We have previously stressed to real estate professionals, in our blog articles and in many of our speaking engagements, that dual agency is a very risky proposition for real estate brokers. The courts have consistently gone out of their way to find liability against dual agents. The recent case of Horiike v. Coldwell Banker Residential Brokerage Co. continues the courts’ pattern, again punishing a dual agent.
In Horiike, a buyer of residential real property alleged that the seller’s agent misstated the square footage of the home during the sale process. The seller and buyer were represented by different salespersons. However, both salespersons worked for the same broker. To understand the following, please recall that salespersons must lodge their real estate licenses with a broker and must work under the license of a broker. They cannot do work requiring a license without a broker affiliation.
The Court of Appeal held that the salesperson representing the seller owed a fiduciary duty to the buyer. Generally, a salesperson owes a fiduciary duty to his or her client, and owes only a duty of good faith and fair dealing to the other party to the transaction. As we are sure you are all aware, the fiduciary duty is a much higher standard that requires “the highest good faith and undivided service and loyalty” to the client.
The Court held that a broker whose agents represent both parties to a real estate transaction owe both parties a fiduciary duty even when different salespersons represent each party. If the seller’s agent was aware of material facts regarding the property, he had a duty to provide them to the buyer. The Court emphasized that an agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information. The Court further held that a fiduciary’s failure to share material information with the principal is constructive fraud, and noted that even a careless misstatement may constitute constructive fraud even if there was no fraudulent intent.
In this case, the seller’s agent was aware of potentially inconsistent square footage calculations. This information could be deemed material to the buyer. Therefore, the Court held that the seller’s agent should have investigated further and provided his findings to the buyer.
This case further illuminates the potential risks of entering into a dual agency. The court made clear that when two agents in the same brokerage are part of a transaction, each agent has a duty to disclose all material information to both parties.
The attorneys at Brewer Offord & Pedersen LLP regularly work with real estate agents and their clients in resolving issues related to real property transactions, mortgage financing, and disclosure issues. If you have any questions about disclosure issues, or any real estate legal issues, please contact us at (650) 327-2900, or on the web at www.brewerfirm.com. “Real Estate Law – From the Ground Up”®