In commercial real estate, a conflict of interest occurs when the interests of the real estate professional conflict with the interests of their clients, potentially leading to actions that favor one party over another improperly. Common examples include:
- Dual Agency: This is when a broker or firm represents both the buyer and seller or both the landlord and tenant in a transaction. Although some regions may allow dual agency with proper disclosure and consent, it can create a situation where the agent’s ability to advocate fully for either party is compromised.
- Self-dealing: This occurs when a real estate professional stands to benefit personally from a transaction, such as buying a property they’re also selling.
- Non-disclosure: Failing to disclose relevant information that could affect a client’s decision-making process, such as a personal relationship with a vendor or receiving benefits from a third party involved in the transaction.
- Representation of Multiple Interests: Representing multiple parties with competing interests in the same transaction without full disclosure and informed consent can lead to a conflict.
To avoid conflicts of interest, transparency and ethical reactions are critical. Real estate professionals should prioritize their clients’ interests, disclose any potential conflicts, and, when necessary, recuse themselves from situations where they cannot provide unbiased representation. In some cases, explicit written and signed approval from all parties involved is required to proceed with transactions that might otherwise pose a conflict of interest. Moreover, adhering to industry codes of ethics and professional standards, such as those set by the National Association of REALTORS® or specific state regulations, helps maintain professional integrity and trust with clients.