Tag Archives: Legal Issues

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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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

Some Thoughts on Move & NAR v. Zillow & Samuelson

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The judge in the non-compete-disguised-as-a-trade-secrets case between Move & NAR v. Zillow & Errol Samuelson has issued a preliminary injunction that looks like a big win for REALTORS and REALTOR-lookalikes. Inman News has the story, and the actual order itself (PDF).

As a an interested bystander, the whole thing is sort of sad. Wish my friends would stop fighting and find ways to coexist. But hey, it’s easy for me to play John Lennon and Imagine a world like that. I’m certain it feels way different for the principals involved.

Some further thoughts and questions follow, as the order was heavily redacted. I assume the reason was to protect the very trade secrets that Move & NAR claim Zillow stole/attempting to steal from them. Nonetheless, there’s quite a lot in the order. We discuss them, after the jump.

[Disclosure: I have a business relationship with Trulia, who is obviously a competitor to both Move and Zillow.]

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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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The Realcomp Anti-Trust Ruling Will Affect MLS Syndication

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Inman News reports that the Sixth Circuit Court of Appeals has ruled against Realcomp II in a years-long case:

Michigan’s largest multiple listing service “unreasonably restrained competition” among real estate brokers by refusing to transmit exclusive agency property listings favored by discount brokers to Realtor.com and other public-facing Web sites, a federal appeals court has ruled.

At issue was whether Realcomp’s refusal to transmit Exclusive Agency listings to places like Realtor.com was anti-competitive. Since Realcomp’s policy only applies to a tiny fraction of listings in the market, Laurie Janik, the outgoing General Counsel of NAR, suggested this wasn’t that big a deal:

NAR General Counsel Laurie Janik said that because other MLSs don’t have similar rules in place, the appeals court ruling is unlikely to have a wider impact. “I’m sure it’s extremely disappointing news to the folks at Realcomp, but it’s not the kind of case that’s going to send ripples across the rest of the industry,”

That’s especially true since the NAR’s MLS Policy prohibits the MLS from excluding Exclusive Agency listings from feeds, as Realcomp had done.

Nonetheless, I respectfully disagree with Ms. Janik. I think this ruling will send ripples across the rest of the industry. At the very least, it should since the next case that comes down the pike will surely look at Realcomp II, Ltd. v. FTC as precedent.

(By the way, for the non-lawyer folks, this case is especially significant because it came from the Sixth Circuit Court of Appeals. The only higher court is the Supreme Court. At least within the Sixth Circuit, which covers Kentucky, Michigan, Ohio and Tennessee, this ruling is binding. And throughout the country, the ruling will be extremely persuasive.)

Before we dive into why I think this ruling is significant, since I am doing law-blogging here, I have to say that this is in no way a legal opinion (I mean, c’mon, it’s a blog post) and that you should consult your own qualified legal counsel.

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