As unveiled in a recent post written by real estate blogger Rob Hahn and a follow up article published on Realuoso, it appears as if one article in the Realtor® Code of Ethics may be illegal. Namely… Article 16.
Article 16 states, “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.” In plain ol’ English, this means that you cannot solicit for listings currently on the market and listed by other Realtors®.
However, as indicated by Hahn, the Federal Trade Commission (FTC) recently filed a complaint against National Association of Residential Property Managers (NARPM) for restraining competition. The logical conclusion taken by Hahn and others is that the FTC may soon file a similar complaint against the National Association of Realtors® for the very same thing.
What If Article 16 Is Actually Illegal?
While I’m not an attorney, I’ve got some ideas about how this might play out in the residential real estate space.
For starters, if Article 16 goes away, this would mean that even though I might have an exclusive listing with a seller, there is nothing that would stop other agents from calling my seller or popping by in order to attempt to solicit the listing. Because of this, the best way for me to ensure that this does not happen might be to retain the listing as a pocket listing and avoid putting it on the MLS. For Californians, this is wildly ironic. As the result of a tight market in 2013, there were so many pocket listings that the California Association of Realtors® was compelled to modify the Residential Listing Agreement (RLA). The modified RLA now includes several added paragraphs that warn about the dangers of pocket listings, specifically how less exposure may equate to a lower sale price.
Another issue that comes to mind if Article 16 goes away is with respect to paid commissions. It stands to reason that there would be an increase in the number of Realtors® who offer low or flat rate commissions. When you have no value to add or bring to a seller, then the next logical step would be to offer to work for a lower commission. If a seller has listed at a specific commission rate and gets a call from a “neighborhood expert” who swears up and down and sideways that he (or she) will do a better or equal job for half the price, what’s to stop the seller from signing with the next Realtor®?
If your answer to that question is “the contract,” then you are dead wrong. In order avoid getting “yelped” out of your next listing, listing agents would be foolish not to let sellers out of the contract. Cranky sellers who are not permitted to cancel contracts will write negative reviews all over the Internet. Since reviews are a huge source of agent business, creating any relationship that might result in a negative review could really have a negative impact on future business.
Without Article 16, Would Your Behavior Change?
If you are one of those people who is going to tell me that you would never solicit the listings of others, I’m not sure that I believe you. When solicitation is going on all around you, what would compel you to take the moral high road? Even if brokerages created office policies with regard to solicitation, might those policies not also be in violation of law?
The only good that I can see in the disappearance of Article 16 relates to how this event might raise the bar in the industry. If agents are going to call my seller and tell him (or her) that the MLS photos are unprofessional or the copywriting has grammar errors, that’s going to raise the bar. Those calls might push slipshod folks to have to work a little harder or spend a little more money in order demonstrate the same caliber of professionalism as the next guy.
One of my friends reminded me of the following quip the other day… “It’s best to be the first born child, the second spouse, and the third Realtor®.” If Article 16 goes away, this phrase may be truer than ever before.