On Monday, the California Supreme Court dealt a severe blow to dual agency in California by confirming that dual agents are required to act as fiduciaries to both the buyer and the seller. Although dual agency remains legally permissible, buyers and sellers should be advised to refuse to compromise with dual agents, which do not protect either buyer or seller and only benefit the conflicted broker.
In the case of Horiike v. Coldwell Banker (click here to read the opinion), the California Supreme Court unanimously held that a real estate salesperson owes a fiduciary duty to both the buyer and seller, where the broker is dually representing the buyer and seller ( dual agency). Since a salesperson in California must be licensed under a broker, even a transaction with two different salespersons but one broker dually representing the buyer and seller will be considered dual agency. In other words, because the salesperson is licensed under the broker, the salesperson functions on behalf of the broker in the real property transaction.
Being licensed under the dual-agent broker, the salesperson owes a duty to the buyer and seller equivalent to the duty of disclosure owed by the broker. Thus, the salesperson under the broker acting as a dual agent owes both the buyer and seller “a duty to learn and disclose all information materially affecting the value or desirability of the property.” This duty is especially beneficial to the buyer in a situation similar to the Horiike facts, where the listing agent had knowledge of important facts regarding the square footage of the home that the listing agent did not share with the buyer.
The California Supreme Court also reviewed the applicable agency and disclosure statutes. A broker, with the consent of the parties after full disclosure, may act as a dual agent and will owe fiduciary duties to both the buyer and seller. (Civil Code §§ 2079.14, 2079.16) Thus, if the broker acts as the dual agent in the transaction, all real estate salespersons licensed under that broker and involved in the transaction owe a fiduciary duty to both the buyer and seller. Although these statutes have been the law for decades, the California Supreme Court’s opinion confirms the duties owed by the dual agent.
In discussing the conflicts inherent in dual agency, the California Supreme Court highlighted Coldwell Banker’s admissions that dual agency does not provide the clients with the “undivided loyalty of an exclusive salesperson.” Further, Coldwell Bank confirmed that in dual agency, “salespersons would have a duty to harm their original client by disclosing to the other side confidential information about the client’s motivations or the salesperson’s beliefs.” Yes, you read that right! Coldwell Banker admitted that dual agents cannot provide “undivided loyalty” to their clients and might actually “harm their original client” by disclosing confidential information. In the words of Coldwell Banker elsewhere in the opinion, dual agency involves inherently conflicting interests of buyers and sellers.
So, why do sellers and buyers agree to dual agency? There is no requirement that sellers or buyers agree to dual agency in which they will not have the “undivided loyalty of an exclusive salesperson.” Sellers and buyers can refuse to retain salespersons who “would have a duty to harm” the principals by disclosing confidential information.
Put simply, buyers and sellers should refuse to agree to dual agency. A dual agent does not adequately, competently, or loyally protect either buyer or seller. Instead, buyers and sellers should be separately represented by competent and loyal brokers who will vigorously and professionally represent each client’s particular interests. Just say “No” to dual agency! For more information, check out our past blog postings:
Although this opinion from the California Supreme Court presents a great victory for consumers, specifically the buyers and sellers of real estate, we can expect the Realtor associations to begin lobbying the Legislature to nullify this opinion and adopt new legislation re-affirming the misguided concept of dual agency.
We will continue relaying the news on this matter as it unfolds.