Many real estate brokers also become members of the boards of buildings in which they live.
One lofty reason is their commitment to making a contribution to their community. Another is to protect their investment.
A baser desire is to raise their profile and, in so doing, snare business in the building.
But is it permissible for a building’s board member to represent a unit’s seller or buyer as agent? Many brokers will tell you that the question is a thorny one.
The New York Times recently said it was okay for a board president to engage in a building’s real estate transaction so long as that broker does three things:
- Discloses his involvement to the board;
- Removes herself from the approval process;
- Does not sit on the admissions committee.
Having been a board president who was engaged in one transaction in my building, I have to say that I initially concurred with the Times. That was until I read a response in an e-mail from Neil B. Garfinkel, residential counsel of the Real Estate Board of New York (REBNY) and partner in charger of real estate and banking practices at a Manhattan law firm.
The lawyer raised valid objections to the Times piece centering on disclosures and confidences.
On the one hand, the board member is privy to information that may not have been disclosed publicly even to other unit owners. An impending increase in monthly charges leaps to mind as one example. Others: A huge and unexpected capital expense such as an elevator replacement or extensive roof repairs.
At the same time, the buyer’s and seller’s representative are each bound to disclose anything that might have an impact on the value or desirability of a property.
Irrespective of an obligation to buyers, the seller’s broker can run into problems with the unit’s owner as well. For instance, the seller may insist on listing the apartment at a higher price than is justified by a forthcoming substantial increase in those monthly charges of which that resident is unaware. It is worth repeating that the listing broker must, in fact, disclose material facts to the purchaser.
As the lawyer explains,
From my perspective, there is no appropriate way for the real estate broker/co-op board member to filter the information that he or she receives in the ordinary course of serving on the co-op board. Once the information is received, the real estate broker may have an obligation to disclose such information.
Garfinkel says that the broker who serves on a building board and represents either party in a real estate transaction is in an untenable position even if that individual recuses himself or herself from certain board matters.
I agree that the conflict of interest is unavoidable and, naturally, unacceptable.
Tomorrow: Weekly Roundup
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Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022