@David Sehar
There are certainly various ways of cheating consumers (clients, in case of PMs) out of their money. Luckily, there are laws to deal with some of that. Specifically in TN, 62-13-312(b)(17) prohibits a licensee from, “Paying or accepting, giving or charging any undisclosed commission, rebate, compensation or profit or expenditures for a principal or in violation of this chapter.”
The example you provided has the elements of (1) “accepting,” (2) “undisclosed” (because you said “under the table,”) and (3) “rebate.” So, to any person who has the mental capacity to obtain/retain a TREC license - especially by the time one qualifies as a broker - this section should be a no-brainer to understand. You clearly do. And you are not alone.
But your example involves knowing participation in the scheme by a third party, and at a possible detriment to their own income tax obligations, since they invoice for the full amount charged to the property owner, before (presumably) officially deducting the “rebate” to the PM firm as a business expense. Even if the vendor may not be familiar with …312(b)(17) - which wouldn’t apply to them anyway - they would be an additional participant in the scheme. Or, as people with my background like to call them: “state’s evidence” - if we have evidence of conspiracy between the parties, and can charge both in a criminal case, but may only be interested in making a stronger case against the other party(ies)… It’s just not good “business” to have witnesses. Or leave them alive. :) But, seriously, as a logistical thing, the PM has to arrange this with all/most/as many as possible vendors.
Let’s, instead, imagine a scenario, just off the top of my head, about an imaginary TN/MS PM firm who specifically advertised “no repair markups,” or similar language, to prospective clients, which at least one imaginary client, albeit a seasoned investor, comes to rely on in contracting with that imaginary PM.
Being a seasoned investor, seeing “vendor discounts” on his licensed PM’s annual cash flow statement begs the question of what that means. But - likely having foreseen the question - the PM tells him (and presumably also their other clients) what it means in the very CF Statement delivery email: “What is a Vendor Discount? This is an advancement/draw paid to the vendor on projects. It is part of your repair/rehab expenses.” Right there in black and white - no need to even wonder. But the investor still wonders.
Yet, at first, he chooses to believe what he is being told - because if they lied…. License.
At second, tho, he decides to ask the PM directly: “What exactly is it? It looks to me like an upcharge on certain repairs.” And the PM promptly replies: “It’s draws and advancements we pay to vendors on their Reno (sic) draws or work orders when needed by the contractor.” Plausible.
He also asks the PM why the PM doesn’t produce vendor invoices for his review. The PM tells him that they, “(S)topped providing the vendors information and invoices due to owners outsourcing a few of our vendors then our work was not prioritized.” Also plausible.
So, now the client has come to rely on the initial advertisement that the PM charges no markups, as well as the PM’s statement that what he suspected could be (undisclosed) markups are actually not. And, for years after, the client continues to rely on that, in good faith, because he has looked up the law, and knows that disclosure of such practice would have been required.
But, if perhaps the PM innocently forgot to disclose, then certainly, if engaging in the practice without disclosure could have been a mere oversight, then (1) concealing it and providing the preemptive answer to the possible question the way it was provided, and (2) denying it when asked directly, would be a whole other set of elements beyond TREC. Of course, there’d need to be evidence…
Then, one day, the client learns who a particular vendor was - for a number of invoices - reaches out to the vendor directly, and gets copies of the invoices addressed/billed to his PM with his investment property address and description of work exactly as his owner’s portal showed (without the vendor name) for around same respective dates. One problem, tho: Each of those invoices the client obtained directly from the vendor was for less than what the PM charged him in each instance.
At least in this case, the vendor wasn’t a participant in the undisclosed markup. Smart.
In the above - imagined, of course - scenario, we have: (1) “charging,” (2) “undisclosed,” (3) “compensation or profit.” As in your example, these elements would also make up the same TREC violation, per se. So, expectedly, then, once our imaginary client tells the imaginary PM that he now has evidence of undisclosed markups, he (still, in his bottomless well of good faith) “suggests” to the PM that perhaps this was an innocent oversight limited only to his account.
The PM finally does come clean on the markups - hooray! - but also with an accompanying “justification” that the practice is not in violation of anything because, wait for it: the client was always provided the full price before agreeing to it…
I see that you are a local broker. And, from your comment, you seem to know the related law well. Would you “buy” that broker’s “justification” as presented? I trust not. And if not, if such a PM firm was operating as your local competitor, how fair would their conduct be to you, never mind to the consumer? Hypothetically, of course.
Of course, this imagined story could never happen in real life, because… the law.
