GlobeSt.com: How do many real estate brokerages currently employ their associate broker licensees when representing both the buyer and the seller in a dual agency representation?

Powers: The California Business and Professions Code requires that real estate professionals engaging in the sale, lease, or rental of real property either be certified as a licensed broker or be a salesperson working under a licensed broker as an associate broker licensee (often referred to as a “broker associate”). Corporations may receive a broker's license in California when they have an officer of the corporation with a broker's license who agrees to be that corporation's “designated broker officer.” While an associate broker licensee may perform many of the duties of a broker or corporate brokerage as an agent of the broker under which they are licensed, they are always understood to be under the supervision and responsibility of that broker.

California law further allows brokers to act as dual agents representing both the buyer and the seller in a transaction where the dual representation is disclosed in writing and agreed to by both buyer and seller. Corporate brokerages in a dual-agency scenario frequently have one of their associate broker licensees represent each party in a dual-agency transaction to avoid potential conflicts of interest resulting from the representation of the buyer and seller by a single broker.

GlobeSt.com: What new duties did the California Supreme Court impose on associate broker licensees through the Horiike decision?

Powers: Under the California Civil Code, a broker in a dual-agency representation owes a fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with either the seller or the buyer. This fiduciary duty includes the duty to learn and disclose all information materially affecting the value or desirability of the property. The only limitation on this duty in a dual-agency situation is that the broker may not disclose (1) that the seller is willing to sell the property for less than the listing price, or (2) that the buyer is willing to pay a price greater than the listing price.

In the Horiike decision, the California Supreme Court concluded that when an associate broker licensee represents a brokerage in a real property transaction, that licensee has the same duties as the brokerage. Essentially, this means that the associate broker licensee representing the seller in a dual-agency transaction has a fiduciary duty to the buyer (including the duty to learn and disclose all information materially affecting the value or desirability of the property) and vice-versa.

GlobeSt.com: In what ways do these new duties for associate broker licensees complicate the role of a brokerage in a dual agency representation?

Powers: If associate broker licensees have the same fiduciary duties to both the buyer and the seller in a dual-agency representation, the concept of an exclusive salesperson providing his or her undivided loyalty to each party quickly becomes untenable. It is likely that following the Horiike decision we will see future lawsuits aimed at determining the boundaries of such duties. Does a seller's associate broker licensee, for example, have an obligation to disclose to the buyer that the seller is in financial or reputational peril where the seller's issues could materially affect the value or desirability of the property? Does a buyer's associate broker licensee have a duty to disclose a higher or better use for the property unforeseen by the seller? And what is the scope of the duty to affirmatively seek out knowledge harmful to a represented buyer or seller?

The California Supreme Court fully acknowledges that such potential conflicts of interest are highly likely, but concluded that such conflicts are concerns inherent in dual-agency situations, whether at the level of the broker or the salesperson.

GlobeSt.com: Is there a potential legislative fix that can address this issue while preserving the benefits of a dual agency representation?

Powers: As the California Supreme Court makes abundantly clear in the Horiike decision, the problem with associate broker licensees in dual agency arises from the California Civil Code and could easily be fixed by the Legislature. To illustrate its point, the Supreme Court identifies three states that have legislation sufficient to remedy this problem. Under the Alaska Business and Professions Code, for example, a brokerage can have one designated real estate licensee work for a seller or lessor while another designated real estate licensee can work for a buyer or lessee without creating a dual-agency representation or fiduciary duties to the other party in the transaction. In Connecticut, a “seller agent” and “buyer agent” may be appointed by a broker without creating a dual-agency representation. Finally, Illinois provides that so long as licensees are specifically appointed to both buyer and seller, there is no dual-agency representation, each licensee may keep information confidential and the licensees may consult with the broker without requiring disclosure of that information. Any of these legislative fixes could be implemented within the scope of existing dual-agency law in California without causing significant consumer harm.

SAN DIEGO—An associate broker licensee is required to learn and disclose to both buyer and seller all information materially affecting the value and desirability of the property, Hecht Solberg Robinson Goldberg & Bagley LLP attorney Talon Powers tells GlobeSt.com. Powers specializes in litigation and risk management, as well as transactional matters in real estate, business and finances.

While the most recent California Supreme Court decision regarding dual agency appears to favor real estate buyers, the Horiike decision itself shouldn't cause many issues, according to Powers. As the California Supreme Court correctly points out, the decision only holds associate broker licensees responsible for the general duties of disclosure that they would owe any buyer regardless.

