QUESTION: Can associations restrict Realtors from serving on the board? We had a board president who was a real estate agent who fought to keep dues low so sales would be easier. As a result, the HOA was under-funded for the four years he was president and subsequent boards were forced to make major dues increases to catch up.
ANSWER: A "Realtor" on the board does not automatically create a conflict of interest. Real estate professionals can offer great insight into many aspects of the development. Potential conflicts of interest emerge when real estate agent/directors actively list and sell property in their associations. Some Realtors are careful to avoid conflicts and make excellent board members. Others are not so careful and the following conflicts sometimes emerge:
1. Aesthetics Over Maintenance. Some (not all) will exert pressure to shift limited funds away from needed repairs to discretionary cosmetics. For example, they might push the board to plant flowers and paint buildings when money should be spent on plumbing repairs and a new roof. Low dues and pretty flowers make it easier for Realtor/directors to sell units and earn commissions. This is in the director's best interest but not the association's best interest.
2. Exclusivity. A less scrupulous Realtor/director may pressure management and staff to make themselves the exclusive Realtor in the development. They may their business cards on bulletin boards and at security stations to the exclusion of others. Or, they may expect Staff members to recommend the Realtor/director to anyone looking to list or buy in the development. This is contrary to the best interest of members who should have the freedom to engage Realtors of their own choosing and benefit from open competition.
3. Confidential Information. Board members are privy to a great deal of confidential as well as attorney-client privileged information through their executive session meetings, such as potential litigation, deferred maintenance, construction defects, delinquencies, etc. As real estate agents, they are required by law to disclose anything of significance that may impact the value or desirability of a property. (Civ. Code §1102.6; §2079.) This creates a breach of their HOA fiduciary duties if they disclose confidential information and breach of their Realtor statutory duties if they don't.
Recommendation. So, to avoid potential conflicts of interest, associations should consider adopting an ethics policy as a qualification for serving on the board of directors.
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