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Real Estate Center

Oct 21, 2008 9:36 AMPublication: The East Hampton Press & The Southampton Press

In Residence: Questioning the system

Oct 21, 2008 9:36 AM

The Hamptons became my new home 13 years ago, and I’ve been working in the real estate industry on the East End ever since.

Complaints by real estate agents made me aware of what I believe are significant and frequent antitrust violations in the East End real estate industry. Initially, a selective fax “co-broke” process was the key vehicle for breaking the law, but recently the violations have expanded, due to the advent of an online exclusion vehicle, the OREX automated co-broke system.

Real estate agencies in the Hamptons routinely excluded and continue to exclude small competitors from knowing about and participating in the sale of their exclusive listing properties through co-brokes. Such behavior is in restraint of trade, and should be a violation of antitrust laws, punishable by years in jail and treble damages. Using market sales for the last 10 years, it is my opinion that the larger firms in the Hamptons have damaged smaller firms (some have been forced out of business by this practice) by more than $500 million, which means treble damages would be $1.5 billion.

Every real estate agent and broker, to obtain a New York State real estate license, goes through a 75-hour training course. Quoting from the training manual used to prepare New York State licensed real estate salespersons:

“The purpose of the Sherman Antitrust Act, enacted July 2, 1890, was to preserve a system of free economic enterprise and to protect the public against the activities of monopolies, contracts, or other combinations that tend to be an unreasonable restraint of trade. The focus of the act was to allow small businesses to compete with larger companies …”

The practice of excluding agencies is not only detrimental to the agencies being excluded—for property sellers, it greatly diminishes exposure for the sale of their properties.

Multiple pages of the real estate sales training course material are devoted to the subject of antitrust law. The “New York Real Estate for Salespersons” manual’s section on “antitrust law” begins: “In general, antitrust violations are any business activity in which there is a monopoly, a contract, a conspiracy, or a combination that negatively impacts an individual’s or a company’s ability to do business. This negative impact is called restraint of trade.”

Agents are taught the importance of abiding by antitrust laws. They are taught that failure to follow the laws could result in heavy fines or court awards (fines of up to $300,000 per salesperson), and even jail time (up to three years in prison) for breaking the law.

Breaking antitrust laws not only damages those real estate agencies and agents being discriminated against, but also hurts real estate buyers and sellers (owners). The unfair practices delay the selling of properties and cause incomplete exposure of properties to the marketplace. Brokers have a fiduciary responsibility to the public to promote properties to maximize the price and sell the properties in a short time.

The larger agencies in the Hamptons have most of the exclusive listings for houses and vacant land. The smaller agencies cannot fairly compete without knowing about and co-broking these listings. When a real estate broker prevents his competitor from participating in the sale of a real estate property, that’s like taking goods off the shelves in a store, or preventing key suppliers of products from delivering to a store, thereby limiting what the store has to sell.

Until recent years, brokers faxed invitations to attend open houses and to co-broke their exclusive listings to selected competitors. Each real estate office had pre-recorded lists of the fax numbers of the selected real estate agencies. When they put a new exclusive listing on the market, faxes were sent only to the agency offices on the fax list, inviting them to open houses where real estate agents would see the property and receive the co-broke agreement. These invitations allowed those selected brokers/agents to participate in finding prospective buyers for the properties and thereby participate in receiving a certain part of the commission for selling the property. Those agencies not selected for their fax list were excluded from participating in the sale of the property.

With the fax system, certain agency offices had more than one list to which co-broke listings were sent. At these agencies, the multimillion-dollar house listings were sent to an even more limited list of brokers. Unpopular and smaller agencies were routinely, and obviously deliberately, left off the fax list, or sent faxes only for the lower-priced properties.

When a certain Manhattan real estate agency set up an office in Southampton, it had trouble getting on the fax list at certain other high-end agencies. For about a year, the other agencies simply refused to add the newcomer to their fax lists. This was in spite of many requests from individual agents and management at the new agency. Without the ability to view, co-broke, and sell listings exclusive to the other agencies, agents at the new office were prevented from participating in a substantial percentage of the market during that period. And sellers were deprived of the efforts of the agents at the new firm.

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This is fascinating information that I knew nothing about. I think that the real estate business in the Hamptons needs a complete overhaul.
By ldmoore (4), East Hampton on Jan 1, 09 11:08 AM
Another big issue with the real estate system in the hamptons is the the whole exclusive verses open listing. In having tried to sell a house through both means I was suprised at the result. The orex system explains how an exclusive through a small firm does not get full eposure. An open listing really does not exist because the big firms only want an exclusive listing. They have the open listing forms and go through the motions of acting like they are listing the property but all they do ...more
By ldmoore (4), East Hampton on Jan 1, 09 11:41 AM
Idmoor, I'll give your last question a shot: when you list your house, your listing agent provides you with a "seller net sheet." On this form, you're provided with your expected net after costs (including real estate commissions). As a result, you offer your property to buyers with the fee BUILT IN to the asking price, which the buyer then finances, or in the event of paying cash, feels that they are paying for- at least, in part. Much like the chicken and the egg, depending on which side of the ...more
By LM (35), riverhead on Jan 4, 09 11:27 AM
Sorry about the "llegal " typo, and "vicarious" typo!
By LM (35), riverhead on Jan 4, 09 11:29 AM