Real Estate Course Level 23

Facts of a feather c) tie-in agreement.

"I'm sorry, but I can't keep working with you unless you agree to the lender we specify in the contract." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather c) tie-in agreement.

. "I'm sorry, but I can't keep working with you unless you agree to the lender we specify in the contract." . "I'm happy to be doing business with you! We use Ticor Title Company, so FYI, that's who you'll need to use." . "So for the home inspection, you'll be using Phil Ye. He does all our home inspections." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather d) market allocation.

. "I'm sorry, sir, but I don't take customers from that side of town. Go to Broker María; she'll help you out. That's her territory." . "Why don't we divvy up the neighborhoods between the three of us?" . "I'll take the north side of town and you take the south!" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather a) group boycott.

. "That advertising firm is way too expensive. We should all stop using them, don't you think?" . "I really don't like Lender Larry. Hey, other agents and colleagues, let's stop sending business his way, mmmk?" . "Can you believe Cheap Realty and their prices? They are driving us out of business. Let's say bad things about them so people will stop going there." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Quiz Level 23 d) an agreement between two or more competitors NOT to do business with another competitor; induces competitors to change business practices. A group boycott is an agreement between two or more competitors NOT to do business with another competitor for the purpose of inducing the other competitor to change its business practices or fail altogether.

A group boycott is: a) an unlawful agreement between competitors to monopolize a market, disadvantage competitors, or undertake activities in violation of fair trade laws. b) any effort made by competitors to jointly establish a fixed rate, price, or commission. c) when competitors agree to portion the market amongst themselves. d) an agreement between two or more competitors NOT to do business with another competitor; induces competitors to change business practices.

Tie-In Agreements

A tie-in agreement is a conditional agreement stipulating that a product or service desired by a party will be offered ONLY on the condition that the party also agree to purchase a second product or service. Tie-ins are antitrust violations. One example of how this might manifest itself in the real estate world is if a broker were to attempt to mandate the use of a title company, a lender, a home inspector, etc., in order for a client to get that broker's services at a certain commission rate.

Chapter 5: Trust Accounts

After completing this chapter, you will be able to: . Define a trust account . Describe why trust accounts are used . List the requirements for brokerage trust accounts Why It Matters: As a practicing licensee, you will inevitably be working for a brokerage (maybe you'll even have one of your own one day!). And every brokerage (if they want to be successful, or at least stay in business) will have to transfer money during transactions using a trust account. So, every brokerage will have to abide by the regulations that govern the use of these trust accounts. Key Terms: . commingling . conversion

Quiz Level 23 a) 1913. The National Association of REALTORS® Code of Ethics was first adopted in 1913, making it over 100 years old!

In what year was the National Association of REALTORS® Code of Ethics first adopted? a) 1913. b) 2013. c) 1969. d) 1981.

Coffee Date Gone Wrong

Let's consider another example. Say a hot new brokerage rolls into town. They're cool, they provide good services, and their commission rates are low, so they start grabbing up all the clients. A few weeks later, two veteran brokers spot each other at the local coffee shop and they get to talking about the new brokerage. At the end of their conversation, they give their word that they both will refuse to work with this broker. They just broke the law. (And they have coffee breath.) The brokers might not like the hot new brokerage, but they can't collude and agree not to do business with them - even if this agreement is made over a casual cup of coffee.

The Georgia Fair Business Practices Act (FBPA) 🍑

Many states have state-equivalents of the Sherman Antitrust Law. Georgia does not have such a law, so the federal law is the basis for most prosecutions of trade restrictions in the state. However, Georgia has enacted laws that provide alternate methods for dealing with antitrust activities occurring within the state. 👇 The Georgia Fair Business Practices Act (FBPA) is the primary consumer protection law in Georgia. Passed in 1975, it prohibits unfair and deceptive acts or practices in the marketplace. It applies to consumer transactions involving the sale, lease, or rental of goods, services, or property, mainly for personal, family, or household purposes. Many of its provisions have to do with advertising, especially fraudulent and misleading advertising. Any licensee who intentionally uses fraudulent or misleading information to try to encourage the sale of real property could violate this Act. Misleading information could appear in a statement that a licensee makes to a client or a consumer, or it could appear in a public advertisement. A consumer transaction has to take place for a violation to occur under FBPA. EXAMPLE: A salesperson tells clients that the commission rate that their broker charges is a "standard" rate charged by all brokers in the area. The salesperson has provided false information to the consumer public in an effort to encourage consumer transactions. This is a violation of the FBPA. undefined EXAMPLE: In order to attract new clients, a broker advertises that their firm is the only one licensed to sell homes in a certain part of Atlanta. The broker has published false or misleading information in an effort to encourage consumer transactions. This is a violation of the FBPA. undefined Penalties under the FBPA: Upon conviction for violating the FBPA, an individual could receive a fine of as much as $25,000 per violation and a prohibition from engaging in similar activities. In addition, citizens can bring their own civil actions against violators.

