January 2017

January 2017
Dual Agency - Not in the Consumer’s Best
Interest
LEGAL
by
by John A. Messina, Jr., Esq.
Steve Fillingim
“One cannot serve two masters. A
broker, even with two separate agents,
should not represent both buyer and
seller.”
Dual Agency, where the broker or
the broker’s agents represents both buyer
and seller, is allowed in California; it is
a good thing for the broker but not so
good for their clients. In California, a
real estate broker and his agents owe a
fiduciary duty to their client; the highest
duty one owes to another—this is the
same duty created between a person and
his lawyer—the duty of the fiduciary to
always act in his client’s best interest.
I liken it to the relationship between a
loving and caring parent to their own
child—the parent always acts in a manner
consistent with the best interest of their
child, even if it is against their own best
interest. This is what a fiduciary relationship
is and what is legally expected
of a real estate agent to his client. As a
real estate litigation attorney for the last
22 years, and my years as a real estate
practitioner, I convinced the vast majority
of real estate brokers and their agents do
not appreciate the scope of duty which
they owe their clients.
In the most recent California Supreme
Court case of Hiroshi Horiike
vs.Coldwell Banker Residential Brokerage
Company Et Al., the Court laid out
the duties and responsibilities of real
estate salespersons and their brokers acting
as dual agents. Since salespersons do
not work independently of their brokers,
even where one of the broker’s salesperson
represent the buyer and another of
the broker’s salesperson represent the
seller, as held by the Supreme Court in
Horiiki, the single broker is the agent
for both the buyer and seller and owes a
fiduciary duty to both. So, while the seller
and buyer are represented by even two
separate individuals, the broker is legally
responsible to act, through his salespersons,
in the best interest of both buyer
and seller. This is nearly impossible to do.
Human nature, what it is, defaults to
each of us acting in our own best interest.
It is because of a higher calling, that of
a parent to child, a doctor to patient, or
a lawyer to client that causes one to act
against their own pecuniary interest and
act in the best interest of their principal.
The higher calling is acknowledged and
accepted as being greater than one’s own
individual needs and demands sacrifice.
This is hard for a real estate agent. A real
estate agent (broker or salesperson) sells
real estate for a commission—the call to
represent the best interest of their client
is most often obfuscated by the desire
to be paid. These individuals often do a
wonderful job of marketing properties
for sale and ultimately bring willing
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buyers and sellers together; without their
marketing skills, buying and selling real
property would be much harder. But,
for all their marketing prowess, the real
estate agent is a salesperson, paid for the
deals they close; not for the deals that
never materialize. The agent works hard,
marketing his services, showing property
to those who never buy, cold-calling
for new listings, competing in a market
where everyone has a family member in
real estate, etc., The agent sees the commission
as his just reward for all his hard
work and commonly resents any person
or thing that hinders his reward—sometimes,
even his own client.
In one case I litigated, the agent
who represented both the buyer and
seller marketed her Seller’s property to
a prospective purchaser without ever
disclosing the fact the property was in a
redevelopment zone. She knew the buyer
was champing-at-the-bit to purchase the
property at a below-market price to sell
for a huge profit after zoning changed
from residential to commercial. The
agent, having both ends of the deal, knew
a completed sale would give her a large
payday. When the seller found out about
her agent’s failure to disclose a material
fact, after close of escrow, a lawsuit was
filed against the agent and her broker
for breach of fiduciary duty—the agent
offered to settle; disgorging all her commission
and paying attorney fees—the
buyer offered to rescind the sale.
One cannot serve two masters. A
broker, even with two separate agents,
should not represent both buyer and
seller. The temptation by the agents to
share inside information or to favor their
co-workers offer is too great. Sellers
deserve their own independent representation;
someone who will always act
in their best interest, even if it means
no sale. Equally, the buyer deserves to
be represented by someone who is their
best advocate for their best outcome,
even if it means not buying. Dual agency
allows real estate agents to represent
opposing parties when an actual conflict
exists—i.e. seller want the most for his
property and buyer wants to acquire it
for the least amount possible. The desire
for commission drives agents to close
the sale and, generally, while this works
to the benefit of all, sometimes the outcome
results in the client being wholly
misrepresented. The bottom line—Buyer
and Seller beware of the “Dual Agent”;
insist on exclusive and independent representation.
“
The desire for commission drives
agents to close the sale and,
generally, while this works to the
benefit of all, sometimes the outcome
results in the client being
wholly misrepresented
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