In 2016, California’s high court ruled a real estate brokerage representing both parties needs to protect both the sellers’ and buyers’ interests. The industry defines this as a dual agency, which we do not think provides buyers with the same level of protection and comfort as engaging an exclusive buyer’s agent.
California buyers should know what the decision entails and how it impacts them. In fact, it does not provide buyers as much protection as they think.
The court’s decision revolved around a wealthy buyer’s purchase. The buyer disagreed with the seller’s agent interpretation of the home’s square footage. However, since a buyer’s agent from the same real estate brokerage also represented him, the seller’s agent had a fiduciary duty to disclose this information, according to the rule.
In practice, the ruling did not revolutionize the real estate industry. In these situations where there is a dual agency, there is a duty to both clients. The seller’s agent has the duty to “to learn and disclose all facts materially affecting the value or desirability of the property,” according to California’s Supreme Court.
It is a fine line, and the interpretation is ongoing. But, you should only expect agents to pass along factual information. This might include any flooding or earthquake damage sustained. But, it likely does not include any comment on the quality of the repair work.
However, the seller’s agent does not have a duty to disclose his/her client’s confidential information. This is still true in a dual agency situation where the brokerage firm represents both sides of the transaction.
This means that if a seller tells his/her agent something that could help you, such as a pending divorce situation, you should not expect the seller’s agent to relay this to you.
The ruling does not eliminate a dual agency situation, which remains very lucrative for the real estate brokerage companies. As a buyer, you may face more paperwork and better disclosures, but you should remember that this allows the broker to collect commission checks from both the buyer and seller.
A better way
At Elika Associates, last year we launched our Los Angeles Network of Buyer’s Agents. We are providing the same level of dedication to helping L.A. buyers find their dream home that our New York City clients have been receiving for years.
Our networks of agents strictly represent the buyer. This means there is no dual agency and the corresponding complications that come along with it. There are no conflicts of interest. In fact, if an exclusive buyer’s agent receives information that helps you in your purchase, he/she has a fiduciary obligation to pass it along.
There is no mystery if your real estate brokerage company represents both sides. California has a law requiring real estate brokers and agents to disclose a dual agency. This has been on the books for more than three decades (lawmakers extended this to commercial transactions in 2015).
Nonetheless, remember, it is buyer beware in these situations.