California Supreme Court Rules that Seller’s Agent Owed Fiduciary Duty to Buyer in Dual Agency Transaction

In a decision that could turn dual agency on its head, the California Supreme Court published an opinion on November 21 stating that even if an agent was hired by the seller, that agent owes a duty to the buyer if the buyer’s agent works within the same brokerage. According to the opinion published by the court, “It is undisputed that Coldwell Banker owed such a duty to the buyer. We now conclude that the associate licensee, who functioned on Coldwell Banker‘s behalf in the real property transaction, owed to the buyer an ‘equivalent’ duty of disclosure.”

In this case, the plaintiff Hiroshi Horiike contended that since the brokerage, Coldwell Banker Residential Brokerage Company, owed him a fiduciary duty due to his relationship with his buyer’s agent licensed with that brokerage, the seller’s agent also owed him the same duties. At issue was a discrepancy of the square footage of the home purchased. While the court agreed that consumers lose undivided loyalty by requiring that different agents both owe a fiduciary duty to both parties, the Court stated, “These are significant concerns, but they are also concerns inherent in dual agency, whether at the salesperson or the broker level.” While at present this will only affect real estate in California, this case could set a legal precedent in other states who have similar laws regarding dual agency.

According to NAEBA President Dawn Rae, “This case clearly illustrates how confusion is created and mistakes can happen when a real estate brokerage tries to represent both the buyer and the seller in the same transaction. Real estate agents should be cautious when working an in-house transaction, and consumers should be aware that they need to look out for their own interests unless they are working with an Exclusive Buyer Agent.”

Adds NAEBA Executive Director Kimberly Kahl, “We are pleased at the Supreme Court’s decision. Dual agency has long been problematic for consumers, leaving them without full representation in what is one of the largest monetary transactions of their lives, which is why NAEBA submitted an Amicus Curiae brief on behalf of the plaintiff. This case simply highlighted the pitfalls for consumers and agents alike and illustrates why our members only represent buyers.”

The National Association of Exclusive Buyer Agents (NAEBA), created in 1995, is an organization of companies dedicated to representing only buyers of real estate. NAEBA member brokerages do not list homes for sale and never represent sellers. This restriction to one side of the real estate transaction avoids conflicts and ensures that the interest of the homebuyer is protected at all times from house-hunting and negotiation to inspection, financing and closing.

West Coast Commercial Real Estate News