Chinese Walls in Commercial Real Estate Brokerage Companies….You’re Joking, Right? (Part One)

When pressed about the potential for conflicts-of-interest, most full service real estate brokers will claim that a “Chinese Wall” exists within their company.  Are they kidding?  This magical and invisible thing is said to separate the tenant side of their company from the landlord side.  Supposedly, data, information, documents, discussions, strategy, details on transaction terms, people, and everything else that might possibly pose a conflict of interest is maintained separately, with no access provided to the other departments within a brokerage company.   Really?

In commercial brokerage companies, Chinese Walls are more like see-through windows!  No such wall exists at any full service brokerage company I’m familiar with.  I’ve not yet heard of one that completely separates its tenant business from its landlord business, nor have I ever heard of one that does not share information across its departments.  It is commonplace at many full service brokerage companies for brokers to input information into central databases that are accessible to multiple departments.  Many such companies regularly require their employees to share market knowledge in sales meetings that are attended by the entire company, where both brokers who represent tenants and those who represent landlords are in attendance.

In fact, when pitching landlord representation projects, most full service brokerage companies trade on the claim that they possess timely information about tenants in the market.  Do they only offer a partial view of the market by providing their landlord clients with information about tenants represented by other companies, and not there own?  How does that work?  And then, many full service brokers claim that because they represent so many landlords, they have the inside scoop on how to out-maneuver those landlords to secure favorable terms for tenants.

The largest real estate broker brands across the country are full service brokerage companies.  Those companies have been around the longest, provide multiple service lines, and offer those services in various directions, most notably to both landlords and tenants.  In most cases, large portions of their revenue is generated from traditional property oriented services, like landlord representation, investment sales, property management, asset management, and other similar offerings.

At most full service brokerage companies the majority of the brokers who provide tenant services also represent landlords.  When landlords engage a brokerage company, they seldom engage the individual, but instead execute a representation agreement with the brokerage company, itself!  The company and its employees have a responsibility to protect its landlord clients.  That responsibility goes all the way up to the senior most executive recognized by the licensing authority in that state to have authority, and therefore, responsibility, over all transactions that take place in the company…the Broker of Record.  Accordingly, no Chinese Wall can exist, since the company and its broker of record are responsible for all clients projects.

What are your thoughts?  What have I missed?

Read Part Two of this Post.  http://wp.me/py4BE-2z

Copyright Real Estate Strategies Corporation 2009.  All Rights Reserved.

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3 Responses to “Chinese Walls in Commercial Real Estate Brokerage Companies….You’re Joking, Right? (Part One)”


  1. 1 John August 14, 2009 at 12:49 pm

    To me the bigger conflict of interest occurs when brokerage firms who are also in the develoment business have competing properties to their outside brokerage listings and this conflict is not disclosed.

    • 2 realstrat August 16, 2009 at 1:54 am

      John:

      You’re absolutely correct about this being such a large conflict. How about when individual brokers have an ownership interest in a building, yet dishonestly represent themselves only as brokers…a violation of license law in most states and provinces. In fact, we’ve compiled a long list of various types of conflicts of interest that we’ve seen in some brokerage companies. Most people would be surprised.

      Great comment! Looking forward to hearing from you again in the future.

  2. 3 realstrat August 16, 2009 at 2:09 am

    Ross:

    I’m in the 21st century…how about you? If you were offended, please accept my apology. However, I guess you didn’t read the entire post. First of all, my post included no negative commentary about Chinese people or their rich culture. The term “Chinese Wall” doesn’t strike me as being the least bit racist. By the way, I didn’t coin that phrase. The Great Wall of China was built by Chinese people (nothing negative there), and for centuries has been an icon known throughout the world as an engineering marvel, and a symbol of strength and the ability to protect those within from external forces seeking to do damage.

    The term “Chinese Wall” is a common business term used by many to convey separation. Frankly, it is a term that I don’t like, don’t use, and believe to be inappropriate in business or elsewhere. Hence, the title of the blog post and the entire purpose for writing it. In fact, my post shot holes in the use of the term by commercial real estate brokers.

    Thanks for writing!


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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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