Real Estate Brokers and Dual Agency

In California, a real estate broker is allowed to represent both the buyer and the seller in a residential real estate transaction so long as the required disclosures are made and the broker obtains the written consent of both the seller and the buyer. In this dual agency situation, the broker has a fiduciary duty to both the seller and the buyer and must exercise reasonable skill and care and disclose all facts that are known and may materially affect the value or desirability of the property.

The dual agency situation is most straightforward when a single broker acts on behalf of both the buyer and the seller. Complications can arise when associates acting on behalf of a large corporate broker represent both sides of a real estate transaction. In this situation, it may be difficult for the buyer (or seller) to determine who is acting on their behalf.

In Horiike v. Coldwell Banker Residential Brokerage Co., (case number B246606, opinion filed April 9, 2014), a buyer sued Coldwell Banker and the salesperson representing the seller because Coldwell Banker’s agent failed to accurately disclose the amount of living area in a property in Malibu. The seller’s agent originally listed the living square footage as 15,000 square feet but the buyer’s expert at trial testified that the living area of the home only totaled 11,964 square feet. Coldwell Banker was the broker for both the buyer and the seller of the Malibu property. However, two different salespersons represented the buyer and the seller. The salesperson acting as an associate licensee under Coldwell Banker failed to accurately disclose that there were different measurements for the living area on the property to Horiike, the buyer. The Court of Appeal held that Coldwell Banker breached its fiduciary duty to the buyer because it was representing both parties in the residential real estate sales transaction through different agents.

Takeaway

For real estate buyers and investors the key takeaway from Horiike may be that it is important to engage in thorough and extensive due diligence before completing a real estate sales transaction. Simply relying on your agent may not be enough to uncover key information about a property.