Monday, April 30, 2012

What the Department of Justice has to say about limiting competition among real estate companies

(202) 514-2007
TDD (202) 514-1888


NAR Policy Obstructs Internet-based Real Estate Brokers from Offering Better Services
and Lower Costs to Consumers

WASHINGTON, D.C. — The Department of Justice's Antitrust Division today filed a lawsuit against the National Association of Realtors (NAR), challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. The Department said that NAR's policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting.

The Department's civil antitrust lawsuit was filed today in U.S. District Court in Chicago.

"The purchase of a home is one of the most significant financial decisions a family can make, and NAR's policy stifles competition to advantage some of its members at the expense of home buyers and sellers across the country," said J. Bruce McDonald, Deputy Assistant Attorney General in the Department's Antitrust Division. "Consumers benefit when real estate brokers are free to compete vigorously by offering innovative services."

Although NAR today announced its adoption of a revised policy, the revised policy continues to discriminate against innovative brokers, and does not resolve the Department's concerns.

In most markets, real estate brokers share information about properties for sale, known as listings, through the local Multiple Listing Service (MLS) — a joint venture among competing brokers. Participation in the local MLS makes it possible for a broker to provide customers with listings for virtually all properties for sale in the community, which is critical to compete in the local market, the Department said.

Traditionally, brokers provided listings for properties to their customers in a variety of ways, such as by hand at their offices, or by mail, fax, or e-mail. Some brokers have recently begun offering brokerage services to their customers over the Internet, using so-called virtual office websites, or VOWs. VOWs are password-protected Internet sites that allow the broker's customers to search the MLS database on their own, using their home computers to obtain the same information that would be available in a broker's brick-and-mortar office. Delivering listings over the Internet gives web-savvy consumers more control over their search for a home, allowing them to educate themselves about their options at their own pace and on their own time. This allows brokers to reduce the time that their agents spend searching the MLS database or showing homes the customer dislikes, the Department said. Because the Internet can be used to deliver brokerage services more efficiently — resulting in better service and lower costs to consumers — brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department added.

In its complaint, the Department alleges that NAR's policy restrains competition by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from other brokers' websites by means of an "opt out." In essence, NAR's policy enables traditional brokers to block their competitors' customers from having full on-line access to all of the MLS's listings. When exercised, the opt-out provision prevents web-based brokers from providing all MLS listings that respond to a customer's search, effectively inhibiting the new technology, the Department said.

NAR's policy significantly alters the rules that govern MLSs by permitting traditional brokers to discriminate against other brokers based on their business model, denying them the full benefits of MLS participation. The Department's lawsuit seeks to ensure that traditional brokers, through NAR's policy, cannot deprive consumers of the benefits that would flow from these new ways of competing.

According to the Department's complaint, brokers who participated in the NAR work group that formulated the VOW policy recognized that the opt-out right would be "abused beyond belief." The chairman of the working group admitted that the opt out right was likely to be exercised by brokers despite the fact that "it may not be in the sellers' best interest to opt out," the Department said in its filing.

NAR's policy denies brokers using new technologies and business models the same benefits of MLS membership available to their competitor brokers, suppresses innovation, discourages competition on price and quality, and prevents new, efficient competitors from entering into the marketplace — all to the detriment of consumers.

"The Department's Antitrust Division is committed to preserving competition in this vital sector of our nation's economy," added McDonald.

The court will determine a pretrial schedule once NAR files its response to the government's lawsuit. NAR is headquartered in Chicago.

Sunday, April 29, 2012

Who are our Clients? People are Asking...

