02/06/2017
Did you know it is is lawful in California for the same real estate agent to represent the buyer and seller simultaneously? This scenario is commonly referred to as "dual-agency" and results in one agent working both sides of the deal. Dual-agency is easy to identify where both parties use the same agent. What you may not know is that dual-agency also exists where the buyer and seller are represented by two different agents who are associated with the same brokerage.
While it is legal, and can be done ethically, it has always been my preference as a broker and an attorney that both sides of the transaction get independent representation. These and other issues are explored in the following article, drafted as part of ongoing education provided to real estate professionals. To discuss this, or any real estate questions you may have, please feel free to contact me anytime.
Introduction
The California Supreme Court recently issued a long-awaited decision in the case of Horiike v. Coldwell Banker, et. al. The case involved the purchase of a home in Malibu, California wherein two different salespersons licensed by the same broker, Coldwell Banker, represented the buyer and seller. The Plaintiff brought claims of breach of fiduciary duty against the broker and the listing agent alleging a failure to discover and disclose discrepancies in the square footage of the property. The parties did not dispute that the broker and the buyer’s agent, against whom no claim was made, owed the buyer a fiduciary duty.
The question before the Court was whether or not the listing agent personally owed the buyer a fiduciary, despite the buyer’s separate representation. The Court answered in the affirmative holding that, because both salespersons were licensed by the same broker, both personally owed the buyer a fiduciary duty, a duty potentially more expansive than the general disclosure duty owed under California Civil Code section 2079, et. seq. What follows is brief legal and factual analysis of the Court’s decision with some thoughts as to the caution broker’s must use when approaching dual-agency.
The Facts
The dispute in Horiike v. Coldwell Banker arose because of conflicting information regarding the square footage of a Malibu property listed for sale by a salesperson with Coldwell Banker’s Malibu West office. During the course of listing the property, the listing agent obtained conflicting information about the property’s square footage. Information obtained from the tax assessor‘s office, stated that the property‘s living area was 9,434 square feet while the building permit described the property as: “a residence of 9,224 square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a basement of unspecified area.” When listed on the MLS, the listing agent described the property as offering approximately 15,000 square feet of living space.
The sellers received an initial offer to purchase the property from a couple working with another Coldwell Banker salesperson. The listing agent represented the square footage of the property had not been verified. Upon inquiry from the potential buyers, the listing agent provided a letter from the building’s architect stating that “[t]he size of the house, as defined by the current Malibu building department ordinance is approximately 15,000 square feet. The listing agent also warned buyers they should hire an expert to verify the square footage if desired. Ultimately, they buyers did not move forward with their purchase of the residence.
The sellers then received a subsequent offer from buyer Hiroshi Horiike. Horiike was represented by yet another salesperson from Coldwell Banker’s Beverly Hills office. Prior to mailing the offer, Horiike had been provided by the listing agent with a flyer describing the property as having approximately 15,000 square feet of living space and an MLS listing that did not describe square footage and an MLS listing printout that did not specify the square footage with the admonition that “Broker/Agent does not guarantee the accuracy of the square footage.” Horiike made an offer to purchase the property. Later Horiike later discovered that the property potentially had substantially less square feet of living space then was represented in the advertising materials.
The Issue
Given that both the buyer’s agent and the listing agent were licensed by the same broker, the parties in Horiike did not dispute that both the buyer’s agent and the broker both owed the buyer a fiduciary duty. The question before the Court was whether the listing agent, personally, likewise owed the buyer a fiduciary duty, potentially beyond the disclosure duty codified in Civil Code section 2079.
The Rule
The court held that where the listing Agent and the buyer’s agent are licensed under the same brokerage, the Listing Agent – personally – owes a fiduciary duty to the buyer in the transaction, including a duty to disclose, and potentially discover and disclose, all known material facts affecting the value and desirability of the property. There were three key points to the rule announced by the Court. The first is more commonly understood in the industry, the second and third may be less so.
One, where there is a common broker-salesperson relationship between the listing and selling agents that is a dual agency; the existence of different individual agents for buyer and seller is irrelevant. Two, the existence of a dual agency means that the listing agent, personally, is acting as agent for both the seller and the buyer. This gives rise to a direct fiduciary duty toward the buyer by the listing agent. Three, critically, the listing agent’s fiduciary duty to the buyer goes beyond the mere duty to disclose set out in Civil Code section 2079.3 and may include an affirmative duty to disclose and to discover material facts affecting the value and desirability of the Property.
The Takeaway
On the one hand, the ruling does not substantially change existing law. The ruling leaves intact general principles of agency law and disclosure rules that already affect California real estate brokers. That is, a broker in a dual agency transaction has always had a fiduciary duty toward both the buyer and the seller. However, in making this ruling the Court’s purpose was to make absolutely clear that, when they are licensed by the same broker, both the listing and the buyer’s agent owe that same fiduciary duty toward the buyer.
Listing agents must also understand that, in a dual agency, they personally owe the buyer a fiduciary duty, potentially in excess of the disclosure duty in Civil Code section 2079 and which may include an affirmative duty to discover and disclose all material facts affecting the value and desirability of the property. Therefore, at a minimum, it is crucial in a dual agency that the listing agent disclose all such information and any other potential red flags of which the listing agent is aware, including (for example) information obtained from prior offerors or other third-parties, as was the case in Horiike.
Dual agency, while lawful, remains a complicated issue in California Real Estate. The fiduciary duties owed to the buyer and the seller are sometimes expansive. Failure to meet those duties can result in unanticipated losses, lengthy and expensive litigation or even reprimand by the BRE. The wise broker and agent should seek immediate legal counsel if ever uncertain about the nature or extent of duties owed toward the parties to the transaction.
