Conflicts of interest in this world are very real, and some conflicts–the kind that can cost you so much money and stress–are often hidden beneath slick advertising campaigns and clever slogans. I’m going to focus in on conflicts in the real estate business, but let’s acknowledge deceptive conflicts effect you regularly in nearly every industry.
For example, buy anything from any salesman, and inherent in his best sales pitch is his desire that you buy from him. That’s a practical conflict we experience almost daily. Let me add right here that conflicts of interest are only a problem if there is dishonesty (exaggeration, misrepresentation, or outright fraud) AND the salesman does not put your interests above all else. If a salesman has integrity and is absolutely honest and will put his clients’ interest above his own, an apparent conflict of interest will not harm you. It’s the other kind of salesmen that can turn a conflict of interest into a trap for the unwary that will cost you.
If you have a retirement fund in the form of a mutual fund or other stocks and bonds, you are involved in a huge conflict of interest right now. Did you know that fund managers get paid 1% to 1.25% of the total funds under management on an annual basis. So if your investment adviser (or his company or affiliated companies) are managing $30 million, that is a $300,000 annual income. So when your investment adviser gives you advice to keep your stock rather than sell, do you think that is a gigantic conflict of interest? Of course it is. And if he suggests you sell and buy something else, is that a conflict of interest? Of course, he will still get the management fee plus a transaction fee for selling and buying. Can you say, “CONFLICT OF INTEREST WITH MY RETIREMENT FUND?” [He might argue he doesn’t get the fee, but if his company receives the income, it distributes it to him in various ways. I know these things because I was a registered financial adviser and worked as a financial adviser for American Express Financial Advisers, later Ameriprise.]
Lawyers and law firms are full of conflicts of interest. They charge you by the hour for work they do when no one is watching how they bill and you have no way to verify their hours. The more hours they bill, the more they make from you. The more legal issues and disputes they can create, the more they can bill. I practiced real estate law for 20 years, so I know, but who doesn’t know about these conflicts?
In real estate buyers often assume they can just buy a property from the listing agent. The extent of the conflicts are much greater than most buyers realize. A listing agent has a fiduciary responsibility to get his client (the seller) the highest possible price for the property. Even though dual agency is legal in the state of Washington (because John L. Scott’s real estate attorney Doug Tingvall wrote the statute and the state Association of Realtors lobbied hard), do you really think the listing agent is also going to get you the lowest possible price on the same house?
The conflict goes way beyond just the price, although that alone would justify hiring a buyer’s agent. Disclosures to the buyer and handling the home inspection, the septic inspection, the well inspection, and other neighborhood issues all create the same kind of conflict where the listing agent is working for the seller. Do you think the selling agent, who earns a commission if he gets the property sold to you has a conflict in what he tells you and how he advises you for his own listing? Absolutely!
If you are buying real estate in Sequim or Port Angeles, I would strongly urge you to hire your own buyer’s agent who can exclusively represent your interests. As a buyer’s agent, I cost my clients absolutely nothing, because the sellers pay the commission to both listing and selling agent. I love the idea that I can represent my clients against the seller’s interests, and yet the seller pays my fee while I work for my buyer. Isn’t that great? Protect yourself and hire a buyer’s agent.
Last Updated on June 17, 2019 by Chuck Marunde