Agency Relationships Are Material Facts

By S. Guy Puccio

The agency relationships intended among principals and real estate and mortgage brokers are material facts. Regardless of whether it is a dual agency, a bifurcated agency, or an agency relationship with one party leaving the other unrepresented, it is a material fact to be disclosed at the outset or when the relationship becomes more than casual. See, Business and Professions Code Sections 10176(a) and (d), Civil Code Sections 2079.13 et seq., 2295 et seq., and 2923.1 and Huijers v. DeMarrais (1992) 11 Cal.App.4th 676.

The obligation to disclose agency relationships in commercial transactions exists notwithstanding the typical interpretation that Civil Code Section 2079.13 et seq. is limited to real properties, defined as one to four residential units. It is interesting to note the disclosure form to be given within this statutory scheme applies to “real estate transactions” while the definition within this scheme applied to the term “real property” or “real property transaction” is limited to one to four residential units.

The question to be considered is whether the term “real estate transaction” used in the statutory disclosure form broadens the application of the use of this form to other than one to four residential units, as defined. See, Business and Professions Code Sections 10176(a) and 10176(d), Civil Code Sections 2079.16 and L. Byron Culver & Associates v. Jaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300.

An agency relationship is established (if not before) when a real estate broker agrees with the seller of real property to solicit buyers on behalf of the seller in consideration for the payment of a commission (if a willing and able buyer is identified who agrees to purchase the property under price and terms acceptable to the seller). Depending upon the facts, the agreement may be in writing (in the form of a listing or other written memorandum) or it may be oral in the case of an open listing.

However, the failure to construct a written agreement for the payment of the commission may well defeat the real estate or mortgage broker’s ability to collect a commission. Such agreements are to be in writing to avoid violating the statue of frauds, to ensure the agreement is enforceable and adequately describes the broker’s assignment, and to disclose and obtain consent to the agency relationship(s) intended. See, Business and Professions Code Sections 10176(a) and (d), Civil Code Sections 1624, 2079.13 et seq., 2295 et seq., among others. Also, See, Phillippe v. Shapell Industries (1987) 43 Cal. 3d 1247, 1255-1258.

The disclosure obligation of a real estate or mortgage broker who is an agent and fiduciary of the principal to whom the disclosures are being made requires the performance of fiduciary duties, including offering advice, making recommendations, explaining the significance and consequences of what was disclosed, and counseling the principal within the course and scope of the agency relationship to ensure the principal makes informed and considered decisions regarding the subject transaction.

The applicable fiduciary duties are based upon the knowledge, experience, and training ascribable to real estate or mortgage brokers in a particular real property or real property secured transaction and is measured by the standard of care to which such brokers are subject. This would include the specific and special knowledge of brokers who hold themselves out as experts within a given field of practice, e.g., mortgage lending or brokerage, appraisal, property management, commercial transactions, and the like. See, Article 11 of the National Association of Realtors Code of Ethics.

Thus, when the real estate or mortgage broker is an agent and fiduciary of the principal(s) to whom the disclosures are being made, this material fact must be disclosed, and the performance of fiduciary duties is required of the broker in the subject transaction. See, Carl Michel et al. v. Moore and Associates, Inc. (2007) 156 Cal App. 4th 756; Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18; Shaucat Sallahutin et al. v. Valley of California, Inc. (1994) 24 Cal App. 4th 555; Easton v. Strassburger (1984) 152 Cal.App. 3d 90); Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773; and, Lingsch v. Savage (1963) 213 Cal.App.2d 729,736.

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