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The Legal Blog, brought to you by NVAR's Professional Standards department, helps you stay on top of the latest rules and regulations in the industry.

Do Rental Transactions Mirror the Practices in Sales?

Dec 22, 2016
A prospective tenant submits an application for rental. The listing status is changed to application registered. Over the weekend another prospect submits an application for the same rental. The owner dropped the first application and accepted the second application. How could the property manager accept another application after the status was changed in the system?

The customary practice in leasing is to consider all applications on a “first come, first served” basis. Even if there are multiple offers, the property managers typically follow this practice. This custom is different then residential brokerage where people consider all offers together and “cherry pick” the best one.

Here a property manager has deviated from the customary practice in rentals and borrowed a practice from sales. There is nothing automatically unethical or illegal about departing from customary practice.

We have the same Code of Ethics for all real estate disciplines. Shouldn’t the practices for rental transactions mirror the practices in sales? 

These customs reflect the differences between these separate and distinct real estate disciplines. A rental transaction is a long term commitment. Parties continue to work with each other for months, if not years, after the original transaction. They also feature less negotiation then sales transactions. Few if any tenants offer to pay more rent for the property then the advertised price. Landlords are also more conscious about lease terms because many rental disputes eventually wind up in court.

In contrast a sales transaction is a temporary relationship. The parties have little contact with each other after settlement. Buyers will go above the list price if there is competition for the house. Sellers are more willing to compromise on contract terms because they are focused on making this one deal work and less concerned with the long term implications of contract language. A dispute in a sale often ends with parties walking away rather then suing.

Customs are merely prevailing practices that developed as a response to common issues or experiences. The practice of cherry picking works well in those situations where there are significant differences between competing offers. If the differences between prospects are insignificant then following the practice of first come, first served makes more sense. The best REALTORS® are flexible. They know when it may be necessary to depart from customary practice by using another otherwise legal and ethical option to better serve the client’s interests.

Is there any way this could be a violation of some rule?

You could have a fair housing issue here. If the only difference between those two prospective tenants was their race, color, religion, sex, etc. then it may look like the property manager was discriminating. The first come, first served practice is favored by property managers because it is a fair way to breaking any ties between otherwise equal applicants. It also saves the landlord the expense of running multiple credit checks if the first applicant qualifies.