In Horiike v. Coldwell Banker Residential Brokerage Co., S218734, the California Supreme Court will consider what fiduciary duties are owed by licensed real estate salespersons to a seller and the buyer, respectively, in a residential real estate transaction, when both salespersons are associated with the same brokerage firm. This is the classic “dual agency” relationship, currently permitted under California Civil Code section 2079.16, where one brokerage firm represents both sides of the transaction through two or more of its salespersons.
The facts in Horiike are that the seller’s salesperson provided the buyer who was represented by another salesperson from the very same office with a flier he had prepared in which he stated that a Malibu home was 15,000 square feet when he knew that this information was contradicted by public records. The buyer, relying upon that representation, among others, bought the property. Only after the close of escrow, did the buyer discover that the square footage was not what was represented by the seller’s salesperson. It was 6,000 square feet less. The buyer brought suit against the broker and the seller’s salesperson for, among other claims, breach by that salesperson of his fiduciary duty to the buyer. The trial court, however, found that the broker had no liability for a breach of fiduciary duty by the salesperson who asserted that he represented only the seller.
The trial court’s ruling was clearly erroneous and the Second District for the California Court of Appeals reversed and remanded the case for a new trial, finding that under Civil Code section 2079.13, the brokerage firm was a “dual agent”, and the salespersons were each associate licensees of the broker. Thus, each salesperson was the fiduciary of both the buyer and seller, with the duty to provide undivided loyalty, confidentiality and counseling to both.
The case should have ended with the Appellate Court’s decision. But the brokerage company sought review. The California Supreme Court agreed to hear the case and will address the breadth and scope of a “dual agent’s” fiduciary duty to both sides of a real estate transaction. “Dual agency” is a time honored business model for residential real estate brokerages and insures that the broker through both salespersons earns the entirety of the agreed commission for listing the property, bringing a buyer to the transaction, and consummating the sale. However, critics have often called “dual agency” nothing more than legally condoned “conflict of interest”, violative of time honored “agency” principles. In most other most business and professional relations, “agency” law precludes any “agent” from serving two principals – in this case, both the buyer and seller at the same time.
It is this author’s belief that the Supreme Court will take this opportunity to either confirm that “dual agency” representation is an acceptable way of doing business in this state. The Court could then go on to clarify what responsibilities are owed to the buyer and the seller by the “dual agent” and each of its salespersons. Or, on the other hand, the Supreme Court could condemn the practice and require that a different broker separately represent each party to a real estate transaction. Such a ruling would have a huge financial impact on real estate brokerages across this state. Stay tuned for the decision.