NAR

Keeping an Eye on the FTC

We know the federal government has had its eyes on the real estate industry, especially MLS data, for a long time, most recently with the Department of Justice’s Settlement agreement with NAR over the Virtual Office Websites (VOWs) issue. Now it’s a good idea for us to keep our eyes on the Feds.

The Federal Trade Commission recently flexed its muscles again in separate Settlement Agreements with two Associations – the Music Teachers National Association and the California Association of Legal Support Professionals. Both were required to amend their respective Code of Ethics to eliminate provisions that limited competition among their members.

What about the NAR Code of Ethics – will it be able to stand up under intense FTC scrutiny? We’ll take a look at that issue, but first let’s see what happened with the music teachers and the paralegals.

The FTC charged the teachers with restricting competition through an ethics code provision that prohibited its member teachers from soliciting clients from other members. In the second case, the commission alleged that the California Association of Legal Support Professionals violated antitrust law by adopting ethics code provisions that restricted members from engaging in price competition, disparaging one another in advertising, or recruiting other members’ employees for hiring purposes. “Neither association advanced a legitimate business rationale for its restrictions,” the FTC said.

“Because trade organizations are by their nature collaborations among competitors, the commission and courts have long been concerned with anticompetitive restraints imposed by such organizations under the guise of codes of ethical conduct,” the FTC wrote in a statement. “Competing for customers, cutting prices, and recruiting employees are hallmarks of vigorous competition. Agreements among competitors not to engage in these activities injure consumers by increasing prices and reducing quality and choice.”

NAR’s Code of Ethics celebrated its Centennial this year. Each of the Articles and Standards of Practice are carefully reviewed annually, including the Duties to REALTORS® Articles 15-17. Part of the review is conducted by practitioners and attorneys experienced with the FTC philosophy on antitrust. Here’s some of the key provisions regarding member to member activity. Of course, if the FTC wanted to take the position that there were no legitimate business rationale for exclusive representation agreements – that they were anti-competitive and should be outlawed — then it would be time to turn the keys over to the FTC and let them sit open houses.

Article 15 – REALTORS® shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses, or their business practices. (Amended 1/12). Standard of Practice 15-1 states that REALTORS® shall not knowingly or recklessly file false or unfounded ethics complaints.

Article 16 — REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients.

Standard of Practice 16-1 states that Article 16 is not intended to prohibit aggressive or innovative business practices which are otherwise ethical and does not prohibit disagreements with other REALTORS® involving commission, fees, compensation or other forms of payment or expenses.

Standard of Practice 16-2 states that Article 16 does not preclude REALTORS® from making general announcements to prospects describing their services and the terms of their availability even though some recipients may have entered into agency agreements or other exclusive relationships with another REALTOR®. A general telephone canvass, general mailing or distribution addressed to all prospects in a given geographical area or in a given profession, business, club, or organization, or other classification or group is deemed “general” for purposes of this standard.

Standard of Practice 16-3 states that Article 16 does not preclude REALTORS® from contacting the client of another broker for the purpose of offering to provide, or entering into a contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to brokerage) or from offering the same type of service for property not subject to other brokers’ exclusive agreements. However, information received through a Multiple Listing Service or any other offer of cooperation may not be used to target clients of other REALTORS® to whom such offers to provide services may be made.

Standard of Practice 16-8 states that the fact that an exclusive agreement has been entered into with a REALTOR® shall not preclude or inhibit any other REALTOR® from entering into a similar agreement after the expiration of the prior agreement.

Standard of Practice 16-9 states that REALTORS®, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service.

Standard of Practice 16-13 states that all dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.

Standard of Practice 16-20 states that REALTORS®, prior to or after their relationship with their current firm is terminated, shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm. This does not preclude REALTORS® (principals) from establishing agreements with their associated licensees governing assignability of exclusive agreements.

You can find the complete list of Standards of Practice covering Duties to REALTORS© at realtor.org A lot more care was made in drafting the NAR Code of Ethics provisions than those found in the music teachers and paralegal associations. Will it be enough to stand up to FTC scrutiny?

My answer is YES. What do you think?

Source: Associations Now

 

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