When buying or selling real estate, a person usually retains a real estate agent or broker, someone with expertise in real estate law and practices, in order to assist them and protect their interests.
In most circumstances, the buyer and seller will each have their own real estate agent who represents each of their respective interests.
But what happens when one real estate agents represents both the buyer and the seller in a real estate transaction?
Such an agent is known as a “dual agent.” Although it is illegal in some states for a real estate agent to act as a dual agent, it is legal in California, so long as the agent obtains informed consent from both the buyer and seller. But what does dual agency mean for brokers?
What are the legal implications for brokers in a dual agency situation?
As discussed elsewhere, a dual agent has an obligation under California law to disclose his or her dual agency in writing to both buyer and seller, and to obtain written consent from both parties.
If an agent fails to do this, not only is the agent liable, but the broker may lose commission as well due to its agent’s actions.
In the 1991 case Culver v. Jaoudi (1 Cal.App.4th 300), real estate broker Culver & Associates sought out property for sale on behalf of its buyer client, Del Rayo. One of Culver’s agents, Frank Whiteside, contacted a potential seller, Jaoudi Industrial & Trading Corp, to inquire if the property was still available. Whiteside and Jaoudi entered into an agreement for Whiteside to list the property for sale after Whiteside indicated that he had a potential buyer.
When Jaoudi inquired as to whether Culver and Del Rayo were associated with one another, Whiteside denied any affiliation. The California Court of Appeals held that Culver was not entitled to commission because Culver, as a broker, “substantially represented the interests of both Del Rayo and Jaoudi without disclosure of the dual agency.”
A “dual agent” is an individual real estate agent representing both a buyer and seller. But a real estate broker may run into a situation involving “designated agents”, two different agents representing buyer and seller but under the same brokerage.
Such agents, because they are both effectively acting as “associate licensees” of the broker, create fiduciary obligations to the broker in the context of dual agency.
In the recent case Horiike v. Coldwell Banker (1 Cal.5th 1024 (2016)), a seller and buyer had both retained separate individual real estate agents, yet both agents operated under the same brokerage, Coldwell Banker.
After the purchase, the buyer learned that the square footage of the property was significantly less than what was represented in the marketing materials. The California Supreme Court held that both Coldwell Banker, as the broker, and its associate licensee, in this case the seller’s agent, had a duty to learn and disclose all information materially affecting the value or desirability of the property.
The Court noted that, because of how associate licensees are defined under California statute, associate licensees are agents of their respective brokers, and as principals, associate licensees and brokers therefore owe the same fiduciary duties to their clients.