What is an “ownership interest” under the Real Estate Commission’s new Rule?

QUESTION: I understand the Real Estate Commission has a new rule that prohibits a broker who is selling property in which the broker has an ownership interest from  representing a buyer of the property. There is an agent with our firm who is married to a builder, and she of course lists his construction company’s properties. The husband’s  construction company is organized as an LLC and all of the listings are with the LLC.

Although our agent is married to the builder, she does not own any part of the LLC. My question is, does the Commission’s new rule prevent her from representing a buyer  who is interested in buying one of the LLC’s listings?

ANSWER: Even though your agent doesn’t have a direct ownership interest in the construction company, she has potential rights with respect to the value of her husband’s  LLC by virtue of being married to him. However, according to the Real Estate Commission’s legal staff, that is not an “ownership interest” as that term is used in the  Commission’s new rule (See Rule 58A.0104(o)). Thus, the new rule does not apply in the specific circumstances you describe in your question.

However, just because it may not be covered by the rule doesn’t mean it’s a good idea for your agent to attempt to represent the interests of a buyer who is buying a property  from her husband’s construction company. In fact, we think it’s probably a bad idea. If a buyer represented by your agent isn’t satisfied for some reason with the purchase of a new home from the construction company, the agent (and potentially your firm) could be open to a claim that there was an inherent conflict of interest that made it impossible  for your agent to fully represent the buyer, or worse, that your agent/firm derived an improper financial benefit from someone with whom the agent/firm had a fiduciary  relationship.

In our view, if your agent wants to work with a buyer interested in purchasing one of the construction company’s listings, she should do so as a subagent of the seller. If a  prospective buyer wants an agent to represent him or her, we recommend that another agent in your firm act as the buyer’s agent. Also, it should be noted that in our view,  the listing agent is in any event ethically required to disclose the existence of her relationship with the owner of the seller/construction company. See Article 4 of the  REALTOR® Code of Ethics.

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