By: John A. Messina, Jr., Esq.
“One cannot serve two masters. A broker, even through two agents, should not represent both buyer and seller.”
First licensed as a real estate sales person in 1978, a real estate broker in 1984, and as an attorney in 1994, I’ve been exposed to about every aspect of real estate imaginable. As an agent, I sold houses and represented buyers and sellers, as a developer I built multi-family and commercial properties, as a mortgage banker I grew our company from a mortgage broker to a direct underwriter for FHA and VA loans. My loan officers over the years originated well over a thousand loans and most of their clients were real estate agents who referred their buyers to my company for financing; the financing made it possible for the deal to close and for the real estate agent to get paid. When it comes to gettingpaid, for most real estate agents,it’sall about the money. Real estate agents work on commission and, when you work on commission, the house you sell and close,pays for all the timespent working on deals that never close. The commission salesperson tries to sell a high-priced property because the commission is based off the purchase price —the bigger the deal—the bigger the paycheck. The best way to make a big deal even bigger is to “double-end” the transaction—be the agent for both the Buyer and Seller—otherwise, be a Dual Agent!
Dual Agency, while allowed in California, is a good thing for the salesperson but not so good for their clients. In California, a real estate agent owes a fiduciary duty to his 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 am left with the impression the vast majority of real estate brokers and their agents do not appreciate the duty which they are legally bound.
In the most recent California Supreme Court case of Hiroshi Horiikevs.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’ssalesperson 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 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 directly for the service provided their client. For, no matter how great the service, it is only when all the stars align, and the real property closes escrow, that the real estate agent is paid—self-interest drives the closing, not the calling to act in the best interest of the client. 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. The unfortunate reality is the agent comes to resent any person or thing that hinders his reward—sometimes, even his own client.
It is all too often, when I litigate a case where a buyer or seller of real property is suing their real estate agent, the underlying reason for the suit is because the agent advanced his own interests over the interests of his client. In one case, the agent, representing both the buyer and seller, marketed her Sellers’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—no need to queer the deal by letting her seller know the reason her property was only on the market for less than 24 hours was because it was the bargain of the year. 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 through two agents, should not represent both buyer and seller. Just because California law says you can it does not mean you should and a broker acts as a dual agent often to his own peril. Sellers deserve their own independent representation; someone who will always act in their best interest, even if it means no sale and 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 the agent to close the sale and the agent’s clients are often left in the wake—it’s human nature. Consumer beware—Dual Agency is not in your best interest.