Morals

Morals are the personal values derived from a system of beliefs. Most of us were raised to believe that certain things are right and certain things are wrong. These principles are usually based on religion and philosophy. While morals are generally instilled in us at an early age, our experiences throughout our lives shape and evolve our morals — sometimes a little bit, sometimes a lot, and sometimes not at all. Belief systems shape our morals by providing guidelines that make it possible for us to make choices and judgments to determine what is right and what is wrong. An example of this is "The Golden Rule," which is the principle that it is right to treat others the way you would want to be treated. Everyone has a "moral compass" and even people who belong to the same faith or subscribe to the same philosophy can differ in terms of how their personal moral compass guides them. This is because the sum of our experiences as individuals colors how we perceive the world. So the moral compass may vary between individuals who subscribe to the same faith or philosophy, but have very different life experiences.

Tie-In Agreements: Let's Recap

Nice work dude! You learned that: Tie-in agreements link offered goods or services. Tie-in agreements are in violation of antitrust law. That's it for price fixing, group boycotts, market allocation, and tie-in agreements! Before we move on, here's a table that shows what NOT to say if you want to be a good Antitrustian. in file (AvoidAntitrustViolations) Next up, let's play a game to review what you've learned so far in this chapter.

Answer 2: No. Maggie did not include that she was a Realtor. Also, she needs to cite the source of whatever poll put her as the top agent in Sierra Hills.

Question 2: Maggie is a Realtor. She writes an ad that says, "Are you looking to sell your home? Let me help you, as I've been voted the top agent in Sierra Hills." Would this ad pass NAR's Code of Ethics? Why or why not?

Answer 3: Homer tried to steal away another broker's client. This is very bad behavior, and violates the code of Ethics.

Question 3: Homer, a Realtor, learns that a customer, Ned, is unhappy with his current representation. Ned has an exclusive broker relationship with another firm, but is testing the waters elsewhere. Homer suggests that he start working on Ned's behalf for a trial period, and if Ned likes him, Homer will officially represent him. Describe what Homer did wrong.

The Takeaway

Risk isn't just a (extremely boring please don't make me play it ever) board game. It's also an element in practicing real estate. Liability, E & O, ACTOR - it's all part of learning what the risks are, as well as how to navigate them. The more you know, the better prepared you'll be. 🌈 In Chapter 2, you learned: ✅ The ways in which agents present themselves to risk. ✅ How to implement ways to reduce your risk as an agent. On to the next chapter, where you'll trust me when I tell you about antitrusts!

Price Fixing: Let's Recap

So, price fixing can be: . Raising or fixing prices for a good or service . Setting a minimum price . Reducing or eliminating discounts . In real estate, price fixing most commonly looks like agents colluding and establishing a uniform commission rate. Let's fix our eyes on ahead and move on to group boycotts!

