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Tuesday, February 7, 2012

An industry with its own set of rules

Posted by nithi.vivatrat on June 23, 2009

Just now, I was about to press “publish” on a well-sourced post containing general, publicly-available news (nothing nasty) about a large brokerage company, but then I suddenly realized it could be misconstrued as a violation of Section 15 of the NAR Code of Ethics. It got me thinking — it’s interesting to be part of an industry which essentially has its own set of rules beyond standard state and federal laws, covering areas of behavior such as libel and non-competition. Is the implication that the same laws that govern behavior in other industries are not adequate? Can it be proven that these rules “improve behavior”? And do these rules benefit the consumer, as well as the industry participants?

I don’t have the answers to these questions, though I am forming my opinions — I just throw that out there for folks to think about.

Filed Under: Real Estate Industry

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  • Actually, both the Justice Department Antitrust Division and the FTC have spent quite a lot of time investigating the real estate brokerage industry. I would take some issue with the statement about it being "core to the economy" that there is a disincentive for the government to look into on behalf of consumers -- after all, commissions make up a few percentage points of the cost to purchase homes, something we want to happen more often.

    Back to the Code of Ethics: it is interesting -- Article 16 of the Code is completely devoted to defining rules of non-competition between Realtors, starting with:

    "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."

    Of course, Section 16-1 quickly provides a antitrust-friendly disclaimer to make clear that there is no price-fixing here:
    "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."

    Can you imagine non-competition rules set at the industry-level for any other field?
  • Cris
    A quick spin around Google will show you that the NAR is one of the few associations with no anti-trust advisory in its Code of Ethics. Confusing since it is also one of the largest associations in the country.

    Of course, legal or not, one has to think about what incentive the Justice Department has to investigate and potentially disrupt an industry that is so core to the economy. Making the case that consumers won't win at the expense of the economy isn't going to be easy.
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