FIDUCIARY

Agency Relationships In Residential Real Property Transactions

This Act, effective January 1, 1988, was passed by the California Legislature expressly to further the education of consumers on the existence of various "types of agency" (sic) relationships which may occur and to require disclosure of these options to the parties by licensees. In my opinion it adds to the mass confusion on this issue to refer to "types of agency". But that's the term used in the legislative comment on this Act.

First, this legislation applies to both listing and buyer brokers.

Second, a point of clarification about the somewhat confusing use of the word "agent".

Section 2079.13(a) defines "agent" as a person/firm under whose license a listing agreement is executed or an offer to purchase is obtained. For example, sellers may think of Cindy at Mythical Realty as their agent - but legally their agent is Mythical Realty, the licensed brokerage with whom the listing agreement was executed. Cindy acts for Mythical Realty as ITS agent. Indeed, all licensees at Mythical Realty are agents of Mythical Realty.

Section 2079.16 mandates the format for the Agency disclosure form to be provided to sellers, prior to the execution of a listing agreement, and to buyers, prior to the execution of an offer to purchase. The text of this legislation is to be printed on the reverse side of the disclosure form.

The disclosure form describes the duty owed to buyers and sellers by their respective as a fiduciary duty of utmost care, integrity, honesty and loyalty. Curiously, the duty owed by a dual agent simultaneously to the seller and to the buyer is described in identical terms. So a broker representing both seller and buyer owes each a duty of utmost loyalty!

Section 2079.17 provides that the exact relationship of the agent or agents to the seller and to the buyer in a particular transaction shall be confirmed by the parties to the transaction in the purchase contract (or other separate writing).

Section 2079.19 provides that the payment of compensation by the seller or buyer is not necessarily determinative of a particular agency relationship.


Field v Century 21 Klowden-Forness, 73 C.R. 2nd 784 (1998)

Briefly, Century 21 was representing the buyers, exclusively. Escrow closed without a title report - which noted the existence of an easement that severely limited buyers' exclusive use of their own property. And there was more. However, it was never necessary to reach a tortured definition of fiduciary in order to conclude that C-21 was negligent, big time.

Problem: the buyers blew the two year Statute of Limitations, Section 2079.4, which by its terms applies to the breach of any duty imposed by Section 2079 to 2079.24. Important, note the section numbers.

In order to reach a decision friendly to the buyer the Court of Appeals made a tortured determination that since the Century 21 agent was acting exclusively as the buyer's agent, she was a fiduciary and the two year statute of limitations was not applicable!

First, the Court made a distinction between the statutory duty of reasonable (visual) inspection and the common law duty of a fiduciary to counsel/advise. Then it concluded: "Thus, we cannot properly interpret section 2079.4 as applying to a buyer's broker."

With all due respect that is a critical error, a very unfortunate conclusion.

It is one thing for the Court to discuss/distinguish statutory and common law duties owed to buyers by the brokers who represent them. It is quite another thing to distinguish these "buyer's broker" from others. What others? Who else represents buyers?

There are not two levels of fiduciary. In California, a broker acting as agent of the buyer owes to that buyer "A fiduciary duty of UTMOST care, integrity, honesty and loyalty in dealing with the buyer." [emphasis added] This is Section 2079.16, which we noted above is expressly covered by Section 2079.4.

We don't have "utmost care" guys and "visual inspection only" guys. Yet.

In an effort to clarify this state of affairs the California Association of Realtors published three, yes three, distinct buyer broker contracts. Using the venerable Starbucks classification system, they are:

Large: this condensed version is for buyers who want to hire more than one licensee without committing them to compensate anyone.

Grande: this version is for buyers who agree to use one broker and to compensate that broker if he or she finds the home.

Venti: this full 20 ounce version is for buyers who agree to use one broker and to compensate that broker no matter who finds the home.


SINGLE AGENCY

An Exclusive Buyer Agent or EBA is an individual who does not represent sellers, and who works in a brokerage that does not take listings. But it is not a term that can be copyrighted. So you may run across some folks who call themselves EBA, but who also represent sellers or whose firm represents sellers.

The largest directory of EBAs is the National Association of Exclusive Buyer Agents [NAEBA] site.

I am not aware of any association of Exclusive Listing Agents.


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