I created this company to service a neglected segment of the market: the unrepresented buyer. The typical client I work with has been looking on their own up until the point they were referred to me. Some are very enthusiastic right out of the gate after hearing about what I have to offer and how we will work together. Others start off more guarded, suspicious of my actual intentions. These are people who, generally speaking, have little trust for the industry at large. I enjoy working with both equally. For the latter, they quickly realize working with me and my team is going to be a much different experience than they are used to or had envisioned. One big difference is that I don't "sell" property. What exactly does this mean? Simply stated, I get involved after you have identified a property you are interested in on your own.We start when you send me a link to that listing. Before I ask what you would like to pay or what you think, I provide you with an analysis of the home. This includes the pros, cons and a value expressed in a range based on the financial and emotional components of the deal. Another big component of my model: there is never any time pressure. You can send me listings for two years (and some have!) before pulling the trigger. A big reason for this is we spend zero time looking for apartments for you and about 70% less time physically showing you properties.

 That said, you are not alone. Clients regularly email or call me with questions. I must also stress that it is very important to let us schedule all non-public open house appointments and someone from my team will accompany our client to the viewing. Again, this will be a different experience since we will only comment on a property if asked for our opinion. We are not there to "sell you". Of course, if we see a glaring negative we will objectively point it out to you! It is also important to let us handle all communications with the listing broker but keep in mind you are copied on all emails. You would be surprised at how many listing brokers are happy to have us represent clients that are interested in their properties (occasionally even when we come to the table late in the game). Why? Like I said, our clients are savvy and are not looking to be "sold". So when they go up against a listing broker-who is representing the best interests of the seller-who also had strong input into pricing the property, let's just say it can get a little touchy and not conducive to a smooth, effective negotiation. They have enough worries dealing with the seller's expectations, let alone a buyer's!

 Under our model we really work as a team throughout the entire process. You as the buyer are always in the loop and nothing is said or done without you knowing it and authorizing it. You will be privy to every email and phone call.We work together from the initial draft of an offer through to the negotiations. We will skillfully assist you with the co-op/condo application. Christian Bari, my associate, has been highly complimented by some of New York's top brokers for his fastidious preparation of board packages. We also pride ourselves on our ability to work seamlessly with the listing side. We work closely with them during the preparation of the board application and will often include them in emails as we work with you to create a picture that will put you in the best light before the board. No egos here!

 We look forward to speaking with you about your next purchase. Please also feel free to contact me with any questions about your current real estate situation, even if you are not looking for representation.

Monday, April 16, 2012

The Perils of Dual Agency from the NY Department of State

Office of Administrative Hearings I think this is worth printing again: BE WARY OF DUAL AGENCY With the growing number of very large and widespread brokerages, the issue of dual agency arises more frequently than ever before. Any purchaser, seller, lessor or lessee confronted with a dual agency issue by their real estate agent should not take the issue lightly. Parties to a real estate transaction, including real estate brokers and salespersons themselves, seldom realize the inherent problems of a real estate agent acting as a dual agent. Dual agency arises when a real estate broker or salesperson represents adverse parties (e.g., a buyer and seller) in the same transaction. Dual agency typically arises in the following way: a real estate broker employs two salespeople, one who works for the buyer as a buyer's agent and the other who works for the seller as a seller's agent. The real estate broker and his salespeople are "one and the same" entity when analyzing whether dual agency exists. As soon as the buyer's agent introduces the buyer to property in which the seller is represented by the seller's agent, dual agency arises. Dual agency can also arise in a more subtle way: A real estate broker who represents the seller procures a prospective purchaser who needs to sell her property before she is able to buy the seller's property. The prospective purchaser then signs a listing agreement with the real estate broker to sell her property so that she can purchase the seller's property. The real estate broker is now a dual agent representing both parties in a mutually dependent transaction. When you employ a real estate broker or salesperson as your agent, you are the principal. "The relationship of agent and principal is fiduciary in nature, ‘...founded on trust or confidence reposed by one person in the integrity and fidelity of another.' (citation omitted) Included in the fundamental duties of such a fiduciary are good faith and undivided loyalty, and full and fair disclosure. Such duties are imposed upon real estate licensees by license law, rules and regulations, contract law, the principals of the law of agency, and tort law. (citation omitted) The object of these rigorous standards of performance is to secure fidelity from the agent to the principal and to insure the transaction of the business of the agency to the best advantage of the principal. (citations omitted)." (Emphasis added) DOS v. Moore, 2 DOS 99, p. 7 (1999) "A real estate broker is strictly limited in his or her ability to act as a dual agent: As a fiduciary, a real estate broker is prohibited from serving as a dual agent representing parties with conflicting interests in the same transaction without the informed consent of the principals. (citations omitted) ‘If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its stark significance.' (citation omitted) ‘Therefore, a real estate agent must prove that prior to undertaking to act either as a dual agent or for an adverse interest, the agent made full and complete disclosure to all parties as a predicate for obtaining the consent of the principals to proceed in the undertaking. Both the rule and the affirmative [defense] of full disclosure are well settled in law.' (citation omitted)" Id. at pp. 9-10. In a purchaser/seller transaction in which dual agency arises, the agent must not only clearly explain the existence of the dual agency issue and its implications to the parties, the agent must also obtain a written acknowledgment from the prospective purchaser and seller to dual agency. That acknowledgment requires each principal signing the form to confirm that they understand that the dual agent will be working for both the seller and buyer, that they understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent's undivided loyalty, and that they have carefully considered the possible consequences of a dual agency relationship. The fiduciary duty of loyalty that your real estate agent owes to you prohibits your agent from advancing any interests adverse to yours or conducting your business to benefit the agent or others. Significantly, by consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours. For example, once you agree to dual agency, you may need to be careful about what you say to your agent because, although your agent still cannot breach any confidences, your agent may not use the information you give him or her in a way that advances your interests. As a principal in a real estate transaction, you should always know that you have the right to be represented by an agent who is loyal only to you throughout the entire transaction. Your agent's fiduciary duties to you need never be compromised.

