Category Archives: Politics & Regulation

Competition Is Not Tortious Inteference

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A brief note this Saturday morning…

Conversations around my last post, about FTC taking action on anti-competitive Code of Ethics provisions, have raised an interesting and salient point. The best example comes from the comments, where Brian Rayl writes:

Despite what the FTC states in terms of “soliciting other’s clients” there are very strict laws – federal laws – that prohibit interfering with a contract.

http://en.wikipedia.org/wiki/Tortious_interference

If someone is going down a list of new listings and contacting them with the intention of damaging the contractual relationship, they are guilty of tortious interference. I’m not sure why the FTC would require the code of ethics to allow this when the federal government doesn’t? What are your thoughts on that?

My thoughts are that tortious interference with contract requires a tort. Obviously, what is about to follow is legal mumbo-jumbo, which I do for fun as a blogger with a law background. Please consult your own attorney or counsel; this is not legal advice.

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The NAR Code of Ethics is Illegal (Probably)

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I got a heads-up from a source, which then led me to investigate further, and… unless there’s something I am missing, the NAR Code of Ethics is (probably, in all likelihood) illegal as it stands today. It will need to be rewritten.

News from federal regulators rarely make the front page. In fact, they rarely make any page of any newspaper unless it’s a Really Big Deal, and few regulatory actions are that. But… last month, the FTC (Federal Trade Commission) entered into a consent decree with the National Association of Residential Property Managers that should be sending shockwaves throughout the ranks of REALTOR Associations.

From the official Press Release:

The FTC’s complaint against NARPM, which represents more than 4,000 real estate managers, brokers, and agents, alleges that NARPM and its members restrained competition in violation of the FTC Act through provisions in its code of ethics that restrict comparative advertising and solicitation of competitor’s clients. The provisions read, “The Property Manager shall not knowingly solicit competitor’s clients,” and “NARPM Professional Members shall refrain from criticizing other property managers or their business practices.”

The proposed consent order settling the FTC’s charges requires NARPM to stop restraining its members from soliciting property management work, and from making statements that are not false or deceptive about a competitor’s products, services, or business or commercial practices. NARPM also must implement an antitrust compliance program, among other things.

As all REALTORS know (or should know, if they are members of NAR, and therefore subject to the Code of Ethics), those two provisions are exactly equivalent to the Code of Ethics Article 16 and similar to Article 15.

Given the similarities involved in the NARPM case and as-yet-unfiled NAR case, I assume the only issue will be whether NAR proactively changes its Code of Ethics, or waits for the FTC to file a complaint. But as it stands today, the Code of Ethics is an illegal violation of anti-trust laws.

A quick dive into the issue…

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Why Are Referrals Still Legal?

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A brief question, born out of discussions online and offline in the wake of the Zillow-Trulia deal…. Let me set the stage.

More than a few people think that Zillow will ultimately want a piece of the commission (as evidence, they point to the brokerage licenses that MarketLeader once owned, which then Trulia owned, and in the future, the combined Zillow-Trulia entity will own). But no one thinks that Spencer Rascoff is going on listing appointments. The thought is that Zillow will just charge 25% referral fees for sending a lead to one of its Premier Agents.

That 25% referral fee, of course, is standard industry practice. Your seller is moving to another state? You find an agent, refer your client, and you’ll get 25% of the commission if/when she buys a house.

In fact, this practice is so common that it is widely abused by “paper brokerages”. (See Inman’s excellent coverage of the issue starting here.) From Inman:

“Paper brokerages” — companies that join multiple listing services in order to access and display MLS listing data online, but don’t provide brokerage services to consumers — could be the next big thing in online real estate. But only if the traditional brokers who control the nation’s MLSs continue to tolerate them.

The missing piece from the Inman story is how these paper brokerages make money: referrals. I mean, why else join MLS’s and display listings online while not providing any brokerage services if it weren’t for the fact that they can make money simply from referrals?

Thing is, once upon a time, these kinds of referrals were commonplace in the larger real estate industry as well. Mortgage companies, title companies, escrow companies, etc. all routinely paid referrals to real estate agents for sending them business. Until Congress passed RESPA (Real Estate Settlement Practices Act) in 1974 banning pretty much all such practices. Sure, there are narrow exceptions today (affiliated businesses, etc.) but for the most part, it is illegal for a mortgage company or a title rep to provide anything of value to a real estate agent for sending leads their way.

So… the question is, given the obvious problem of paper brokerages, and given that the spectre of Zillow-charging-referrals would be eliminated overnight by extending RESPA to agent-to-agent referrals… why aren’t we advocating for this as an industry?

Well, yeah, sure, the obvious answer as to why not: it’s all about the Benjamins. I get that. But is there any reason that isn’t patently self-serving not to prohibit referrals altogether?

If what’s good for the goose (the title companies, mortgage banks, and escrow companies) is not good for the gander (real estate agents paying 25% of the commissions to each other), I’d like to understand why. I think I’m pretty knowledgeable about the industry, but this is one of those practices that has me scratching my head….

-rsh

Association, MLS, RPAC: An Idea for Political Domination

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Tywin Lannister, Chair of Casterly Rock Association of REALTORS

File this one under: “There Is No Box” kind of thinking. The reason why this isn’t a Black Paper (yet) is that I haven’t checked with enough lawyers to see all of the possible pitfalls, but that might happen sooner rather than later.

A couple of weeks ago, I mentioned that I was having an email exchange with a couple of lawyers from NAR’s Legal team that was sending electric tingles of excitement down my legs. The reason is that so far, on a preliminary basis, while requiring further research, and a dozen other caveats — very typical for smart lawyers, since one never knows for sure until the Supreme Court rules, and even then, things can be overturned and so on and so forth — it appears that it’s possible to….

Okay, just in case you haven’t had enough of the caveats and maybes and warnings, let’s say that you should check with your own legal counsel in your state. But here’s the rough outline.

It appears that it is perfectly legal under federal law for the Association of REALTORS to transfer its ownership in the MLS to the PAC. The result would be total domination at the local and probably state levels in terms of political contributions.

Say what? Let’s delve in.

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A Good Step… First of Thousands on the Long Road

NAR’s First Board of Directors, 1909. That tall gentleman in the middle of the front row is most definitely NOT Dale Stinton, despite the striking resemblance.

Just saw on Facebook that NAR has renamed the “Midyear Legislative Meetings & Trade Expo” — its annual meeting in Washington DC — to “REALTOR Party Convention & Trade Expo“. Seeing as how I’ve been preachin’ (to the choir, mostly) for quite some time that the REALTOR Association needs to focus on its core competency of advocacy, I think this is a good step forward.

Coincidentally, just minutes before I saw that announcement, I read this post on Medium called “Re-Thinking RPAC“. The writer, Michael Oppler, is a young REALTOR whose father, Charlie Oppler, was the former Director of REALTOR® Party Activities. Again, what he writes is worth reading in full. Key paragraph:

Just as the Republican and Democratic parties must pay heed to a Darwinian like imperative to sustain their entities… so to our organization must be equally vigilant when it comes to managing our own evolution. To this end, I can think of no other function that we as members can help to become better funded and more functional, than when we support the advocacy of our own interests…and not for selfish reasons.

And over the past year or so, I have had numerous conversations with AE’s, elected leadership, NAR people, REALTORS, and others about the topic of advocacy by the Association. The winds are definitely blowing towards greater emphasis on political action and advocacy, which is a positive development.

Having said all that, there are two major strategic crossroads coming up soon-ish (or later-ish) for organized real estate. I think it’s worth thinking about for anyone involved with organized real estate, whether Association, MLS, or something else.

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