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Supreme Court Rules On Dual Agency

This morning, November 21, 2016, in a unanimous decision, the California Supreme Court re-affirmed that when the real estate agent for the seller and the separate real estate agent for the buyer, both work for the same real estate brokerage company, then they both are fiduciaries for both the seller and the buyer. That means both agents must tell the buyer anything they know about the property which would tend to lower the price, and they must tell the seller anything they know about the buyer's situation which might tend to raise the price. The only exception is a statute which says that the agents cannot tell the buyer that the seller is willing to accept a lower price and cannot tell the seller that the buyer is willing to accept a higher price. 

In Horiike v. Coldwell Banker Residential Brokerage Company, the seller's agent had seen a tax assessor's office record that said the home was 9,434 square feet, and a building permit which showed it was 11,050 square feet. Nonetheless, he listed it on the MLS as 15,000 square feet, with a small print note that the square footage was not guaranteed. The Supreme Court left open the question of whether if the seller's agent and brokerage had been representing the seller only, whether the seller's agent would have been obligated to disclose this conflicting information, because in this case, it found that Coldwell Banker owed Mr. Horiike the fiduciary duty to tell him everything it knew about the property, including the conflicting square footage reports. Since the seller's agent was an employee and agent of the Coldwell Banker, he owed that duty to Mr. Horiike, too.

All of the knowledge of each and every person employed by a brokerage company is imputed to the brokerage company. The brokerage company is required by its fiduciary duty to its clients, to disclose all of that information to all of its client, both sellers and buyers. In a dual agency situation, that means the seller's agent must reveal everything she or he knows about the property to the buyer, even secrets disclosed in confidence by the seller. However, if the seller instructed the agent to keep the information secret, the agent would also have a fiduciary duty to the seller to maintain that confidence. The law does not provide the broker or the agent any way out of this conflict.

In today's highly competitive market, with online brokerages and online tools for FSBOs squeezing commissions, brokers and agents must try to earn both halves of the commission whenever possible. One solution is to encourage buyers to represent themselves or to hire an attorney to review the contract for them. Even if the buyers asked the seller or the seller's agent to reimburse the buyer for such attorney fees, that would be less expensive than splitting the commission.

The other solution is to be exceedingly vigilant in making disclosures and walking the tightrope between the fiduciary duty to the sellers and the fiduciary duty to the buyers. Fall off that tightrope, and you'll be in a shark pool of lawyers.

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