Friday, April 13, 2012

Optical Illusion-Tricking the Brain

A friend is working on a documentary on the brain for the NATGEO channel. This will be part of the program. They are actually looking for an empty apartment to set this up in and film if you know of anyone that would be interested in participating.

Wednesday, April 11, 2012

You Don't Think you're Using a Broker?

When you make the decision not to engage a buy-side broker you are not really going it alone. The listing broker now takes over the responsibilities that your broker would have been handling. I also don't believe that you are at an advantage when you are unrepresented and I say this based on experience, not self-interest. I understand the logic behind the idea that being unrepresented gives you an edge but in reality it never (or at best very rarely) works out this way. Although all of my clients are way over-qualified to handle such a transaction on their own, there are many reasons why they are better served otherwise. The listing broker is serving the seller's best interests first and possibly his/her own interests above yours. They want to close and earn their commission and, of course there is nothing wrong with that but it does compromise your position.

I just had a person call me about possible representation. This person had an apartment they were interested in. I had a look and gave an opinion on price, which was strongly correlated to the position of the unit in the building. Even though there appeared to be a lot of interest, I recommended not going outside a specific price point just because the market is currently hot in this neighborhood. Under different circumstances this home would not move unless it was priced to account for its deficiencies. They then asked me about another apartment which was much better and I was very familiar with the neighborhood and to some extent, the building. I gave my opinion again. I then received an email from the buyer with a thread to the conversation she had with the listing broker (they decided to proceed without me, which is fine of course). What was interesting was the way things unfolded as they began their quest for the apartment. Before they could even get an offer submitted, they were told the seller had accepted another offer and they could not submit their own offer on the home. It is a bit more detailed but in the end, all they received was a solicitation for representation from the listing broker. There certainly was no preferential treatment for being "unrepresented"...quite the contrary.

I am not a miracle worker but this could have been handled differently to at least get them up to bat and give them a shot. The listing broker is certainly not at fault; he was doing his duty which is working for the seller. Were they better off alone? Not this time. I would be the first to remove myself from a deal if I thought the client would be served better and I stand by this on EVERY deal.

I put together a business model to service those buyers who prefer to work on their own but who can also benefit from some professional guidance. We work as a team. You are right there with every move that I make, copied on every communication, reviewing any offers that are submitted and discussing and approving all communication and negotiations with the seller.

These are just a few thoughts on the idea of "going it alone" and perhaps a chance to look deeper into that idea.