JUST SAY NO TO DUAL AGENCY

Would you ever hire an attorney to represent both you and the person who is suing you?  So, why do sellers and buyers of real estate agree to dual agency where the agent allegedly “represents” both the buyer and seller?

A real estate agent may act as the agent for the seller only, the buyer only, or both the seller and buyer (dual agent).  However, just because an agent may act as a dual agent should not encourage a seller or buyer to accept this substandard arrangement.  

A real estate agent has a fiduciary duty of utmost care, integrity, honesty and loyalty in his or her dealings with the principal (either the seller or the buyer).  This fiduciary duty includes the following: (a) Diligent exercise of reasonable skill and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.

A real estate agent can legally act as the agent for both the seller and the buyer “with the knowledge and consent of both” parties.  The dual agent owes all of the above duties to both the seller and buyer.  Further, the dual agent “may not, without the express permission of the respective party, disclose to the other party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered.” Civ. Code § 2079.16. 

The dual agency begs the question: how can a dual agent represent both the seller and the buyer with the “utmost care, integrity, honesty and loyalty” when the dual agent cannot inform the buyer that the seller will accept a price less than the listing price and cannot inform the seller that the buyer will pay a price greater than the price offered?  How does this dual agency arrangement in any way protect the principals and provide them the duty of honest and fair dealing and good faith and the diligent exercise of reasonable skill and care that each principal deserves?  The short answer is that dual agency shortchanges both parties to the transaction and does not allow a dual agent to competently fulfill his or her statutory, fiduciary duties.

A recent opinion from the California Court of Appeal serves as a warning to all agents considering dual agency and what should be a deterrent to any seller or buyer considering dual agency:

A broker's fiduciary duty to his client requires the highest good faith and undivided service and loyalty.  The broker as a fiduciary has a duty to learn the material facts that may affect the principal's decision. He is hired for his professional knowledge and skill; he is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal's decision, and he has a duty to counsel and advise the principal regarding the propriety and ramifications of the decision. The agent's duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information.

 A fiduciary must tell its principal of all information it possesses that is material to the principal's interests. A fiduciary's failure to share material information with the principal is constructive fraud, a term of art obviating actual fraudulent intent.

 Constructive fraud is a unique species of fraud applicable only to a fiduciary or confidential relationship.  Most acts by an agent in breach of his fiduciary duties constitute constructive fraud. The failure of the fiduciary to disclose a material fact to his principal which might affect the fiduciary's motives or the principal's decision, which is known (or should be known) to the fiduciary, may constitute constructive fraud. Also, a careless misstatement may constitute constructive fraud even though there is no fraudulent intent.

 Horiike v. Coldwell Banker Res. Brokerage Co. (2014) 225 Cal.App.4th 427, 435-436 (internal quotations and citations omitted)

 The best practice is to say NO to dual agency and insist on being individually represented by an agent.  Please feel free to contact Esquire Real Estate with any further questions regarding dual agency and your real estate transaction.