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Where Broker Acts as Dual Agent, Listing Agent Owes Equivalent Fiduciary Duty to Buyer

It is settled law in California that a real estate broker representing both seller and buyer has fiduciary duties to both parties. In a recent decision, the California Supreme Court has now confirmed that, when there is such dual agency by the broker, the associate licensee acting solely as the listing agent under the broker’s license also has a fiduciary duty to the buyer.

 

In this case, seller retained Coldwell Banker to list a luxury residence for sale. The listing agent marketed the home as having approximately 15,000 square feet, which was more than reflected in public records. Buyer was also represented by Coldwell Banker, but by a different salesperson in a separate office. As required by law, buyer had knowledge of and consented to the dual agency. The listing agent provided copies of public records and the marketing flyer, but did not advise buyer to verify the square footage. After the purchase, buyer discovered the discrepancy and sued for breach of fiduciary duty.

 

Initially, the trial court decided that listing agent had no fiduciary duty to buyer. After the Court of Appeal reversed that decision in 2014, the California Supreme Court agreed to hear the case. The court first examined the history of dual agency in California, noting many developments since the early 1980s. At issue was interpretation of the final two sentences of Civil Code section 2079.13(b), in which the term “agent” refers to the broker and contemplates a real property transaction: “The agent…bears responsibility for his or her associate licensees who perform as agents of the agent. When an associate licensee owes a duty to any prinicipal, or to any buyer or seller who is not a principal,…that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.”

 

The listing agent argued that, taken in context, the “equivalent” language merely clarifies that the broker assumes duties owed by its agents, not the other way around. The court, however, agreed with buyer’s contrary position that because the agent’s authority derives solely from that of the employing broker, the second sentence imposes on the agent the same responsibility as held by the broker. This reading of the statute is supported by its full legislative history.

 

As such, the court affirmed that listing agents, when their brokers act as dual agents, owe buyers a duty to learn and disclose all information materially affecting the value or desirability of the property being purchased. In this instance, that included a duty by the listing agent to the buyer to investigate and disclose everything he could learn about the square footage. Here, the duty to investigate arose because there was a known discrepancy regarding square footage.  This decision further clarifies and strengthens protection afforded to real estate buyers in California.

 

Horiike v. Coldwell Banker Residential Brokerage Company (Nov. 21, 2016) 16 C.D.O.S. 12228

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