<HTML> <HEAD> <title>WebForm1</title> <meta name="GENERATOR" content="Microsoft Visual Studio .NET 7.1"> <meta name="CODE_LANGUAGE" content="Visual Basic .NET 7.1"> <meta name="vs_defaultClientScript" content="JavaScript"> <meta name="vs_targetSchema" content="http://schemas.microsoft.com/intellisense/ie5"> <META http-equiv=Content-Type content='text/html; charset=UTF-8'> </HEAD> <body > <TABLE id="Table1" cellSpacing="1" cellPadding="1" width="100%" border="0"> <TR> <TD><b>Comment Number:</b></TD> <TD>518795-00391</TD> </TR> <TR> <TD><b>Received Date:</b></TD> <TD>11/29/2005 10:38:20 PM</TD> </TR> <TR> <TD><b>Organization:</b></TD> <TD>Real Estate Agents for Real Agency, Inc.</TD> </TR> <TR> <TD><b>Commenter:</b></TD> <TD>Meyer, Fred</TD> </TR> <TR> <TD><b>State:</b></TD> <TD>MA</TD> </TR> <TR> <TD><b>Agency:</b></TD> <TD>Federal Trade Commission</TD> </TR> <TR> <TD><b>Rule:</b></TD> <TD>Competition Policy and the Real Estate Industry</TD> </TR> <TR> <TD><b>Docket ID:</b></TD> <TD>To Be Added</TD> </TR> <TR> <TD><b>Attachments:</b></TD> <TD><a href='518795-00391.pdf'>518795-00391.pdf</a>&nbsp<a href='http://www.adobe.com/products/acrobat/readstep2.html' target = _blank >Download Adobe Reader</a><br></TD> </TR> </TABLE> <hr/> <b>Comments:</b><br/><br/> After effective local lobbying by the National Association of Realtors, most states now have passed laws allowing dual agency, under which a real estate office is allowed to represent both the seller and the buyer of the same home at the same time. Generally, one or two agents in an office are 'designated' to represent the seller (seeking a higher price) and all the other agents may represent various buyers (seeking a lower price). The Dept. of Justice and the Federal Trade Commission would be well advised to concentrate upon on investigating the extensive anti-consumer and unfair-competition implications of this scheme. First, do consumers really understand the implications of this conflict of interest? Under common law principles, fiduciaries must ensure that clients actually understand the implications of any conflict of interest before they consent to it. The traditional test is subjective understanding by the client (not objective, as in 'You signed a form'). After all, clients are very often willing to sign any printed form a trusted fiduciary puts in front of them, so their signature on a printed form should never be enough. Real estate agents must be held to same high standards of informed consent as are other fiduciaries, such lawyers and trust officers...let alone non-fiduciary professionals, such as doctors, hospitals and accountants. What's more, the burden for obtaining informed consent to a conflict of interest rests, not upon the client, but upon the fiduciary that is benefiting from the conflict. Federal investigation will certainly reveal that state regulators are doing almost nothing to police this duty to obtain informed consent to conflicts of interest. This is somewhat understandable, given the low budgets of state regulators. However, there is something state regulators are not doing now, but could easily do. They should all require that their licensees certify that clients have had an appropriate discussion with their agent and have actually understood the implications of the conflict of interest before they signed the consent form. Here is sample mandatory certification language by real estate agents, which could be added to state licensee/consumer relationship disclosure forms: By signing this form, I, ___________________________ (the Licensee), certify under pains and penalties of perjury based upon clear and convincing evidence that to the best of my knowledge and belief ________________________ (the Consumer) actually understands the conflicts of interest inherent in this dual agency (or this designated agency under the auspices of a dual agency) relationship, but nonetheless has given informed consent to becoming a party to it. The Licensee acknowledges that the Consumer s signing of this form does not constitute consent to any actual breach of the Licensee s fiduciary duties to the Consumer. _____________________ ____________ _________ Licensee Date Time State regulators should also require real estate agencies to spell out their specific policies for dealing with the inherent conflicts of interest, perhaps by providing checklists of issues for consumers to consider. For example: 1. When a firm is representing the interests of a buyer, will it nonetheless give preference to showing its own listings (those of seller clients)? Is there any different level of agent compensation depending upon which type of listing the agent sells to his buyer client? 2. How will confidential communications be protected? Are there or are there not common computer screens, fax machines, conference rooms, or staff meetings accessible to both seller and buyer agents? What are a firm's policies for disclosing confidences learned from the opposing parties, each of whom are owed fiduciary duties? How will the supervising broker (supervising licensed salespeople under state laws) handle knowledge of the negotiating strategies of each side? 3. When a firm is representing the interests of a buyer, is it also recommending its own mortgage or insurance or title or inspection company? If so, does the brokerage's own subsidiary or affiliate in fact offer the lowest rates and best service for this client? Using these services should be fully in the best interest of the buyer client, not just the recommending company. I wish federal regulators would come to realize that determining deceptive or anti-competitive behavior of a fiduciary is much more complex and quite different from simply determining such behavior in an ordinary business. Fiduciaries are held to a higher standard under common law. Upon visiting, for example, a store, a consumer does not expect, or have any right to expect, the store's salesperson to be looking out for the consumer's best interest. But in hiring a trusted lawyer or real estate agent or investment trust company to act for him, a client expects full fiduciary responsibility, including undivided loyalty, with no undisclosed conflicts of interest. Consumers are more easily misled when, as clients, not just customers, they are giving their trust to their own professional fiduciary. Finally, I wish federal regulators would think carefully about this issue: Why is the real estate business allowed to get away with its own special exemption for practicing conflicts of interest? Arthur Andersen was not allowed to 'designate' one employee to be a firm's accountant, and another to be the firm's auditor. Brokerage houses were not allowed to 'designate' one associate to underwrite sale of a firm's stock, and another associate to recommend the same stock issue to the public as supposedly impartial adviser. Lawyers are not allowed to represent both the plaintiff and the defendant in the same lawsuit. Why should fiduciary agents be allowed lower standards just because their field is real estate? State lobbying must never be allowed to override the informed consent any American is entitled to, under traditional common law In real estate transactions, agencies are being allowed to represent both sides, facilely and without adequate explanations or informed consent. From four decades selling houses, let me testify that there is nothing more inherently adversarial than a real estate transaction. The seller is seeking a higher price, and the buyer, a lower one. The negotiations may often be pleasant, but they are still adversarial. (Being adversaries in a negotiation is not identical to being obnoxious or impolite.) In my experience, real estate agents do not seem to realize this, and have little or no training in the matter. There is a tendency amongst real estate companies to gloss over conflicts of interest, as though they do not exist. But they are real. Just because "Everybody's doing it"& doesn't make it right. Now is the time for urgently needed and appropriate federal coordination with state licensing agencies. For more information, please go to www.agencyinformation.org Fred Meyer Fred Meyer, CRB, CRS, GRI, Realtor &amp; R.E. Appraiser Owner/manager (for 42 years) of University Real Estate, Harvard Square&nbsp;&nbsp;www.universityrealestate.com&nbsp;&nbsp; 2004 &amp; 2005 Co-chair, Real Estate Agents for Real Agency 2003 &amp; 2002 Director, National Association of Realtors 2000 President, Massachusetts Association of Realtors 1991 President, Greater Boston Association of Realtors 1990 Realtor of the Year, Greater Boston Real Estate Board 1981 President, Cambridge Council of Realtors Certified Realty Brokerage Manager Certified Residential Specialist Graduate, Realtors' Institute Certified Residential Real Estate Appraiser&nbsp;&nbsp; <A name=RDACT1></A> </body> </HTML>