In a new published decision, the appellate court has clarified the duties of a Broker to the Buyer and Seller when the Broker double ends the transaction. (Dual Agency) In Horiike vs. Coldwell Banker, the Broker represented both the buyer and seller through two different salespersons. The listing agent put the property in MLS and advertised it as having approximately 15,000 square feet of living area. The building permit lists the total square footage as 11,050 square feet, plus a guest house with 746 square feet, and a garage with 1,080 square feet. The listing agent prepared a flier for the property also claiming it offered approximately 15,000 square feet of living area.
In March, 2007 a couple made an offer on the property and asked the listing agent for verification of the living area square footage. The listing agent provided a letter from an architect stating that the house was approximately 15,000 square feet but he recommended that the buyer verify the square footage. After the buyers requested an extension of time to verify the square footage, the seller refused to grant an extension so the buyers canceled.
The listing agent then changed the square footage in MLS to “0/O.T.” which meant zero and other comments.
In November, 2007 another buyer made an offer on the property and the listing agent again provided the flyer claiming the property had 15,000 square feet of living area. After escrow opened, the listing agent provided the buyer with a copy of the building permit. The buyers were represented in the transaction by another agent from Coldwell Banker. The Agency Disclosure (AD Form) disclosed that Coldwell Banker was acting as the agent for both the buyer and the seller.
A couple of years after close of escrow, the buyer asked the listing agent to verify the square footage. The buyer had an expert at trial testify that the square footage of the living areas of the home totaled 11,964 square feet. Coldwell Banker’s expert testified the square footage was 14,186.
n November, 2010 (approximately three years after close of escrow) the buyer sued the listing agent and Coldwell Banker for intentional and negligent misreprentation and breach of fiduciary duty, among other causes of action. After the buyer put his case on trial to a jury, the judge granted a motion for non-suit on the breach of fiduciary duty cause of action. The judge did not believe that the listing agent or Coldwell Banker had any fiduciary duties to the buyer. The judge instructed the jury that neither the listing agent or Coldwell Banker owed any fiduciary duties to the buyer. The jury therefore found in favor of the listing agent and Coldwell Banker and judgment was entered in their favor. The buyer appealed.
On the appeal, the buyer argued that the listing agent and Coldwell Banker owed fiduciary duties to the Buyer beacuse Coldwell Banker was acting a dual agency capacity. Although the buyer was represented in the transaction by a different salesperson than the listing agent, both agents worked for Coldwell Banker, therefore Coldwell Banker was representing the buyer also. Fiduciary duties are owed by a broker to their clients, which include the duties of the highest good faith and undivided service and loyalty. A dual agent has fiduciary duties to both the buyer and the seller. The agency disclosure form (AD) states that a dual agent has a fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with either the buyer or seller.
Since a broker who acts in dual agency owes fiduciary duties to both the buyer and seller, it follows that each agent employed by the broker also owes the same fiduciary duties to both buyer and seller. Therefore, although the listing agent did not represent the buyer in the transaction, by law, the listing agent owed fiduciary duties to the buyer. Therefore the appellate court determined that the judge had given the jury the wrong instructions and the judgment had to be reversed.
The broker’s fiduciary duty to his client requires the highest good faith and undivided service and loyalty. The broker acting in a fiduciary capacity has a duty to learn the material facts that may affect the principal’s decision. He is hired for his professional knowledge and skill, and is expected to perform the necessary research and investigation in order to know the important matter that will affect the principal’s decision. Since the listing agent knew that the square footage had been measured differently than as advertised on his flyer, the listing agent had a duty to advise the buyer that the square footage had been measured differently than as represented on his flyer and to warn the buyer to verify the square footage with an expert. Since the judgment had to be reversed, the case will now go to trial again with a new jury who will be instructed property.
The lesson to be learned from this case is that a Broker acting as a dual agent has fiduciary duties to both the buyer and seller, and fiduciary duties are much higher than the duties of a listing agent to a buyer when the broker does not represent the buyer. In that case, the listing broker acts as an agent only for the seller and only has fiduciary duties to the seller. The listing broker (if not acting in dual agency) has an obligation to both buyer and seller to exercise reasonable skill and care, as well as a duty of fair dealing and good faith, and a duty to disclose all facts known to the agent materially affecting the value or desireability of the property. Fiduciary duties are much higher and include the duty to learn material facts that may affect the principal’s decision, and perform research and investigation to find material facts.