Conflicts of Interest: How Can a Broker Be Conflicted and How Does This Affect You?
Wikipedia defines a conflict of interest as:
"A situation in which someone in a position of trust has competing professional or personal interests. Such competing interests can make it difficult to fulfill his or her duties impartially. Even if there is no evidence of improper actions, a conflict of interest can create an appearance of impropriety that can undermine confidence in the ability of that person to act properly in his/her position. The conflict may materially affect the outcome of the transaction to the detriment of one of the parties."
Ways to mitigate conflicts include Removal, Disclosure, Recusal, Third-Party Evaluations, and Codes of Ethics.
In the world of commercial real estate how do these apply and what is the reality?
The most basic response to a conflict should be removal. Law firms run conflict checks before agreeing to take a case. However, in real estate firms that represent multiple competing landlords and tenants, and manage and own properties, this would rarely if ever occur.
The most likely scenario is disclosure. In Massachusetts Residential law brokers are required to have the buyer and seller sign a form which states who the broker is working for: if the same brokerage represents both a buyer and a seller a Dual Agency results which requires that neither agent can act as a fiduciary - that is, the agents must deal with the principals impartially and cannot divulge motivation, terms, or value leaving the principals with no counsel on these critical issues. There is no such Standard of Care for commercial real estate as all principles are considered educated participants. The reality of Dual Agency is that it rarely starts as such, and principals may divulge information in confidence that may not have been shared had they known of the potential conflict, creating a compromised position which undermines their negotiating position.
Recusal, or disqualification, might occur at sensitive points to a negotiation if the broker represents both sides.
Third party evaluations:
Would be used retrospectively, when there is a need to determine a fair market value, or when a commission is in dispute, not to insure proper advisement during negotiations.
Codes of ethics:
Guidelines which should outline how to avoid conflicts in the first place, not how to resolve ones that occur naturally in the course of day to day business, and which are embraced by firms representing landlords and tenants.
How do firms operate that undermine their ability to represent their clients properly and with loyalty? To begin, the question should always be asked, who is their client and what is their fiduciary duty?
Would you want your advisor to remove him/herself from negotiations at critical junctures? Shouldn't it work just the opposite? Would you want your advisor to disclose that he represents not only the landlord of the building you are interested in, but the landlord of the building you are currently in or the one that is backup to your first choice? What if your advisor is representing multiple competing parties in a building represented by your advisor? Believe it or not, this occurs frequently.
Engaging a Tenant Representative (Removal) is the best and only sure way to avoid a conflict. At the core of the services of any member of ATR is conflict free representation where only tenants and buyers are represented by our member companies.
Choose representation whose only loyalty is to you.