Dual Representation & Conflicts of Interest in Real Estate Management

Article excerpt

This case study explores the ethics encountered in dual representation and conflicts of interest that may arise in community association management. Note that the names Smith Apartment Company and Johnson Management are used as pseudonyms, and certain facts have been altered to protect the confidentiality of the parties involved in this case.

Business is business, and ethics are ethics. How many times have you heard this? How often have you heard comments that it's easier to stand up for "right and wrong" when you're 64 rather than when you're 25 and your career is just taking off? Well, you may be brave, or you may need that job for legitimate reasons beyond making that next BMW lease payment. Many of us have real reasons to be reticent about standing up for our moral or ethical beliefs, or even our professional oaths. However, you either have to go along with issues counter to your professional or personal beliefs, or stand up for these beliefs and suffer any consequences.

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Do you really have the option of staying quiet? The outcome for you individually as a professional and a CPM Member depends on a number of conditions, but the lesson should be clear: You have a duty to your client, and you should be clear about who your clients are and what you are undertaking as you strive to fulfill your commitments, maintain your integrity and enhance your reputation.

CASE STUDY BACKGROUND

The state's real estate licensing law where this case study takes place, and both the Institute of Real Estate Management (IREM) and the Community Associations Institute (CAI) codes of ethics set the background for this case-based study.

This particular state, along with many other states, does not have licensing, educational, or any other formal training and certification requirements for entry into condominium management. However, this state does require a real estate license for management of apartments and commercial properties.

The property management company used as the example in this case study required that all their managers have active real estate licenses, regardless of the type of property they managed (an unusual practice in condominium management in this particular state). The property management company actively managed apartments and condominium communities, as well as commercial properties, and participated in upscale commercial development. The management company partners were all brokers and each held the Certified Property Manager (CPM) designation. Each partner had divisional responsibility for each type of property the company managed. The senior property manager also held a CPM designation. All condominium managers had specific responsibilities to the company's broker under state licensing law.

CASE DEVELOPMENT

In the early 2000s, Smith Apartment Company, which owns a large number of apartment communities, decided that the company's apartment communities that had been fully depreciated for tax purposes were in need of rehabilitation, and should be disposed of due to the high cost of curing accrued physical deterioration. The company decided to dispose some of these assets by converting them into condominiums. These properties would be "freshened up" and marketed to first-time homebuyers at attractive prices. The company would use its own employees to direct and coordinate all work (as one property would be finished, the crew would start on another), and local real estate brokers would market and sell the apartment units from an onsite office. Property management firms would be hired to work with both Smith Apartment Company and the homeowners prior to and after turnover of the properties to homeowner control. The management company would then handle resale certificate preparation when units were later resold by the "first in" homeowners.

In 2004, Smith Apartment Company negotiated a management contract with Johnson Management Company, whereby Johnson would assume property management responsibilities of Smith's apartment communities during and after conversion into condominiums. …