Fiduciary Duty to Buyers
The California Supreme Court ruled in November that a real estate agent, who worked for a brokerage with agents that represented both the seller and the buyer in a transaction, owed the buyer a fiduciary duty to learn and disclose all material information affecting the value of the property. Horiike v. Coldwell Banker Residential Brokerage Co. (Cal. 2016) involved the sale of a luxury home in Malibu for $12.25 million, which was advertised as “approximately 15,000 square feet of living areas,” while the tax assessor’s office actually indicated a total of 11,050 square feet, including the main house, guest house and garage. The buyer learned of the 3950 square foot discrepancy years later when obtaining a building permit and sued the seller’s agent.
Under California law, a broker may act as dual agent with disclosure to and consent from both parties, and then the broker owes a fiduciary duty to both parties. The ruling in this case is that the individual salespeople, who operate under the broker’s license, also owe a fiduciary duty to both parties. Thus, the case will return to the trial court to determine if the listing agent, in his fiduciary duty to the buyer, should have been responsible for the accuracy of the representation of square footage.
The agent’s responsibility in real estate transactions is evolving. Not long ago, cooperating agreements between the listing agent and the agent who brought the buyer, established both agents to be agents of the seller. Recent developments have created “buyer’s agents,” who owe their fiduciary duty to the buyer. Then, when the listing agent and buyer’s agent both operate under the same broker, the dual agency must be disclosed, and the broker, owes each party a fiduciary duty. But until this California case, the individual agents had no notice that they may owe a fiduciary duty to both parties. The question will be whether California’s extension of fiduciary duty will carry over to other jurisdictions.