If you are a tenant, you should care. Why? Because most real estate brokers represent both landlords and tenants. Think of it. When brokers represent landlords, they have a fiduciary duty to get the most expensive deal they can, i.e. the highest leasing rates, the lowest tenant finish allowances, the fewest concessions, etc. But when they represent tenants, they are supposed to do the opposite! Seriously? This would be like having the same law firm represent Bernie Madoff and his victims.
If you are a tenant you want to be represented by someone who has no loyalty to anyone except tenants. But often, that’s easier said than done.
Depending on what state you are in, without a legal statement declaring a specific kind of “agency”, John Doe’s firm, XYZ Realty, can equally represents all its clients, including landlords, while representing you, the tenant. In fact, many states allow “dual agency” or “transaction brokerage” which in effect allows them to assist both parties without being an agent or advocate for either party.
Simply stated, John Doe may not have a fiduciary duty to represent your interests.
This is when the full service firms start talking about the “Chinese Wall” they have erected to protect the interest of tenant clients from those of landlord clients. A Chinese Wall is defined as, “The ethical barrier between different divisions of a financial (or other) institution to avoid conflict of interest.”
Here’s why Chinese Walls don’t work in practice:
What if John Doe represents you and he has a listing on a building at the same time? It’s impossible for Mr. Doe to split himself, yet he owes a fiduciary duty to both you and a landlord.
What happens when John Doe goes to a weekly sales meeting at his full service firm, with brokers representing both landlords and tenants in attendance, and he is expected to report on his activities? Your deal gets discussed even if it may not be in your best interest.
Who does John Doe serve when the size of the commission(s) he will earn from a landlord client far outweighs the commission he will earn representing you the tenant? Does he honor greed or ethics?
What does John Doe do when his boss (his state-licensed Broker) says, “Back off on how hard you are negotiating the terms for your tenant client because you are ruffling feathers with our landlord client.” This really happens because XYZ Realty stands to make far more money from the landlord listing than it does from your tenant rep assignment.
I have been with big firms. I know how they work. The above is reality and conflicts of interest do matter because they cost you money.
Wally & Co. exclusively represent tenants. Please call us to discuss your next project and learn why Wally & Co. wants to be your partner, not just a vendor.
