If being a real estate broker or salesperson acting in a dual agent capacity was not already risky enough, the California Court of Appeal just made it even more dicey. Real estate brokers and associate licensees know that the risk is great in acting in a dual agent capacity, but the reward most of the time outweighs the risk. The lure of the full commission on a real estate transaction always entices the real estate professional to take the leap of faith that he/she can act in compliance with California Civil Code Section 2079 et. seq. and adequately navigate the intrinsic conflict of interest that is dual agency. Well, the E-ticket ride of dual agency has just become more adrenaline filled with more hairpin turns and stomach curling drops.
Recently, the California Court of Appeal, Second Appellate District held in Hiroshi Horiike v. Coldwell Bankers Residential Brokerage Company, et. al. 2014 DJDAR 4481 (April 11, 2014) that when a real estate broker is a dual agent for the buyer and seller in a real property transaction, the associate licensees acting under the real estate broker owe the same fiduciary duty to the buyer and the seller as the real estate broker. Real estate professionals have always known that they owe their client, either the seller or the buyer a heightened duty of care, known as a fiduciary duty, to exercise reasonable skill and care in representing their client’s interest in the real estate transaction. Now they owe a fiduciary duty to a non-client in the real estate property transaction.
Civil Code Section 2079.16 provides that when a broker or associate licensee is representing either the seller or buyer, but not both, that person owes their client a fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with the client. The broker or salesperson owes his/her client a duty to diligently exercise reasonable skill and care in the performance of the agent’s duties, a duty of honest and fair dealing and good faith, and a duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.
In the Horiike case, the buyer and the seller were represented by associate licensees of the same broker, Coldwell Banker Residential Brokerage Company. The associate licensee hired by the seller to list the property understood that his broker was acting as a dual agent in the real estate purchase transaction. However, that associate licensee believed he only owed a fiduciary duty to his client, the seller. Plaintiff, the buyer, contended that the associate licensee of the broker that represented the seller owed him a fiduciary duty equivalent to his fiduciary duty owed to his client, the seller. The Court of Appeal held as follows:
“The [broker] in the real property transaction bears responsibility for his or her associate licensees who perform as agents of the [broker]. When an associate licensee owes a duty to any principal, or to any buyer or seller who is not a principal, in a real property transaction that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.” (Civil Code Section 2079.13(b))
In this instance, the associate licensee representing the seller had knowledge that the square footage of the subject property had been measured and reflected differently in different documents. When a prior potential buyer sought to confirm the square footage of the subject property, the associate licensee representing the seller gave handwritten advice to have the square footage verified by a specialist. The prior potential buyer cancelled the purchase transaction because that potential buyer was not given an extension to verify the square footage of the subject property.
During the subsequent purchase transaction, the associate licensee representing the seller did not explain to plaintiff Horiike that contradictory square footage measurements existed. The Court of Appeal opined that “a trier of fact could conclude that although [the associate licensee representing the seller] did not intentionally conceal the information, he breached his fiduciary duty owed to plaintiff [buyer] by failing to communicate all of the material information he knew about the square footage.”
The roller coaster car occupied by the associate licensee representing the seller careened off the tracks because he did not provide the buyer, for which he now owes a fiduciary duty, the handwritten advice given in the prior purchase transaction to hire a specialist to verify the square footage. The roller coaster car remains in limbo because the Court of Appeal remanded the case to the trial court for a new trial.
At the new trial of Horiike, the jury will be permitted to determine whether the associate licensee representing the seller breached his fiduciary duty to the buyer by not disclosing to the buyer material information that could affect the value or desirability of the subject property.
The E ticket ride of dual agency just got kicked up a notch. Now, dual agency is potentially more treacherous to navigate for all real estate professionals that choose to represent both sides to the real estate transaction. In order to protect oneself when acting as a real estate professional in a dual agent capacity, you must be extremely diligent about disclosing ALL material information that may affect the value or desirability of the subject property to ALL participants in the real estate transaction.
Mr. Kaplan is a shareholder of Gaglione, Dolan & Kaplan, a law firm with offices in West Los Angeles and Woodland Hills, California. Mr. Kaplan graduated from the University of California at Berkeley in 1989 and received his juris doctorate degree from Loyola of Los Angeles Law School in 1993. For the past 20 years, he has specialized in the defense of professionals, including real estate brokers/agents, appraisers, home inspectors, accountants, lawyers, insurance brokers/agents, property managers and mortgage brokers. He has been a frequent lecturer to real estate professionals around the country concerning loss prevention techniques. Mr. Kaplan also specializes in insurance coverage and the defense of construction defect matters.
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