The big question that remains after the decision, according to Powers, is whether an associate broker licensee can adequately represent either buyers or sellers in a dual-agency transaction when the only information guaranteed to be confidential is the bottom-line price that a buyer or seller will accept. While the Court accepts at face value a significant likelihood that conflicts of interest can and will likely emerge as a result of this decision, it nonetheless concluded that under the California Civil Code, an associate-broker licensee is required to learn and disclose (to both the buyer and the seller) all information materially affecting the value and desirability of the property.

We spoke with Powers about associate-broker licensees and how the Horiike decision affects them.

GlobeSt.com: How do many real estate brokerages currently employ their associate broker licensees when representing both the buyer and the seller in a dual agency representation?

Powers: The California Business and Professions Code requires that real estate professionals engaging in the sale, lease, or rental of real property either be certified as a licensed broker or be a salesperson working under a licensed broker as an associate broker licensee (often referred to as a “broker associate”). Corporations may receive a broker's license in California when they have an officer of the corporation with a broker's license who agrees to be that corporation's “designated broker officer.” While an associate broker licensee may perform many of the duties of a broker or corporate brokerage as an agent of the broker under which they are licensed, they are always understood to be under the supervision and responsibility of that broker.

California law further allows brokers to act as dual agents representing both the buyer and the seller in a transaction where the dual representation is disclosed in writing and agreed to by both buyer and seller. Corporate brokerages in a dual-agency scenario frequently have one of their associate broker licensees represent each party in a dual-agency transaction to avoid potential conflicts of interest resulting from the representation of the buyer and seller by a single broker.

GlobeSt.com: What new duties did the California Supreme Court impose on associate broker licensees through the Horiike decision?

Powers: Under the California Civil Code, a broker in a dual-agency representation owes a fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with either the seller or the buyer. This fiduciary duty includes the duty to learn and disclose all information materially affecting the value or desirability of the property. The only limitation on this duty in a dual-agency situation is that the broker may not disclose (1) that the seller is willing to sell the property for less than the listing price, or (2) that the buyer is willing to pay a price greater than the listing price.

In the Horiike decision, the California Supreme Court concluded that when an associate broker licensee represents a brokerage in a real property transaction, that licensee has the same duties as the brokerage. Essentially, this means that the associate broker licensee representing the seller in a dual-agency transaction has a fiduciary duty to the buyer (including the duty to learn and disclose all information materially affecting the value or desirability of the property) and vice-versa.

GlobeSt.com: In what ways do these new duties for associate broker licensees complicate the role of a brokerage in a dual agency representation?

Powers: If associate broker licensees have the same fiduciary duties to both the buyer and the seller in a dual-agency representation, the concept of an exclusive salesperson providing his or her undivided loyalty to each party quickly becomes untenable. It is likely that following the Horiike decision we will see future lawsuits aimed at determining the boundaries of such duties. Does a seller's associate broker licensee, for example, have an obligation to disclose to the buyer that the seller is in financial or reputational peril where the seller's issues could materially affect the value or desirability of the property? Does a buyer's associate broker licensee have a duty to disclose a higher or better use for the property unforeseen by the seller? And what is the scope of the duty to affirmatively seek out knowledge harmful to a represented buyer or seller?

The California Supreme Court fully acknowledges that such potential conflicts of interest are highly likely, but concluded that such conflicts are concerns inherent in dual-agency situations, whether at the level of the broker or the salesperson.

GlobeSt.com: Is there a potential legislative fix that can address this issue while preserving the benefits of a dual agency representation?

Powers: As the California Supreme Court makes abundantly clear in the Horiike decision, the problem with associate broker licensees in dual agency arises from the California Civil Code and could easily be fixed by the Legislature. To illustrate its point, the Supreme Court identifies three states that have legislation sufficient to remedy this problem. Under the Alaska Business and Professions Code, for example, a brokerage can have one designated real estate licensee work for a seller or lessor while another designated real estate licensee can work for a buyer or lessee without creating a dual-agency representation or fiduciary duties to the other party in the transaction. In Connecticut, a “seller agent” and “buyer agent” may be appointed by a broker without creating a dual-agency representation. Finally, Illinois provides that so long as licensees are specifically appointed to both buyer and seller, there is no dual-agency representation, each licensee may keep information confidential and the licensees may consult with the broker without requiring disclosure of that information. Any of these legislative fixes could be implemented within the scope of existing dual-agency law in California without causing significant consumer harm.