“One cannot serve two masters. A broker, even with two separate agents, should not represent both buyer and seller.”
Dual Agency, where the broker or the broker’s agents represents both buyer and seller, is allowed in California; it is a good thing for the broker but not so good for their clients. In California, a real estate broker and his agents owe a fiduciary duty to their client; the highest duty one owes to another—this is the same duty created between a person and his lawyer—the duty of the fiduciary to always act in his client’s best interest.
I liken it to the relationship between a loving and caring parent to their own child—the parent always acts in a manner consistent with the best interest of their child, even if it is against their own best interest. This is what a fiduciary relationship is and what is legally expected of a real estate agent to his client. As a real estate litigation attorney for the last 22 years, and my years as a real estate practitioner, I convinced the vast majority of real estate brokers and their agents do not appreciate the scope of duty which they owe their clients.
In the most recent California Supreme Court case of Hiroshi Horiike vs.Coldwell Banker Residential Brokerage Company Et Al., the Court laid out the duties and responsibilities of real estate salespersons and their brokers acting as dual agents. Since salespersons do not work independently of their brokers, even where one of the broker’s salesperson represent the buyer and another of the broker’s salesperson represent the seller, as held by the Supreme Court in Horiiki, the single broker is the agent for both the buyer and seller and owes a fiduciary duty to both. So, while the seller and buyer are represented by even two separate individuals, the broker is legally responsible to act, through his salespersons, in the best interest of both buyer and seller. This is nearly impossible to do.
Human nature, what it is, defaults to each of us acting in our own best interest. It is because of a higher calling, that of a parent to child, a doctor to patient, or a lawyer to client that causes one to act against their own pecuniary interest and act in the best interest of their principal. The higher calling is acknowledged and accepted as being greater than one’s own individual needs and demands sacrifice. This is hard for a real estate agent. A real estate agent (broker or salesperson) sells real estate for a commission—the call to represent the best interest of their client is most often obfuscated by the desire to be paid.
These individuals often do a wonderful job of marketing properties for sale and ultimately bring willing buyers and sellers together; without their marketing skills, buying and selling real property would be much harder. But, for all their marketing prowess, the real estate agent is a salesperson, paid for the deals they close; not for the deals that never materialize. The agent works hard, marketing his services, showing property to those who never buy, cold-calling for new listings, competing in a market where everyone has a family member in real estate, etc., The agent sees the commission as his just reward for all his hard work and commonly resents any person or thing that hinders his reward—sometimes, even his own client.
In one case I litigated, the agent who represented both the buyer and seller marketed her Seller’s property to a prospective purchaser without ever disclosing the fact the property was in a redevelopment zone. She knew the buyer was champing-at-the-bit to purchase the property at a below-market price to sell for a huge profit after zoning changed from residential to commercial. The agent, having both ends of the deal, knew a completed sale would give her a large payday. When the seller found out about her agent’s failure to disclose a material fact, after close of escrow, a lawsuit was filed against the agent and her broker for breach of fiduciary duty—the agent offered to settle; disgorging all her commission and paying attorney fees—the buyer offered to rescind the sale.
One cannot serve two masters. A broker, even with two separate agents, should not represent both buyer and seller.
The temptation by the agents to share inside information or to favor their co-workers offer is too great. Sellers deserve their own independent representation; someone who will always act in their best interest, even if it means no sale. Equally, the buyer deserves to be represented by someone who is their best advocate for their best outcome, even if it means not buying. Dual agency allows real estate agents to represent opposing parties when an actual conflict exists—i.e. seller want the most for his property and buyer wants to acquire it for the least amount possible. The desire for commission drives agents to close the sale and, generally, while this works to the benefit of all, sometimes the outcome results in the client being wholly misrepresented. The bottom line—Buyer and Seller beware of the “Dual Agent”; insist on exclusive and independent representation.