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. Conflicts of interest emerge when real estate agent/directors actively list and sell property in their associations.
1. Aesthetics Over Maintenance. They sometimes 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. Board member Realtors often exert pressure on management and staff to make themselves the exclusive Realtor in the development. They often put their business cards on bulletin boards and at security stations to the exclusion of others. Staff members are expected to recommend the board member to anyone looking to list or buy in the development. This form of self-dealing 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. The third, more serious, problem is related to confidential information. Board members are privy to a great deal of confidential as well as attorney-client privileged information through their executive session meetings (Civ. Code §4935) related to 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 fiduciary duties if they don't.
Recommendation. So, to avoid conflicts of interest, associations should limit real estate agents/brokers from serving on the board during any period they list and sell in the development. This can be done by amending the bylaws.
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