How to identify and handle conflicts/potential

conflicts of interest in the commercial agency

field

COMMERCIAL AGENCY – CONFLICTS OF INTEREST

John Stewart, FSCSI, FRICS

Real Estate Agency Code

12 Guidelines or Principals

� To conduct business in an honest, fair, transparent and professional manner

� To carry out work with due skill, care and diligence, and ensure that staff employed have the necessary skills to carry out the task.

� To ensure that clients are provided with terms of engagement which are fair and clear, incorporate details of complaints handling procedures and where existing, an appropriate redress scheme and meet all other legal requirements and relevant codes of practice.

� To do the utmost to avoid conflicts of interest and, where they do arise, to deal with them openly, fairly and promptly.

� Not to discriminate unfairly in any dealings.

� To ensure that all communications are fair, clear, timely and transparent in all dealings with clients.

� To ensure that all advertising and marketing material is honest, decent and truthful.

� To ensure that any client moneys is held separately from other monies, and is covered by adequate insurance.

� To have appropriate professional indemnity/errors or omissions insurance, to ensure customers do not suffer loss as a result of any negligent act.

� To ensure that it is made clear to all parties for whom you are acting, the scope of your obligations to each party.

� Where provided as part of the service, to give realistic assessment of the likely selling, buying , or rental price or associated cost of occupancy, to the client based on market evidence and using best professional judgement.

� To ensure that any property viewings are carried out in accordance with the client’s wishes, having due regard to the security and personal safety of all parties.

� -Blue book extract

BEST PRACTICE

Benefits and Why?(because it its the right thing to do)

� Where an allegation of professional negligence is made to a court or tribunal (PSRA)

� Likely to take account of the contents of any relevant RICS or PSRA guidance notes in determining whether the agent/surveyor had acted with reasonable competence

� RICS Real Estate Agency and Brokerage Standards provide best practice guidance for real estate agents and brokers in all world regions. BLUE BOOK and PSRABLUE BOOK and PSRA

� Abiding by the guidelines is likely to provide a agent/surveyor with a good base or partial defence if such a situation arises.� Obviously the opposite does not necessarily imply that a member will be found negligent if he/she does not adhere to

the standards.

� An RICS or PSRA disciplinary panel is likely to look favourably on an agent/ surveyor who has conducted him/herself in accordance with the guidelines.

THESE GUIDELINES

NOT A STRAIGHT JACKETPROVIDE A LIFE JACKET

ETHICS A bedrock for all surveyors

� There are a number of global ethical codes

relating to international real estate agency.

� The newly constituted PSRA provides national

variations of the RICS code

ETHICS AND PROFESSIONALISM

� Legal and ethical responsibilities

“Relativity applies to Physics not Ethics” (Albert Einstein)

� Moral obligations are more subjective and are based on your personal ethical values.

� As a surveyor/real estate agent you are expected to conduct yourself to a professional standard of performance and service.

� “Professionalism is the giving of one’s best to ensure that client’s interests are properly cared for, but in so doing the wider public interest is also recognised and respected”

(H Land FRICS CPD Study Pack College of Estate Management)

DUTY OF CARE

� Best endeavours within the bounds of ethical and market conditions

�� NotNot to release or misuse information

�� Not Not to appoint a sub agent without permission

� Ensure all staff are properly trained

�� NotNot to accept an instruction outside your capabilities

� When acting for a seller/lessor use reasonable care and skill and give proper advice

� When acting for a buyer/lessee use reasonable care to check information

CONFLICT OF INTEREST

What is it?

� Anything which impedes your focus on the client’s best interests + other agents & public

� Avoid if at all possible

� Deal with it openly

� Disclose an interest you may have in a property and keep a written note

� Discrimination one party over another

� Vulnerable clients- additional care required

CONFLICTS OF INTEREST

PSRA definition

The PSRA states:

“a property services provider has a conflict of interest where he/she is in a position of trust which requires the exercise of judgement on behalf of a person for whom he/she is acting and also has either private or business interests or obligations of a sort which might interfere with the exercise of his/her judgement”

Property Services Provider?Under the PSRA legislation

� Applies to?

� A PROPERTY SERVICE PROVIDER –PSP

� Who?

� A PSP is an auctioneer/agent and is required to register with the PSRA

� What?

� a code or legal framework to regulate the profession

� When?

� Passed into law on 20th December 2011,awaiting ministerial order

� Refers To?

� Minimum standards of professional conduct to be expected of PSP’s Responsibility to clients, the public, customers and fellow professionals

� Specifically includes a commitment to ethical business practices, professional integrity, honesty and the provision of efficient and effective services.

When does a position of trust arise?