ACTOR: We Meet Again

That's it for insurance! Let's zoom out now to talk more about risk. Remember when we talked about risk management in property management? We're going to look again at ACTOR, but this time regarding salespersons and brokers. Refresher: . Avoid: Remove the source of the risk OR remove yourself from the risk. . Control: Prepare for emergencies or contingencies before they happen. . Transfer: Allow another party or entity assume the risk. . Or: This just means "or." It's there for the acronym. 😇 . Retain: Determine what is considered "acceptable risk" in a given scenario (and work to control it). "A" Is for Avoiding the Risk: The best way to handle a risk is to avoid it altogether. If a license holder finds themselves in the company of other brokers and agents and the conversation starts to steer towards topics that could develop into the dicey practice of collusion, boycotting, or price fixing, the best response to that is to simply get up and get out of there as quickly as possible, even going so far as to state that is why you're excusing yourself from the scene. "C" Is for Controlling the Risk: Take a page from the Boy Scouts and be prepared! Sometimes, despite your best efforts, you can't avoid risk exposure. Where that's the case, the next best thing is to prepare for it. Building in redundancy in your brokerage record-keeping storage systems, placing a fire extinguisher in key spots within a residence, or keeping a first aid kit and tools in the trunk of your car are a few examples of efforts to control risk. "T" Is for Transferring the Risk: Deflecting or reassigning risk to others is another risk management strategy. Deferring to the appropriate expert when asked certain questions by a client will reduce your exposure. Rather than risk a claim of unauthorized practice of law by giving your educated guess on a legal matter, advise your client to ask their attorney. Rather than risk a complaint about Fair Housing Laws when asked whether a certain area is a "safe place for families," point the client to the local government resource that provides crime statistics by area. When taking a client out to look at properties, transfer liability risks inherent with that activity to your business auto insurance policy. These are all good examples of proper transfer of risk for the savvy and prudent license holder. "R" Is for Retaining the Risk: There will be times you can't avoid, control, or transfer a risk. Or you might decide that the cost to do so is much greater than the risk exposure you face. In that case, you might rightly decide to retain the risk. That's what we call "acceptable risk." Because there are risks to everything we do, Yoni . Even staying in bed under the covers comes with a certain degree of risk. (Look up bed bugs and dust mites on your own time.) And Finally... Assess the Risk: With every activity or responsibility comes a degree of risk, Yoni . This is true in all aspects of life and all vocational choices. As a license holder, you should be able to look at everything you do and then ACT to lessen Risk!

Protect Yourself from Lawsuits

What are some of the ways a real estate license holder can help to protect themselves from lawsuits? I've got some helpful tips. Errors and Omissions Insurance: Does your company have E&O, which protects agents from accidental legal violations? Who pays the premiums? How much is the deductible? Who pays the deductible if there is a loss? Get familiar with your policy BEFORE you need it. (We will go over this in much more detail in just a moment). Seller's Disclosure: Always get a written seller's disclosure. This is also the seller's opportunity to protect themselves with proof of full disclosure. I cover disclosure pretty thoroughly elsewhere in the course, so I won't repeat myself too much here. Just know that if all the correct disclosures are given (at the correct time, to the correct parties), the risk is reduced that an individual will accuse an agent of misleading them or not giving them enough information. Knowledge of the Laws: Stay familiar with the Fair Housing Act, state licensing code, and antitrust laws. Taking your required continuing education hours is a great way to meet this goal. Arm yourself with knowledge, my friend. If you understand how to do something, it's less likely you'll fumble and make a mistake. This is true when it comes to following office policies, navigating agency relationships, filling out forms and contracts, evaluating offers, and everything else you are learning how to do in this course. Recommend Inspections and Warranties: For your clients who are buyers, explain the benefits of obtaining a property inspection from a licensed inspector before the option period ends. You should also recommend a home warranty to safeguard against other defects. The seller will often cover this warranty. Home warranties are policies that insure household items such as the air conditioner, heater, and large kitchen appliances. Warranties are an effective way to offset risk because these components of a home are often the first to cause problems for a new owner. Homebuyers will often first look to the agent to resolve these problems. Recommending home warranties and requiring the acknowledgment of waivers by the clients is a very effective risk management tool. Good Record Keeping: Leave a paper (and/or) electronic trail! Records show that you have complied with various laws and requirements. And, of course, some documentation is specifically required by law. Let's look at some important types of record keeping: . Office manuals: These spell out company policies and procedures so that everyone is on the same page about how to handle transactions, funds, referrals, and other day-to-day parts of the business. An office manual can prevent problems by offering clear explanations and expectations. . Standard forms: Hopefully, your brokerage will use lots of standard forms. Standard forms are written by lawyers, and protect agents from committing the unauthorized practice of law. How, you ask? Well, if a lawyer prepares these forms, and the agent simply fills them out, the agent is not creating, writing, or in any way participating in legal matters. It's all in the realm of the lawyers, as it should be. . Communication records: These are records of who said what to whom, when. Always keep copies of emails, and mailed, and faxed communications. When it comes to phone or in-person conversations, take notes, write them up later, and send them to the other party. Keeping good communications records is a best practice because if a party disputes what has been said, you can whip out the appropriate record. Boom, dispute resolved. . Transaction records: Most states require transaction records be kept after closing or termination for a certain number of years (usually in the three-to-five year ballpark). Transaction records are things like listing agreements, offers, contracts, closing statements, etc. . Accounting records: I will go into this big-time in the next few chapters. For now, know that there are very specific requirements for escrow records. . What else?: It depends on state or local laws or regulation, as well as your brokerage's policy, but you might also need to hold onto advertising materials, training materials, compliance records for continuing education, etc. Recap of How to Avoid a Lawsuit: . Work in a brokerage covered by Errors and Omissions insurance . Obtain a written seller's disclosure . Be knowledgeable and continue to educate yourself . Recommend inspections and warranties . Keep good records

