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California Supreme Court Extends Reach of Realtors' Fiduciary Duties

Real estate agents can represent both the seller and buyer of a property in California, despite the potential conflicts of interest, so long as the parties consent and it is disclosed that the agent owes a fiduciary to both.

But do the same dual fiduciary duties arise when two agents, both operating under one broker's license, represent both parties in a transaction? Does the seller's broker, acting as an associate licensee, owe a fiduciary duty to the buyer and vice versa? Yes, the California Supreme Court ruled on Monday, in a case that could bring greater protections to California real estate buyers.

A Hair Short of 15,000 Square Feet

The court's ruling involved California's "dual agent" laws. Those laws allow real estate brokers to represent both parties in a transaction. Those brokers can, in turn, act through "associate licensees," often salespeople who operate under the broker's license. California law states that such associate licensees owe duties that are "equivalent to the duty owed to a party by the broker for whom the associate licensee functions."

Here, a luxury residence in Malibu was sold by Coldwell Banker, with an agent from Colwell Banker's Malibu West office representing the seller and an agent from Coldwell Banker's Beverly Hills office representing the buyer. The property, which was sold for $12.25 million in cash according to reports, had been marketed as having 15,000 square feet of living areas. In fact, the house was significantly smaller, the buyer found out two years after purchasing.

When the difference was discovered, the buyer sued, alleging that Coldwell Banker and its associate licensees had violated their fiduciary duty.

A Shared Fiduciary Duty

Coldwell Banker argued that "each salesperson owes a duty only to the person they are directly working with, not the opposite side." The seller's agent was under no obligation to discover and inform the buyer of the size discrepancy, despite working as a dual agent through Coldwell Banker, the company asserted.

In a 7-0 decision, the California Supreme Court rejected that interpretation of the law. The seller's broker, "as an agent of Coldwell Banker in the transaction, owed [the buyer] a duty to learn and disclose all facts materially affecting the value or desirability of the property," the court concluded. Because he did not, Coldwell Banker could be found liable for that breach of fiduciary duty.

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