In 1988, Tom Hathaway launched, The Buyer's Agent, the first and, to date, the most successful franchise of exclusive buyer's agents in the nation. With over 70 offices in 26 states, and three more offices opening, he has steadily grown his business - by avoiding the mistakes that buyers' agents typically make. Backed by a company legal staff and a good-buddy network of government cronies, Hathaway has beaten back all kinds of challenges from traditional brokers and state associations. But a giant lurks in the background. The National Association of REALTORS® lobbies tirelessly for the elimination of agency relationships - a direct threat to their own population of exclusive agents across the nation. Hathaway's victory over the Oklahoma Real Estate Commission, in which a Buyer's Agent franchisee was fined for "false and misleading advertising" may be short-lived, because slaying this particular dragon has only caused a new head to grow on the transaction broker monster. While the Oklahoma Supreme Court ruled that the agent did indeed save buyers money, it also admonished the Commission for not understanding its own rules. The Court ruled, "Sellers' agents and dual agents do not and cannot by law give a buyer the same degree of loyalty as an agent who acts on behalf of a buyer. ... A buyer who relies on the seller's agent or on dual agency does not receive the same degree of legal protection as that afforded by an agent acting solely on behalf of the buyer." Meanwhile, real estate PAC money funneled to the Oklahoma legislature by large dual agency and transactional brokers and others resulted in the passing of a new statute which goes into effect January 1, 2001. The new law defines transactional brokerage relationships without including agency of any kind. In effect, the new law could well make agency relationships illegal - a constitutional issue which Hathaway plans to test in court. He is already anticipating that the Oklahoma Real Estate Commission will come after The Buyer's Agent franchisees again. With two years to prepare, Hathaway and his legal team, headed by general counsel Jill Levine, are already working on their strategy and they have some strong points in their favor. Meet Paul Roark Without disclosing his entire legal strategy, Hathaway revealed to Realty Times that he has retained the services of a consultant named Paul Roark. If that name doesn't strike fear into the heart of the NAR, it should. Roark was the senior litigator for the Federal Trade Commission and the author of the 1983 report that shook the industry to its foundation: The Residential Real Estate Brokerage Industry. This was the report that effectively killed sub-agency by revealing to consumers that 72% of home buyers believed they were being represented by their agent, while 100% of agents admitted that they serve the seller only. That meant that three out of four buyers were spilling their guts to agents who weren't representing them. The report fueled a nationwide legislative agenda which forced the real estate industry to disclose whom the broker or licensee represents in every situation. By 1988, every state had disclosure laws in place. Now retired from the FTC, Roark has known Hathaway a long time, since the days when served as the chief of enforcement for the Missouri Real Estate Commission. That's right. Hathaway's got friends in high places Hathaway has been a consumer advocate for years. "We processed thousands of complaints a year, most of which related to real estate," says Hathaway. "The theme that kept recurring over and over was "My agent screwed me." We would investigate, and the agent would say, "We represent the seller." Then came Roark's report. Hathaway knew that buyers wanted someone to represent them but a business model didn't yet exist that would serve these consumers and make money at the same time. He left the Commission to spend a few years in mortgage banking and continued to think about buyers' advocacy. He knew that the real estate industry would have a tough time turning from the lucrative double-dip business model. The NAR pushed forward the dual agency agenda, which worked for a while until Edina Realtors, the largest real estate brokerage in Minnesota was involved in a class action suit. The company settled out of court in 1994 for $36 million. NAR's only recourse other than the endorsement of single agency (unthinkable to the large brokers who constitute its board) was to begin the promotion of non-agency. As dual agency was outlawed by state legislatures, transactional brokerage and facilitators were ushered through the back door of over 26 states. Hathaway says, "The buying consumer is only guaranteed representation with a company that doesn't list properties. If you don't have representation, you don't have any recourse. The big difference is that when you represent a buyer you are responsible for what you do and also for what you fail to do. "In any other business, it is called malpractice. The reason transaction brokers never wanted to represent buyers is they were afraid of malpractice. They want to imply that they represent the buyer, but in court, later, they say, "I was only a transaction broker." "As buyer's agents, we step up to the plate and we will take responsibility for our actions," says Hathaway. Hathaway is closely watching the states which are trying to eliminate disclosure. When agents don't have to disclose whom they represent, buyers will be at risk of receiving less representation than they believe they are getting, an unfortunate return to the sub-agency era. On the surface this may seem like a good plan. The lobbies will encounter little resistance. In most states, buyers agents aren't organized. They are undercapitalized. And, they don't know their own strength. Hathaway knows he doesn't have the time or wherewithal to mount much of a resistance. That's not where the battle is going to be won anyway. Hathaway's strategies to win "Whether they like it or not, this industry is headed toward specialization," says Hathaway. "Big brokers hate the idea of specialization because those that have it have a competitive edge." He plans to use that edge. 1. Never Get Intimidated In creating his franchise, Hathaway got his guidelines straight from the FTC. "I knew where to get help. No board of REALTORS was going to scare me. I knew what their authority was," says Hathaway. Anytime a board files a complaint against any Buyer's Agent franchisee for advertising the company's Points of Difference, an outline of the benefits of buyer's agency, Hathaway sics his legal eagle, Jill Levine, on them. "They always back off," says Levine. "The complaints are never from consumers - they are invariably from other brokers." 2. Know How to Get Paid Many of the complaints from other brokers are about how Buyer's Agents get paid. The Buyer's Agent employment contract, the buyer's representation agreement, contains wording in which the buyer has seven choices of ways to pay his Buyer's Agent agent. Hathaway explains, "The buyer can instruct us to include in every offer the following statement - "Included in the offer shall be a fee paid to the buyer's agent in the amount of 3 percent (or whatever has been negotiated) of the final purchase price being paid at the time of closing and coming from the proceeds of the transaction. The buyer's agent is accepting no compensation from the listing company." This strategy bypasses the co-broker fee published in the MLS, an intimidation tactic which enables large brokers to control or eliminate competition by offering reduced or negligible fees. Since the buyer is not asking for a reduction of the listing fee in the contract, there is no interference with the listing contract. The result? Listing brokers don't want to have to explain to their clients who or what a buyer's broker is, or what will happen is that the seller will buy their next home from a buyer's broker. No Buyer's Agent broker to date has ever had to accept a reduced fee. Some brokers didn't let their associations drop it there - they took it to the NAR. In 1991, the NAR wrote a letter agreeing that the wording is perfectly legal. When she needs to, Levine forwards a copy to argumentative brokers and associations. Levine laughs, "It takes some of these people a while to catch on." 3. Know how the game is played Among Hathaway's previous duties for the Missouri Real Estate Commission was putting together proposed legislation. "In each state, the real estate commission's job is to police the agencies. Every rule that they write is for the health, safety and welfare of the public. That is why the state is the licensing body, and that is why they issue drivers licenses and licenses to practice real estate," explains Hathaway. "I was instructed over and over again, every time I wrote a new rule, that I had to prove that the law would protect the health, welfare or safety of the populace." Hathaway drops his bombshell. "When a real estate commission passes a law, abrogating (doing away with) the law of agency, they have abrogated their authority to require a license for practitioners." In other words, if you are a non-agent, you may not need to be licensed. This would be an ironic blow to the NAR and the associations whose very existance is based on the licensing of professional real estate brokers and salespeople. Says Hathaway. "Oklahoma may become the first testing ground for this, and we plan to take it on."