What are a salesperson’s duties in a real property transaction when its employing broker represents both the buyer and seller through separate salespersons in the company? A recent case entitled Horiike v. Coldwell Banker Residential Brokerage Company et. al. specifically addressed that question (225 Cal.App.4th 427). In Horiike, Coldwell Banker, as the broker, represented both the buyer and seller in a residential sale through two different salespersons at the company. The buyer ultimately sued Coldwell Banker and both salespersons for several causes of action, including breach of fiduciary duty. The trial court granted a nonsuit on the claim for breach of fiduciary duty against the seller’s salesperson on the ground that such salesperson did not have a fiduciary duty to the buyer. The buyer contended that seller’s salesperson had the same fiduciary duty to buyer as that of the broker. The Court of Appeal agreed and held that when a broker is the dual agent of both the buyer and the seller in a real property transaction, the salespersons acting under the broker have the same fiduciary duty to the buyer and seller as does the broker, even though they are only representing one side of the transaction.
In Horiike, an agent at Coldwell Banker listed an owner’s home for sale with approximately 15,000 square feet of living space based on measurements from an architect, although public record listed the home at closer to 9,000 square feet. Another agent at Coldwell Banker brought a potential buyer, Mr. Horiike, who went into contract on the property. The buyer and seller signed the proper documentation alerting them to the dual agency by Coldwell Banker and the buyer eventually closed on the purchase. Afterwards Mr. Horiike pulled building permits to begin renovations on the home which showed the square footage was materially less than 15,000 square feet. He thereafter brought the action contemplated in this case.
Horiike contended that seller’s agent, as an associate agent of Coldwell Banker, owed a fiduciary duty to him equivalent to the fiduciary duty owed to him by Coldwell Banker. The court agreed relying on statutory law which says that “when an associate licensee owes a duty to any 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”. Since seller’s agent was an associate of the broker who was on both sides of this transaction, he owed a fiduciary duty to the buyer, in addition to his fiduciary duty to the seller.
A broker’s fiduciary duty to its 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. The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information. A fiduciary’s failure to tell the principal material information is considered constructive fraud, which is a unique type of fraud applicable only to a fiduciary relationship. In this case, seller’s salesperson was aware of potentially different values of square footage which could be material to the buyer. Arguably, he should have investigated further and provided his findings to Mr. Horiike.
This case is an important reminder that even if informed waivers are signed by all parties, salespersons at a brokerage firm representing both sides of a transaction should tread carefully and be aware of their respective duties to both buyer and seller. Even though seller’s agent represented the seller and not the buyer in this transaction, due to the fact that the broker represented both principals through its respective salespersons, seller’s agent owed a fiduciary duty to both parties. Seller’s salesperson could be held liable for constructive fraud to the buyer for failing to adequately investigate the amount of square footage at the property and provide the relevant information to Mr. Horiike.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.