BrokerageRegulations

Court filing in landmark case calls dual agency ‘an impossible situation’

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The role of the real estate agent isn’t one that should be blurred, but regulations in most states don’t clarify an integral ethical standard for brokerages.

In California and 24 other states, it’s legal for a brokerage to have real estate agents acting as the representation for both the buyer and the seller — what’s also known as “dual agency.”

But a recent case, Hiroshi Horiike v. Coldwell Banker Residential Brokerage Co., questions a dual-agency brokerage’s motives.

Last week, the National Association of Exclusive Buyer Agents (NAEBA) filed an amicus curiae, or “friend of the court,” on behalf of Horiike before the California Supreme Court. The filing stated that the dual representation serves only the broker, as dual agency means that brokers are able to collect commission from both sides of the transaction. (See the full briefing below.)

“In reading California law, it would appear that because the broker represented both the buyer and the seller, the agents working under that broker also represented both the buyer and the seller, which means that the seller’s agent should have protected both the seller’s interests and the buyer’s, which is an impossible situation,” noted NAEBA President Chris Whitehead.

“That is why NAEBA has long spoken out against dual agency. It’s not good for buyers or sellers, but only for the real estate licensees who will be able to collect both sides of the commission.”

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However, while the brokerage takes a commission from both sides of the transaction, real estate agents are still working as independent contractors and, therefore, are not technically working alongside “co-workers.”

So although agents may be represented by the same broker, they are still in competition with other agents under that representation.

The commission-based structure of the real estate transaction creates natural competition against agents, whether or not those agents work with the same brokerage.

Unless the listing agent referred the client to a specific agent representing a buyer — in which case the referral fee commission is considered a large incentive— there is no financial reason for agents within a brokerage to work with one another.

But the line remains blurry. Many homebuyers and sellers are unaware of the stipulations between real estate brokers and agents, and according to NAEBA, some unknowingly sign disclosure forms giving consent to dual agency.

The NAEBA suggests that a consumer would understand that an agent is the individual with whom they are working, while the broker is an “abstract entity.” The Court of Appeal’s interpretation of the Civil Code suggests that the home buyer and seller should be offered full transparency in a situation of dual agency, or a fiduciary duty of honesty and integrity.

Coldwell Banker suggests that this could put the homebuyer at risk because of the potential inability to rightfully choose their exclusive agent and “by forcing the associate engaged by the buyer to divulge the buyer’s personal and confidential information to the seller.”

The broker also argues that this could lead back to the era of the subagency, when buyers were not represented at all in a transaction. This, Coldwell Banker says, will blindside buyers and lead to less transparency in the marketplace.

Horiike Amicus Brief

Email Kimberly Manning.


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