The Off-Market Deal With a Conflict of Interest
You are a licensed broker/advisor representing a buyer client. A developer friend, aware you represent the buyer, offers you a $50,000 "finder's fee" from the seller side if you steer your client to his off-market building without disclosing the payment. The building is genuinely a reasonable fit, but you have not independently verified the seller's pro forma, which shows 95% occupancy; public records suggest closer to 80%. Your buyer client has authorized you to negotiate up to $18M and is eager to move quickly. The commission agreement with your client is a flat fee, silent on seller-side compensation.
1. Identify the ethical issues and the required disclosures.
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Multiple, overlapping issues:
- Undisclosed dual compensation. Accepting a seller-side fee while representing the buyer without disclosure is a conflict of interest and generally a breach of fiduciary duty and licensing rules. The client's flat-fee agreement being silent does not authorize undisclosed seller compensation; silence is not consent.
- Duty of loyalty and good faith. Steering a client toward a property to earn a hidden fee subordinates the client's interest to yours.
- Duty of care/accuracy. The pro forma is unverified and conflicts with public records (95% vs ~80%). Passing it along uncorrected risks misrepresentation.
- Disclosure obligations. Most jurisdictions and codes of ethics require written disclosure and informed consent for any compensation from a party other than the client, and disclosure of known material facts.
Required: disclose the $50k offer in writing, get the client's informed written consent (or decline the fee), and disclose the occupancy discrepancy.
2. What should you actually do, and how do you handle the occupancy discrepancy?
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Recommended course:
- Do not accept the undisclosed fee. Either decline it entirely, or disclose it in writing and obtain the client's informed written consent before any payment. Given the steering risk, declining is cleanest.
- Disclose the occupancy discrepancy immediately. Tell the client the pro forma says 95% but public records suggest ~80%, and recommend independent verification (rent roll audit, estoppels, site visit).
- Put the client's interest first on price. With ~80% occupancy, the pro forma NOI is overstated; the $18M authorization may be too high. Re-run value on verified occupancy and advise accordingly.
- Document everything - the disclosure, the client's response, and your recommendation - to protect against later claims.
- If the client still wants to proceed, proceed transparently, but do not accept the seller fee; the appearance of conflict alone can taint the transaction.
Core principle: disclose, get consent or decline, and never let an undisclosed payment influence advice.
3. The developer says "everyone does this - it's just a finder's fee." How do you respond?
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"Everyone does it" is not a defense and is factually wrong as a norm - undisclosed dual agency/compensation is exactly the conduct licensing boards and ethics codes target. Respond on three levels:
- Legal/regulatory: undisclosed compensation from the other side can violate licensing statutes, trigger discipline, and expose you to rescission or damages claims. The client's flat-fee agreement being silent does not cure it.
- Fiduciary: your duty runs to the buyer; a hidden seller payment is a conflict that can void the client's trust and the deal.
- Reputational/commercial: if discovered post-closing, the client can sue, unwind, or report you - far costlier than $50k.
The right move is to decline the fee and keep the relationship clean, or disclose it fully and let the client decide with eyes open. A finder's fee is legitimate only when disclosed and consented to.