Quiz Level 23 b) The National Association of REALTORS. The National Association of REALTORS® created the Code of Ethics. It was adopted in 1913. NAR reviews it annually to keep it up to date.

What is the name of the professional organization that created the Code of Ethics? a) The World Association of REALTORS. b) The National Association of REALTORS. c) The Texas Association of REALTORS. d) The National Board of Real Estate Brokers.

c) CAN-SPAM Act. The Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act all aim to protect business competition.

Which of the following is NOT a piece of legislation that protects business competition? a) Federal Trade Commission Act. b) Sherman Antitrust Act. c) CAN-SPAM Act. d) Clayton Act.

Quiz Level 23 a) Trade. The T in the "ACTOR" risk evaluation process stands for transfer, not trade.

Which of the following is not part of the "ACTR" risk evaluation process? a) Trade. b) Avoid. c) Control. d) Retain.

Quiz Level 23 b) they are bid rigging. Bid rigging is when competitors conspire and coordinate to choose the winner of an auction. Bid rigging allows competitors to control auction prices and is another per se antitrust violation.

Will McFarland and Ja Rule are real estate agents. They attend a foreclosure auction and are interested in the same two houses. To keep the prices low (and the cash in their pockets) they agree to bid on separate houses and set a price before the auction begins. Which of the following is NOT true? a) they are engaging in illegal activity. b) they are bid rigging. c) they are violating antitrust law. d) they are organizing a group boycott.

Market or Customer Allocation: Let's Recap

You learned that: . Just because Napoleon divided and conquered does not mean that you should. . Market or customer allocation is an antitrust violation. As we start to tie-up this chapter, let's dive in to tie-in agreements.

Facts of a feather b) price fixing.

"Broker Bob, would you like to make more money? I would like to make more money. Let's stop doing discounts for first-time customers. You tell your agents and I'll tell mine." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Tina, Jim, and Harry

Let's consider the case of Tina, Jim, and Harry. . Tina is looking to buy a new home. . Jim is Tina's agent and is helping her buy a new home. . Harry is a mortgage lender. Jim and Harry are friends. Jim promises Tina a 20% commission reduction if she agrees to use Harry's lending services. Harry's prices are pretty high, but Tina decides to do business with Harry anyway to get the discount. Jim gets a cut from Harry for bringing Harry more business. While this might seem like an okay deal to Tina (Jim is lowering his commission rate, after all), she ends up spending more money in the long run because her mortgage has a much higher interest rate than most competitor mortgages. This tie-in agreement between Jim and Harry inhibited open competition, to Tina's detriment.

Facts of a feather a) group boycott.

"Can you believe Cheap Realty and their prices? They are driving us out of business. Let's say bad things about them so people will stop going there." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather b) price fixing.

"Hey, fellow broker! Let's make sure that all the other brokers don't accept less than a 7% commission." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather a) group boycott.

"I really don't like Lender Larry. Hey, other agents and colleagues, let's stop sending business his way, mmmk?" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather d) market allocation.

"I'll take the north side of town and you take the south!" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather c) tie-in agreement.

