Property Grunt

Thursday, July 21, 2005

Client Poaching Part 1

Client Poaching in teh real esate industry is akin to horse thievery. It is greatly frowned upon. The Grunt recently recieved an email from a property manager who was presented with a common situation that occurs. A broker shows an apartment to some clients. They put in application and are accpeted. They do not hear from them for a a week, then a second broker jumps in representing the original party to collect the fee.

There are several brokers working to rent up the vacancies in one of our buildings. One broker sent us an application from a young couple They had little credit. We told the broker we would accept them, preferably with a parent acting as guarantor.

The next week, our other broker calls us. Tells me the same couple came to them and told them they had seen the apartment with the first broker, but didn't like him -- they said they thought he was playing around with the prices. They want them to be their broker, and they still want the apartment.

I told her we will not rent it to them through them, once an agent shows you an apartment, you can't shop around for whoever gets you a better deal, and if we did this, the first broker could sue us, her, and the tenants. The other broker insists they have a right to use any broker they have a rapport with, and there is no ethical or legal reason to insist they use the first guy.

Incidentally, the tenants do not have to pay anyone commission - we pay the commission as an incentive.

Who is right here?

Here was the Grunt's response.

The second broker is correct. Any client can go to any broker they want.
If the tenant has signed a fee agreement with the originating broker stating that they will pay a fee for any apartment the broker has shown them then they are SOL and have to go through the originating broker. My experience has been that in those situations the fee is usually divided between the two brokers.

Any legal action for this agreement would most likely occur between the originating broker and the clients.
If the originating broker has an agreement with your property making it their exclusive listing of theirs then yes they have to pay the fee to the originating broker. If the landlord/property manager were to violate this agreement then the originating broker could sue them for breach of contract.

What the clients are doing is called fee shopping which is frowned upon in my profession. It’s not illegal though unless the exceptions I have mentioned apply to the situation.
Please bear in mind I play by Manhattan rules. I learned very quickly that each territory has their own way of doing things. For instance, in Queens they charge one month rent for a fee while Manhattan is 15%.

From what you have described you are offering an OP, aka Owner Pays, apartment to the broker. It doesn’t make any sense for the clients to switch teams and fee shop unless the originating broker may be charging more money to cover the difference of the no fee.

From what I can ascertain from your email you are just trying to be fair in this situation, which is commendable. And you should at least be credited for doing the right thing.

My recommendation is the following:
Consult legal counsel about the situation and your superior. If you are in the clear they may authorize that the deal may only go through the originating broker.

What is your relationship with the originating broker? Is this listing an exclusive of theirs? It wouldn’t hurt to do a solid for them if they have been good to you and alert them of the situation and see if they have a binding agreement with their clients. If they do then they get the fee.

I empathize for your situation. Property managers have some of the hardest jobs in real estate. Yes. They are salaried but they have to deal with a lot of headaches that come with rentals. I know of some brokers who ditch property management for the freedom of being a broker.

Client poaching and fee shopping are common occurences in my line of work. Its not illegal unless agreements have been signed and it is greatly frowned upon in my industry.

What I found unique about this situation is that the property manager went out of their way to protect the originating broker. Usally when a poaching incident occurs its up to the feuding brokers to settle it whether through legal or informal means.

In the arena of rentals, the objective of the property manager is to fill vacancies particulary during high season of summer. And they will use whatever is at their disposal whether it is OPs, brokers and referrals. Unless and exclusive is signed, property managers usally could care less who gets the fee as long they are brought a well qualified tenant. Please don't get me wrong. I am not trying to bash property managers. They play a critical role in the maintaining of a building and they deal with some nasty crap on a daily basis. But from what I understand as long they are not liable property managers usally do not get involved in the matters between brokers