Estate agents/auctioneers/surveyors engaged in the provision of the purchase or sale, by whatever means, of any estate or interest in land(including buildings) wherever situated, the letting of any estate or interest in land wherever situated, will effectively be in a position of trust when appointed to undertake any of these functions.

Exercise of judgement on behalf of a person

for whom he/she is acting?

An estate agent/surveyor will be required to make judgement calls on behalf of such clients and such judgements MUST never be compromised by ANY

outside influences

Private or Business Interests or

obligations?

This could include a conflict within one’s own family

� An estate agent selling land where a family member owns adjoining land

� It could also include for example a situation where you are quietly assembling a site for a client and perhaps a strategic piece of land remains outstanding. If you were approached to sell this outstanding piece of land you MUST inform the prospective vendor of the conflict and probably withdraw.

� Must be disclosed in writing as you could not proceed without the clients written consent.

The test is might interfere!

� This is a much higher bar to cross

� Obviously includes will interfere But might is very subjective.

� A conflict of interest?

� Anything that might impede your ability to focus on the best interest of the client but also customers the public and fellow professionals

WHAT TO DO IF A CONFLICT ARISES

� Applies to all conflicts and potential conflicts of interest

� Inform the client in writing with details of the actual or potential conflict

� Unless he/she is advised in writing that the client has no objection or difficulty with the conflict situation, he/she MUST cease to act in the transaction.

Samples of where conflicts may arise

� Where an estate agent is offered any form of inducement by a prospective customer

� this may be fraud as well as causing a conflict.

� Where 2 members of the same firm are acting on opposite sides of same transaction.

� This poses a real opportunity for conflict of interest

� What about Chinese walls? Red Book applications:

� RICS has strict guidelines on the minimum standards which must be adopted by organisations when separating the advisers acting for ‘conflicting’ clients.

� Any Chinese wall set up must be robust enough to offer no chance of information passing through it. This is a strict test; taking reasonable steps to operate an effective wall is not sufficient. –different professional support and secretarial staff –physically separated, preferably in different buildings-information must not be accessible to the other side at any time-use of a compliance officer and appropriate training.

� RICS states that it will be unlikely that a small firm can operate Chinese Walls

Samples of where conflicts may arise

� Where a mortgage broker offers incentives to allow him/her access to prospective purchasers� This is almost certainly illegal-Data Protection Act and Financial Services Acts.

� Provision of financial services to a prospective purchaser. � The PSRA is quite clear on this point-You cannot provide such services unless you have informed your client in writing that you propose to offer such services to the prospective purchaser

� The client has confirmed you in writing that he has no objection and secondly that you have informed the prospective purchaser in writing that you are acting for the vendor.

� If you as the vendor’s agent make an offer for the property without disclosing the fact that you are in the market, you could and probably would be guilty of a serious conflict of interest.

Sanctions

� RICS/SCSI may take disciplinary proceedings where a complaint has been made in relation to a conflict or potential conflict of interest

� PSRA which is now a statutory body may also take disciplinary proceedings.

� “The Authority may bring a prosecution against a PSP for failing to comply with his or her statutory obligations or against any person providing a property service without a licence which may result in either a large fine or imprisonment or both”

On completion of an investigation

Where, on completion of an investigation, the Authority is satisfied that the Property Services Provider has engaged in improper conduct, it may impose any of the following sanctions:

� Issue a reprimand, warning, caution or advice to the Property Services Provider

� Revoke the Property Services Provider’s licence

� Suspend the Property Services Provider’s licence for a specified period

� Direct the Property Services Provider to pay:-� up to €50,000 into the Property Services Compensation Fund,

up to €50,000 to the Authority towards the cost of the investigation,up to €250,000 to the Authority by way of a financial, or any combination of the foregoing

Disciplinary Proceedings

� A case must be Notified to a Property Services Provider’s professional insurance company

� Result in increased premiums or a refusal to renew cover

� Individual may be reprimanded internally within the employers company structure

� Leading to a fine, salary reduction or dismissal.

� Following a PSRA determination � Vendor/lessor or prospective purchaser/lessee may have an

opportunity and a partially proven case to sue for additional losses as a consequence of the Property Services Provider’s failure to deal with a conflict of interest.

NEW ETHICAL AND INTEGRITY STANDARDS ARE NOW REQUIRED BY ALL AGENTS/SURVEYORS

Lack of compliance may lead to

� A reprimand

� Struck off by PSRA/SCSI/RICS

� Fined €25,000 to €250,000

� Unable to get professional indemnity insurance

“Ethics is knowing the difference between what you have a right to do and what it is right to do” (Potter Stewart)

“Integrity is doing the right thing even if nobody is watching”

Conclusion