"I'm happy to be doing business with you! We use Ticor Title Company, so FYI, that's who you'll need to use." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather d) market allocation.

"Why don't we divvy up the neighborhoods between the three of us?" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather b) price fixing.

. "Broker Bob, would you like to make more money? I would like to make more money. Let's stop doing discounts for first-time customers. You tell your agents and I'll tell mine." . "Ugh, I hate capitalism. Marv, other broker whom I see casually at parties, why don't we raise prices for our services?" . "Hey, fellow broker! Let's make sure that all the other brokers don't accept less than a 7% commission." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Group Boycotts

A group boycott is an agreement between two or more competitors to NOT do business with another competitor for the purpose of inducing the other competitor to change its business practices or fail altogether. Group boycotts, like price fixing, are also a per se antitrust violation. One example of a group boycott in real estate would be if a group of full-service brokerage firms agreed NOT to show the listings of a new discount brokerage. Consumers would be harmed by this practice - the selection of homes shown to them would be unnecessarily reduced and limited. Many consumers might not even know more affordable homes exist in their area!

Quiz Level 23 a) market or customer allocation. A violation of antitrust law in which competitors agree to portion the market amongst themselves is called market or customer allocation.

A violation of antitrust law in which competitors agree to portion the market amongst themselves is called: a) market or customer allocation. b) TCPA violation. c) a group boycott. d) price fixing.

Chapter 3: What Is Antitrust?

After completing this chapter, you will be able to: . Define antitrust. . Explain why antitrust legislation exists. . Identify the importance of an open market. . Analyze how activities like price fixing, market or customer allocation, and tie-ins apply to antitrusts. Why It Matters: As a licensee, you and your brokerage will be working closely with other agents and brokerages - it's inevitable! While it is always good to make new friends and interact with your fellow licensees, you will need to understand what activities are prohibited under antitrust law so you don't unintentionally collude or price fix (more on these later). Antitrust violations have heavy fines and penalties, so you'll need to know exactly what to say (and what NOT to say) to keep yourself - and your brokerage - in the clear. Key Terms: . antitrust laws . per se violations . collusion . price fixing . group boycott . market or customer allocation . tie-in agreement

The Takeaway

As a licensee, you will have to answer to antitrust law. But it's difficult to answer to antitrust law if you don't know all of that fancy jargon about collusion, price fixing, market allocation, etc. Now that you know the jargon, you'll be able to digest the legislation and apply it to your practice. In Chapter 3, you learned: ✅ What antitrust law is. ✅ Why antitrust legislation exists. ✅ Why an open market is important. ✅ How activities like price fixing, market or customer allocation, and tie-ins apply to antitrusts. I put my trust in you and you did not let me down, Yoni ! Let's move on to some specific antitrust laws and their penalties.

General Liability Insurance

Before we move on from insurance, I want to quickly cover general liability insurance. General liability insurance protects the company's assets in the event that someone gets injured on company property. It's NOT intended to specifically cover employees (from wage loss or on-the-job injury) and it's not a substitute for auto insurance to cover crashes related to property viewings.

Group Boycotts: Let's Recap

Boy, you caught me! I was getting a little too excited about boycotts. You learned that: . Boycotts are agreements between two or more competitors. . Boycott agreements are made with the intention of changing business practices. . Boycotts are illegal and a no-go in real estate. Let's keep moving and talk about market or customer allocation!

Famous Boycotts

Boycotts are not okay in the world of real estate because they inhibit open competition and hurt consumers, but boycotts can be put to good use. For example, you probably remember learning about the Montgomery Bus Boycott, where Black customers of the Montgomery, AL public transit system boycotted the city's buses to protest segregated seating. This was a boycott - an agreement between two or more people to NOT do business with a company for the purpose of inducing change in business practices - but it was a boycott working for the people, not against the people. All this to say, Yoni , that boycotts, much like bad romantic comedies and ugly Christmas sweaters, have their place. It's just important to remember that place is NOT in the world of real estate.

The Takeaway

Congrats on being a little more ethical than you were when you began this chapter (maybe)! And look at you - you've explored some messy situations and learned how NAR can help you navigate them! In Chapter 1, you learned: To discuss the importance of law, ethics, and morals in real estate practice. ✅ To explain the purpose of the National Association of REALTORS® Code of Ethics. On to Chapter 2, where you'll learn about risk management!

