It goes without saying that brokers don’t want to betray client confidences and tarnish their reputations.
Call it an unwritten, but well understood rule, rather than a code of ethics, and yet it’s common knowledge that it’s hard to keep a secret within New York real estate circles.
Whether it’s cocktail party bravado, loose talk at the office or an enterprising doorman or building manager, one way or another word seemingly always gets out about the discreet listing, the extraordinary asking price or the great apartment for rent.
It’s hard to imagine that buyer- and seller-initiated nondisclosure agreements can turn the tide of human nature, but the increased use of these pacts may provide an incentive to keep quiet. Nondisclosure agreements typically prohibit the divulgence of information relating to the purchase price, the party’s identity, and the address, although everything from marketing restrictions to appointment protocol are also now being thrown in.
The use of binding confidentiality agreements is up as much as 20 percent over the past two years, according to brokers and real estate lawyers. There’s no guarantee they’ll work, and some critics say poorly worded agreements can offer more downside than benefit.
Particularly troubling to Kenneth Haber, general counsel and executive vice president at Prudential Douglas Elliman, are those agreements that specify monetary damages and offer little protection against events beyond the broker or brokerage house’s control.
“If this is a co-op,” Haber said, “there are board members and various other advisers and that’s where the problem comes in because the information is disseminated to a large number of people and therefore the broker or firm can be put into a position of disputing how the information was disseminated to the public.
“As long as it’s an agreement which says I will use reasonable efforts not to disseminate information and specifies no monetary damages,” he added, “I say, ‘yes.’ Beyond that it’s problematic.”
Nondisclosure agreements first popped up in the early 1980s among celebrity clients, according to Elizabeth Stribling of Stribling & Associates. Today they’re employed by a broader cross-section of wealthy buyers and sellers from hedge fund managers to government officials and families of long-standing prominence.
“You have to make sure these agreements are written in language that will protect the people who requested this and not be too onerous for things beyond the broker’s control,” Stribling said, “such as information in the public domain.”
Indeed, the media’s resourcefulness was on display again recently when an enterprising New York Times reporter uncovered rock star Lenny Kravitz’s interest in the reportedly $50 million Fifth Avenue Duke Semans Mansion. The reporter’s source: an ice cream truck vendor parked on the street.
The story noted brokers’ refusal to name prospective buyers, but it underscored the ease with which real estate professionals can be circumvented.
“The people that initiate these agreements are not na ve, thinking the information will not get out,” said Richard Steinberg, a senior managing director at Warburg Realty. “They just don’t want it to get out by us.”
In his dealings with high-profile clients Jason Giambi, Leslie Stahl and Yitzhak Pearlman, Steinberg said the media always found a way in.
Still, Steinberg recalled an occasion in which, acting in accordance with his professional responsibilities, he confirmed an “Entertainment Tonight” story reporting Lenny Kravitz’s interest in his client’s Upper East Side townhouse. Kravitz passed on the deal, but the publicity tipped off a buyer who purchased the property the following week.
Indeed, the publicity from the Times story may benefit Brown Harris Stevens broker Paula Del Nunzio, who has a co-exclusive on the Duke Semans Mansion. Though not bound under a nondisclosure agreement in that deal, Del Nunzio has nevertheless been party to a number of nondisclosure-enforced agreements, including the Rockefeller residence at 840 Fifth Avenue and the Paul Mellon House at 125 East 70th Street.
“In every case where there’s confidentiality surrounding the information, it seems to have gotten out,” she said. “But who are you going to shoot? Who are you going to put handcuffs on when other people are not bound by it?”
If these agreements are ineffectual and perhaps unnecessary is beside the point if they give the parties a sense of assurance and are not a great hindrance to the sale, Stribling said.
A much better approach for true confidentiality, said Haber, is to create a corporate entity that shields the buyer’s name.
“We shouldn’t really need a document in my mind because it’s the role of the broker to be discreet,” said Paul Purcell, co-founder of Braddock + Purcell, a consulting firm. He recalled an early misstep in his brokerage career when a bit too much talking cost him a client. “She [the client] said I was indiscreet. I learned right then and there.”
On second thought, however, Purcell conceded the futility of such an endeavor. After all, reasoned Purcell, a secret something waiting to be told by someone is almost, by definition, a promise waiting to be broken.