Dual Agency Is Dangerous For Sacramento Real Estate Agents
All real estate agents and brokers should understand that they have fiduciary obligations to their principal. Real estate agents and brokers (hereinafter collectively referred to only as “agents”) know that they owe their buyer or seller principal the highest degree of loyalty and good faith. This duty requires real estate agents to be honest and truthful with their seller or buyer, and give full disclosure of all material facts that could influence their principal’s decision to move forward with the sale. These obligations in essence require the real estate agent to operate only in their principal’s interest. However, real estate transactions involve a buyer and seller who necessarily have divergent interests. Both parties want the benefit of the bargain; the seller wants to make the most money while the buyer wants to pay the least amount of money. In this inherent divergence of interests the existence of dual agency becomes a legal minefield, giving rise to litigation and the employment of real estate attorneys. While dual agency is permitted in California, its existence can complicate a real estate transaction and enhance the liability of the real estate broker or agent.
The Undisclosed Dual Agent
Dual agency may arise not only by express agreement, but also by implication. As reiterated in Wright v. Lowe (1956) “An implied agency may arise from the words and conduct of the parties and the circumstances of the particular case.” Consequently, when a real estate agent for the seller assumes duties or responsibilities for the buyer to facilitate a sale, dual agency may arise. In Wright v. Lowe an agent for the seller transmitted the seller’s offer to a buyer. The buyer in turn formulated a counteroffer in which a low down payment would be achieved by certain deductions from the purchase price for assessments and loans. However, the counteroffer was not transmitted directly from the buyer to seller, but was rather transmitted through the seller’s agent, who upon transmitting the buyer’s counteroffer to the seller became a dual agent. An agent in this unexpected dual agency must give full disclosure to the buyer and seller and obtain the consent to the dual agency from both principals. If the agent fails to obtain this consent and make full disclosure they have become an undisclosed dual agent. Upon becoming an undisclosed dual agent, either principal may avoid their obligations under the real estate contact by rescinding the contract. The right to rescind the contract where an undisclosed dual agent exists is not predicated upon a showing of fraud or injury. The mere existence of the undisclosed dual agent gives rise to the right of rescission and leaves the undisclosed agent liable for damages suffered by the parties.
By Adam Garcia