Life Outside of Your Licensed Activities: Employment Conflicts of Interest

Industry professionals know they must avoid, disclose, and otherwise mitigate conflicts of interest in their work. It’s a cornerstone of a professional industry that represents the interests of others. The vast majority of industry professionals put the interests of the consumer first, but regardless, professionals must disclose to clients when there is the potential for conflicts, or even the perception of a potential conflict.

You are all aware of your responsibility to disclose conflicts during your work as a licensed professional. But we understand that industry professionals are typically high-energy, entrepreneurial people, and your licensed work as a real estate, mortgage, property management, or appraisal professional might not be your only ongoing venture.

RECA does not have rules about the other types of employment its industry professionals can take on, but a conflict is a conflict, so industry professionals need to be able to recognize if and when their other business or employment creates a conflict of interest. Consumers expect transparency, and so does RECA.

Potential Conflicts

During every transaction, ask yourself: “does my other business/employment influence this transaction?” If the answer is ‘yes,’ then you have a possible conflict, and must disclose to your client.

Examples

• A mortgage professional might also work for an insurance business. If they make more commission by selling a larger insurance policy to go along with a larger mortgage, there is a conflict, as encouraging borrowers to get a larger mortgage than they might otherwise have selected directly benefits this professional.
• A mortgage brokerage professional also manages a Mortgage investment Corporation (MIC). If they encourage an investor to refinance their house in order to buy shares in the MIC, that is a conflict of interest.
• A real estate professional is also a home inspector. Conflicts of interest can arise if, in order to ensure a deal closes and they get their real estate commission, they provide a positive home inspection report on a property that didn’t necessarily deserve one.
• A real estate appraiser is also a licensed real estate professional. It’s an obvious conflict, but they could give marginally better value in their appraisal report in order to satisfy a lender and close a deal.

Best Practice

If you believe there is a conflict, disclose the conflict to your client, in writing. The disclosure should include all details about the conflict, why you feel there is a conflict, how the conflict could affect the client, and should advise the client to get independent advice about the conflict.

If a client agrees to continue working with you, they will have given their informed consent to proceed despite the potential conflict.