Tom Early, current president of the National Association of Exclusive Buyer's Agents, says the DOJ has contacted him several times regarding comments he made and a white paper he wrote in connection with a public hearing held last month on real estate competition issues, hosted by the Department of Justice and Federal Trade Commission.
Early served on a panel hand-selected by the Federal Trade Commission and the Department of Justice for a public workshop held Tuesday, October 25, 2005 at the FTC's Satellite Building Conference Center at 601 New Jersey Avenue, NW. in Washington, D.C. He says he was chosen to be on the panel specifically because he would not be supporting the National Association of REALTORS position.
The purpose of the public workshop was to discuss competition in the real estate industry, including multiple listing services ("MLSs"), online "virtual office websites" ("VOWs"), discount brokers and limited-service brokers, and minimum-service requirements.
He says he threw the rest of the panel a curve by outlining four ways he says the NAR stifles competition from exclusive buyers' agents, a topic he believes neither the NAR nor the DOJ were prepared to address.
In his white paper sent to the DOJ, he accuses the NAR of anti-trust activities, including:
- the failure to acknowledge Exclusive Buyer Agency as an agency choice worthy of consumer disclosure;
- the legalization of Dual Agency (where a broker "represents" both the buyer and the seller in the same transaction) by means of "Designated Agency" legislation which has now been pushed through in over half of the states;
- the subjection of buyer brokers to the antiquated sales doctrine of "Procuring Cause"; and
- discriminatory treatment of Exclusive Buyer Agents by the National Association of Realtors® and its affiliates.
While the focus of the DOJ and FTC's interest in the NAR and its policies has so far revolved around ownership of listings, primarily because more companies want access to use multiple listing service listing databases without having to advertise the broker along with his/her listing, drawing government attention to agency could open up a whole new can of worms for the NAR.
According to Early, the growth of buyer agency was "due in large part to the watershed study completed by the Federal Trade Commission in 1983, in which 71 percent of buyers surveyed thought that the 'subagent/seller's agent" showing them a property was actually "their" agent. As a result of the FTC's involvement, agency disclosure to consumers came into being. Unfortunately, compliance with state-mandated agency disclosure has been abysmal. Compliance has been so problematic that a number of states no longer even require agency disclosure at first substantive contact, and now only require agency disclosure "as soon as practicable but no later than the writing of an offer.'"
"Disclosure of agency relationships will disappear in the state of Florida next year; they have apparently decided it's just not needed. By the time agency disclosure is made (if ever, as evidenced by a sting operation conducted by the Massachusetts Attorney General), buyers have in many instances already provided confidential information to an agent who is duty bound to use that information to the seller's advantage," says Early.
He continues that when state-mandated agency disclosure is provided, not a single state requires disclosure of exclusive buyer agency as an option. "The state legislatures, which are dominated by industry interests, have utterly failed to protect consumers by mandating meaningful disclosure of agency relationships," he says. "NAEBA would urge NAR to consider a minimum uniform agency disclosure standard including Exclusive Buyer Agency as an agency option. If NAR will not do so voluntarily we would urge the Federal Trade Commission to consider this issue as a very high priority. NAEBA feels that a meaningful minimum standard for the disclosure of agency relationships in the industry could both protect consumers and foster real competition among buyer's brokers."
Early's suggestions could dovetail beautifully with anti-trust issues the DOJ is already hammering the NAR about -- improving service, including access to brokers' listings better for the buyer consumer.
Far from done, Early then moves on to the abrogation of the common law of agency which has allowed the passage of designated agency and transactional brokerage legislation to pass in 26 states.