Divide and Conquer?

Dividing and conquering worked well for Napoleon, but it's not a best practice in real estate. A violation of antitrust law in which competitors agree to portion the market amongst themselves is called market or customer allocation. This is a per se antitrust violation. If one broker talks to another broker about divvying up real estate territory, even if it makes sense geographically, they are breaking the law. Territory should never be divided and people should never refuse clients because they are in another brokerage's "area." For example, let's say that there are four major brokerages in Brokertown. These four brokers get together and cut a deal with one another to divide Brokertown into designated areas they will each service: . Broker A gets North Brokertown . Broker B gets South Brokertown . Broker C gets West Brokertown . Broker D gets East Brokertown Isn't it nice that these brokers are able to share? 😊 Well, not quite. 😩 The four Brokertown brokers might be playing nicely, but that doesn't really work out for consumers; they won't be able to be serviced by the brokerage of their choice. For example, in this scenario, let's say Will, a seller in East Brokertown, would prefer to work with Broker B because Broker B has a more competitive commission rate. Will wouldn't be able to do so because of the unofficial backdoor deal made amongst the brokers. Through market allocation, business competition in Brokertown is suppressed and, as a result, the consumer suffers.

Blackbeard: A Tale of Rigging

For example, let's consider Blackbeard (a pirate who also sells real estate as a side hustle), who wishes to invest in real estate. He hopes that real estate investments and commission revenue will earn him enough of a return to replace the rigging on his beloved ship, Queen Anne's Revenge. Blackbeard decides to purchase a home for sale in a foreclosure auction. He chooses three fixer-uppers he likes and attends a real estate auction. But before the auction starts, Blackbeard conspires with two other agents at the auction. They agree on a low price for the home Blackbeard wants and, in exchange, Blackbeard agrees to NOT bid on the two other houses to keep prices low for the other agents. But, unbeknownst to Blackbeard, Robert Maynard (Blackbeard's nemesis) is also at the auction. He overhears Blackbeard conspiring with the other agents and he turns all of them in. Blackbeard and the other agents will now have to pay the penalties. (Good thing Blackbeard has quite a bit of buried treasure, huh? ⚓️)

Do the Right Thing

It's all about doing the right thing, even when no one is looking. Follow your moral compass, and keep a copy of the NAR Code of Ethics nearby as reference material. Clients and Customers: If you work and act in an ethical way, clients and customers will respect that. If you earn their respect, those people will sing your praises in the community and more business will come to you. Remember OLDCAR? You owe your clients fiduciary duties. However, with both customers and clients, you must deal honestly and fairly. NAR Consequences: The National Association of REALTORS® has a list of consequences for violations to their Code of Ethics as well, which can include: . Letter of Warning . Letter of Reprimand . Required education . Appropriate and reasonable fine . Member put on probation . Membership suspended . Expulsion And Remember: Keep in mind, not all license holders are Realtors, so not all have to adhere to this Code. But almost every state has developed laws that parallel what the Code of Ethics says.

Why Do Any of This?

Life is choices, Yoni . We choose how we want to behave. Consider how our approach to behavior differs with regard to law, ethics, and morals: . Why behave lawfully? Because if we don't, we could be incarcerated, pay monetary damages, and have a criminal record. . Why behave ethically? Because a group to which we belong (e.g., society, professional industry) has deemed it as "the right thing to do." . Why behave morally? Because our personal values compel us to behave in a way that we deem as being right. In essence: because our conscience tells us to. Ethics and Real Estate: A home is the biggest purchase most people will ever make in their entire lives. Think about that. This is the primary investment for the majority of people. As real estate agents and brokers, you are there to facilitate that investment. The general public places a certain amount of trust in real estate professionals, so it is absolutely vital that you are held to a higher standard of ethics.

Quiz Level 23 a) price fixing. Price fixing is any effort made by competitors to jointly establish a fixed rate, price, or commission and it is considered an antitrust violation. It occurs when competitors agree to do things like standardize commission rates.

