Agents vs. Principals... Last week's Dispatch (Nov 25), Will You See the Best Deals?, raised the issue of agents acting as principals. Is this a "natural" act? Or should it be unnatural? Many readers wrote describing their firms' policies preventing agents acting as principals.

Bill Goade, Chairman of CRESA Partners, wrote, "Our clients expect us to be objective and minimize the potential conflicts of interest inherent in the traditional brokerage practice of serving two masters. ... While allowing residential, recreational, and retail real estate purchases, CRESA Partners has a policy against office and industrial property purchases."

Likewise, Jim Henry of JHL Commercial Properties in Fairfield, CA, writes, "We have an absolute policy that the principals and agents cannot own commercial property. It is OK to own residential property." And Douglas Poutasse, Chief Investment Strategist at AEW, exclaimed, "You can't have it both ways: either you are a good fiduciary to your partner or you are a good agent!"

Indeed, there are all sorts of potential conflicts surrounding a real estate transaction (not just agent vs. principals). Let's say that you're a real estate broker. You present an investment "opportunity" to a savvy buyer. After renovation and lease up, the buyer is likely to earn a handsome profit. My guess is that most brokers would expect the exclusive leasing and sales agency for the property.

Is that a conflict? I guess in theory, yes. But as a practical matter, isn't that pretty much the way the industry works? And doesn't it work pretty well?

--Peter Pike