"Under the common law of agency, a real estate brokerage acts as the agent for its principal, and is duty bound to fulfill fiduciary obligations of loyalty, confidentiality, obedience, reasonable care, accounting and disclosure to its clients," explains Early, "but it is impossible for a broker to provide the full range of fiduciary obligations in a dual agency situation, where the brokerage represents both the buyer and the seller in the same transaction. Due to the demand for buyer representation and the legal pitfalls associated with Dual Agency, the real estate industry has devised a statutory creation called "Designated Agency" which allows a brokerage to represent both buyers and sellers in the same transaction, in derogation of the common law of agency. Designated Agency legislation is recommended by NAR, written by its state associations, and pushed through with the help of Realtor® PAC dollars. Through Designated Agency, a brokerage can legally "represent" both parties in the same transaction, and thereby keep the entire commission for itself. Designated Agency is a wolf in sheep's closing. NAEBA is adamantly opposed to Designated Agency, which we believe to be nothing more than undisclosed Dual Agency. Both Dual Agency and Designated Agency are business practices being used by listing brokers, who control the industry, to collect commissions on both sides of a transaction."
He also takes on "procuring cause."
"Procuring Cause is a doctrine propped up by NAR to determine a Realtor's® entitlement to a "sales" commission," he explains. But a true buyer's agent is "not a 'salesperson'", and procures neither a sale nor a buyer for the seller. "To the contrary, an EBA's job is to procure a home for their buyer client, steering their client away from homes which may be overpriced or have defects, rather than simply trying to make a sale," he justifies. "Nevertheless, NAR's Procuring Cause rules apply even to EBAs who have a written agency agreement with and who are compensated directly by their client. As a result, buyers in many instances, after unwittingly contacting a listing/seller's agent for information regarding a home, find that they are unable to obtain representation from a buyer's agent due to the doctrine of 'Procuring Cause.'"
Here's the part Early feels should capture the DOJ's attention -- "EBAs, who are required to join NAR and its state associations to obtain access to the housing inventory contained in many multiple listing services, are required to subject themselves to binding arbitration in the event of a commission dispute, in which NAR's rules regarding Procuring Cause apply. NAR, through its state and local associations, should not be allowed to interfere with contractual relationships between a buyer and their broker by means of insidious rules which were originally intended to apply only to salespersons."
"NAR has taken the position that real estate listings are the property of the listing agent, and that EBAs, who may be both Realtors® and members of a multiple listing service, but who have no listings, must depend on permission from listing brokers to display MLS information over the internet. NAR's most recent proposed guidelines concerning MLS participation imply that a firm must both offer and accept compensation to be eligible to participate. EBAs do not list properties for sale, have no listings in the MLS, and therefore never offer compensation. Many EBAs look to their own clients for compensation rather than accepting compensation from listing Brokers. Is NAR now attempting to exclude EBAs from MLS participation?"
NAEBA strongly believes that any limitation on a broker's right to display basic listing information over the internet, except in extraordinary cases, where a seller client has given informed consent to not have their listing information displayed anywhere on the internet (including the listing broker's website), would be an illegal restraint of trade. Forcing buyers to go to a listing broker for information is both anti-competitive and anti-consumer, and negatively impact an EBA's ability to properly represent their Buyer client," concludes Early.
Early says the DOJ is doing a lot of research on the items he outlined in his paper, including what he outlines as systematic attempts by the NAR to minimize exclusive buyer agency as a "business model."
"I have had several discussions with the DOJ since, and designated agency caught them by complete surprise," says Early. "They know about it now."
"They are looking at this -- that the NAR has lowered representation to transaction brokerage to accommodate the in-house transaction. They opened the door to minimum service. Now they want to bring back fiduciary service that they legislated away. I asked -- do you think that there will be a minimum level of service offered in Florida -- a state that authorizes facilitation? How are you going to put agency level service back on facilitators?"
"This is the bone I chew on," he says. "I've been saying it for years. You keep destroying the level of services you provide and you are putting your own members out of business. When you take NAR's push to create minimum standards, they are looking at standards for sellers, but 90 percent of complaints are filed by buyers. If buyers are having trouble with services, why are they looking at sellers? Because discount brokers are taking listings, that's why.
"The DOJ is out for blood," says a gleeful Early, "and they can always amend the complaint against the NAR."
