In view of the above, it can be argued only the broker is the dual agent as the “agent” includes a person who is licensed as a real estate broker. In Horiike, the “agent” was Coldwell Banker. The associate licensee was the listing agent. As such, under the associate licensee definition, when an associate licensee (i.e. a sales person) owes a duty to a principal, the broker owes an equivalent duty to the principal. In other words, the broker owes the same duty to a party to the transaction that the broker’s associate licensee owes to that party. However, there is nothing in this statute that says any two associate licensees, even in a dual agency transaction, owe equivalent duties – only that the broker for whom the associate licensee’s function owed such duty.
Impact on Associate Licensees
If associate licensees have fiduciary duties to parties to a transaction in addition to their own client, the scope of the licensees agency responsibilities would expand significantly and unreasonably. In the Horiike transaction, it would mean not only would the listing agent have fiduciary duties to a seller, but to the buyer as well. Similarly, buyer’s agent would owe fiduciary duties to the seller.
Continuing Challenges Created by Horiike
This presents an almost impossible situation for an agent, as under NAR ethical rules salespersons are not supposed to communicate directly or coordinate with other parties who are represented by another agent. Indeed, the practical effect of this case will prevent future dual agency from occurring in the future because such broad and amorphous duties will cause professional liability insurers to exclude dual agency transactions from coverage.
Coldwell Banker’s attorney argued that while duties of the sales associate are imputed to his/her broker (respondeat superior), the converse is not true (there is no “respondent inferior doctrine”). Further, the fact Coldwell Banker may have been the buyer’s fiduciary should not, by operation of law, render every sales associate affiliated with Coldwell Banker the buyer’s fiduciary. Instead, a more practical rule, and one that could be better understood by sales associates and their clients, is that only the sales associate would owe the fiduciary duties to their principals (who the sales associate agreed to represent and who the principal hired). This is consistent with the laws of agency where a principal may be liable for the acts of an agent, but an agent is not liable for the acts of a principal. Imagine if any agent’s knowledge in a corporate broker with a thousand agents became the knowledge of every agent in the entire corporate brokerage.
Recommendation
In view of the above, and until this bad case is reversed, salespersons need to be aware that when they believe they are representing a buyer in a dual agency situation they are also representing the seller. As if it was not hard enough to understand all the legal complexities of agency relationships in real estate transactions, this case just made it harder.
UPDATE: Recently, the California Supreme Court has accepted the petition for review of this case and it is anticipated that they will render their decision sometime in the summer of 2015. For the sake of all real estate professionals concerned, it is hoped that the Appeals Court decision is overturned.
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