Supreme Court Signaling the End of Compromised Real Estate Agents?

Yesterday, the California Supreme Court heard oral argument in the matter of Horiike v. Coldwell Bank Residential Brokerage Company, Case #S218734.  The Court considered the issue of when the buyer and seller in a real estate transaction are represented by different salespersons from the same brokerage and broker, is each salesperson the fiduciary to both the buyer and the seller with the duty to provide undivided loyalty and confidentiality to both?

Before recapping the oral arguments, it is interesting to note how the California Supreme Court has framed the question.  If the Supreme Court decides that each salesperson under the same brokerage and broker is a fiduciary to both the buyer and the seller, there is no conceivable way that two salespersons from the same brokerage and under the same broker could represent the buyer and seller in a transaction because the two salespersons could not provide undivided loyalty and confidentiality to both the seller and the buyer.  So, if the Supreme Court determines that each salesperson in this scenario is a fiduciary to both the buyer and the seller, the Supreme Court will (laudably) upset the accepted status quo of dual agency in the California real estate industry.

Now down to the recap of the oral arguments.  The California Supreme Court was understandably confused by the position of Coldwell Banker suggesting that only the broker, not the salespersons, had a fiduciary duty to both the buyer and the seller.  The Supreme Court repeatedly dismissed the Coldwell Banker attorney’s attempts to present arguments on “how it’s done in the industry” or the common parlance in the industry.  Instead, the Court focused on the specific language of Civil Code section 2079.13(b), which reads, “When an associate licensee owes a duty to any principal, or to any buyer or seller who is not a principal, in a real property transaction, that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.” 

The plain reading of the statute, and the reading that the California Supreme Court has signaled it will adopt, is this: if the broker owes fiduciary duties to both the buyer and the seller (because the brokerage or broker represents both the buyer and the seller), the salesperson (the associate licensee) owes the same fiduciary duties to both the buyer and the seller.  As stated above, these fiduciary duties include undivided loyalty and confidentiality.  And we all know that no one broker and brokerage can adequately provide loyalty and confidentiality to both the buyer (looking for the lowest sales price) and the seller (looking for the highest sales price).  For more information on dual agency, please check out my past blog posting detailing the reasons to Just Say No: http://www.esquire-re.com/blog/2016/4/1/protect-yourself-just-say-no.

If the Supreme Court indeed rules that the dual agent brokerage and salespersons owe fiduciary duties to both sides and knowing that the brokerage cannot adequately represent both sides, expect a push from the real estate industry for legislation revising this statute and protecting the industry’s misguided concept of dual agency.