 million, even though they felt their home was worth about $3 million.

Five years, one court hearing and two legal appeals later Wests' selling agent, KiwiRealty,was ordered to pay them almost $1million for damages, interest, costs and refund of commission.

Wests had discovered, to their dismay, that within six months their buyer, Dave Dagg, on-sold through KiwiRealty to an overseas buyer for $3.555million. Admittedly Dagg made some improvements, conducted an aggressive international sales campaign in a rising market, but Wests felt betrayed.

They then sued KiwiRealty after dismally discovering further that its saleslady Jenny Spink had not revealed while handling their sale, that she knew Dagg often purchased properties to resell at a profit. Nor did she disclose KiwiRealty's ongoing "bird-dog" relationship with Dagg and, in particular, its involvement in several of his previous wheeler-dealing purchases and resales.

When Wests had asked Spink what she knew of Dagg, she said he had the means to buy but then lead these folk to believe he was purchasing their property for his own home. "He is looking for a place closer to his office", Spink deceptively explained.

The trial judge found that KiwiRealty failed to disclose material information to its clients. Such failure was misleading and deceptive, and consequently contrary to the Fair Trading Act and in breach of the Common Law fiduciary duties imposed on agents. Moreover, KiwiRealty's past Dagg dealings and the expectation of acting for him again (including re-selling this property) created a discloseable conflict of interest. Wests were awarded substantial damages and a commission refund of $67,000.

KiwiRealty's boss told a newspaper he was "floored" by the decision, would appeal and protested: "We believe we sold the property at the prevailing market price and do not believe we can be held responsible for what someone subsequently was prepared to pay for it".

This was hardly the point and on appeal KiwiRealty was held liable again, although Wests' damages were reduced. Both sides appealed further - the agent against the liability findings and the sellers against their lower damages.

The final Appeal Court affirmed this "canvassing" agent's liability for disloyalty to its trusting clients, and re-instated damages to the difference between the then market value of Wests' home ($3.25million on a valuer's evidence) and Dagg's $2.75 million purchase price.

The Court highlighted the consequences when agents breach their fiduciary duties to clients.