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April 09, 2017

California Supreme Court clarifies the fiduciary duty of seller’s agent in dual agency transactions

In 2014, California Governor Jerry Brown signed Senate Bill 1171 requiring real estate brokers and their salespeople to disclose when they are acting as dual agents (representing both sides in a commercial real estate transaction), and what duties they owe clients. Many legal professionals have stated that SB 1171 was a good start, but more protections should be put in place to protect the public in a real estate environment that allows conflicts of interest to continue.

Dual agency in real estate transactions is coming under scrutiny by the California Supreme Court in the case of Hiroshi Horiike v. Coldwell Banker. Horiike worked with a salesperson from Coldwell Banker to purchase a home in Malibu. The property was listed by another agent in a different Coldwell Banker office. The sellers agent prepared a flier for the property which stated it “offers approximately 15,000 square feet of living areas.” After the sale Horiike claims he learned that the home was actually less than 10,000 square feet. Neither agent advised Horiike to hire anyone to verify the square footage of the property during the transaction.

Why Real Estate Agents & Brokers Should Represent Only One Client

Horiike sued Coldwell Banker and the listing agent, alleging that the listing agent had a fiduciary duty to him, because he was a client of the agent’s firm. The trial court disagreed; Horiike appealed. The appellate court said in its decision: “(T)he buyer contends that the salesperson had a fiduciary duty equivalent to the duty owed by the broker, and the trial court incorrectly granted the nonsuit and erroneously instructed the jury. We agree. When a broker is the dual agent of both the buyer and the seller in a real property transaction, the salespersons acting under the broker have the same fiduciary duty to the buyer and the seller as the broker.” Thus, the case was remanded for a new trial.

Coldwell Banker has requested a review of the case by the California Supreme Court. According to the Appellate Courts Case Information website, the case status is listed as “called and continued.”

According to the appellate court, “‘dual agent’ means an agent acting, either directly or through an associate licensee, as agent for both the seller and the buyer in a real property transaction.” The court cited Assilzadeh v. California Federal Bank: “[A] dual agent has fiduciary duties to both the buyer and seller.”

The Seller’s agent breached his fiduciary duty by failing to communicate all of the material information he knew about the square footage.   He did not even provide the handwritten advice given to other potential purchasers to hire a specialist to verify the square footage. Real Estate professionals should be aware of this decision and the potential ramifications for representing both the buyer and seller in the same transaction.

UPDATE – Horiike v Coldwell Banker affirmed by California Supreme Court

The California Supreme Court held that, in a dual agency context, an associate agent who represents the seller in a transaction owes the same fiduciary duty to the buyer as the broker owes to the buyer, even if he was retained to represent only the seller.

In the Horiike case in which both the seller’s agent and the buyer’s agent were Coldwell Banker agents (from different offices) the selling agent owed a duty to the buyer to disclose all facts materially affecting the value or desirability of the property, and therefore failing to disclose a known disparity in records pertaining to the square footage of the property may have been a breach of this duty.

It did not matter that the buyer signed a dual agency authorization, as the Court determined that “the associate licensee, who functioned on Coldwell Banker’s behalf in the real property transaction, owed the buyer an ‘equivalent’ duty of disclosure under Civil Code section 2079.13, subdivision (b) [as the brokerage, Coldwell Banker, owed].” The selling agent owed a duty to investigate and disclose all facts materially affecting the value or desirability of the property, regardless of whether such facts were discoverable by the buyer or buyer’s agent through the exercise of diligent observation and attention. To this point, the Supreme Court held:

“It is undisputed that Coldwell Banker owed a fiduciary duty to Horiike, including a duty to learn and disclose all information materially affecting the value or desirability of the residence. That duty extended to information known only to [the salesperson] Cortazzo, since a broker is presumed to be aware of the facts known to its salespersons.” (1 Cal. 5th at 1039-40)

The impact of the holding in Horiike is yet to be determined. While on its face the ruling would suggest increased duties placed on the individual buyer and seller agents, the Court noted that the fiduciary duty of disclosure alleged by Horiike is “strikingly similar” to the disclosure duties already owed to Horiike, as the buyer, even absent any fiduciary duty. Additionally, Horiike did not seek recovery from his (buyer’s) agent so the impact to buyer agents is not expressly discussed.

Tierney Law Group specializes in Real Estate and Family Law matters, we can be reached by telephone at 925.362.3364 – or by email at [email protected].