Linus, Charlie, and Lucy are all agents in Crawlington. They agree to set their commission rates in the same range to even out the playing field (and hopefully earn each of them a higher commission). What illegal activity are Linus, Charlie, and Lucy engaging in? a) price fixing. b) group boycotts. c) illegal telemarketing. d) illegal email advertising.

Quiz Level 23 c) Yes. It was a mistake (not intentional), and Logan reported the call to his boss ahead of any lawsuit. Most likely, errors and omissions insurance will cover Logan's error, since it was a mistake, and not intentional fraud. Plus, he let his boss know ahead of any lawsuit.

Logan is an agent. Recently, he sold a house to Alan. Today, Alan calls Logan and complains about termites. While Logan checked the house for history of bed bugs, he forgot to check for history of termites. Logan immediately tells his boss about the call. Will E & O insurance cover any lawsuit? a) No. E&O insurance only covers intentional acts, like fraud. b) No. E&O insurance only covers apartments. c) Yes. It was a mistake (not intentional), and Logan reported the call to his boss ahead of any lawsuit. d) Yes. It was a mistake (not intentional).

Setting Listing Lengths

Ok! We'll finish this chapter by talking about a few more violations: setting listing lengths and bid rigging. Setting a listing length occurs when brokers attempt to control the length of time listings can stay active. This, like all antitrust activities, inhibits free and open competition. Setting listing lengths is a per se antitrust violation. For example, let's say Larry, a broker, lists three houses that have been on the market for six long months. The sellers just want to sell the houses, so they lower the prices for the homes. Bert, a different broker, doesn't like that the low home prices are steering his buyers towards low-priced homes (he wants a bigger commission!) so he tries to prohibit listings that are more than two months old. Well, Bert, that is a big mistake and a no-go in the antitrust world. As I said before, setting listing lengths inhibits free and open competition and hurts consumers by limiting their choices.

Level 23: Ethical Real Estate Practice

Practicing real estate can be tricky. In this level, you will learn some of the challenges of making decisions and determining the ethical thing to do in morally complex situations. Objectives: By the end of this level, you will be able to: . Explain the responsibility of brokers and salespersons in practice, and identify best practices to ensure compliance and reduce liability. . Describe best practices for the handling of real estate transaction monies as it applies to trusts, escrow accounts, and earnest money transfers. Overview: This level is approximately two hours long, which is the amount of time it takes to watch four Fresh Prince of Bel-Air reruns back-to-back. 🎶 In west Philadelphia, born and raised... 🎶 There are five chapters: Chapter 1: Introduction to Ethics Chapter 2: Risk Management Chapter 3: What Is Antitrust? Chapter 4: Antitrust Legislation and Penalties Chapter 5: Trust Accounts

Quiz Level 23 a) any effort made by competitors to jointly establish a fixed rate, price, or commission and is considered an antitrust violation. Any effort made by competitors to jointly establish a fixed rate, price, or commission and is considered an antitrust violation is known as price fixing.

Price fixing is defined as: a) any effort made by competitors to jointly establish a fixed rate, price, or commission and is considered an antitrust violation. b) any act that is considered inherently illegal. c) an unlawful agreement between competitors to monopolize a market, disadvantage other competitors, or undertake activities violating fair trade laws. d) any legislation aimed at preventing unfair trade practices and monopoly, including collusion, price fixing, and allocation of markets.

Answer 1: Bart should say, "Unfortunately, Lisa does not want to work with anyone from Springfield Firm. It's confidential as to why I have to act at the direction of my client."

Question 1: Bart, a Realtor, is a listing agent for Lisa. Lisa's friend had a bad experience with a different brokerage, Springfield Firm. As such, Lisa wants nothing to do with any buyers represented by Springfield. A Springfield buyer's agent calls Bart about Lisa's home. What should Bart say?

Avoiding Price Fixing

Some seemingly innocent conversations can lead you down the path of violation. ALWAYS avoid: . Any discussion of prices. . Any discussion of commission rates. These discussions could happen anywhere: in business meetings, at social gatherings, or even in line at your local McDonald's. Keep in mind that being present during the discussion is dangerous, even if there is no overt or express agreement. Outside of actual negotiations, it's safest to just avoid that type of conversation altogether, with anyone, at any time. 🚫 Price Fixing vs. Open Competition: American consumers have the right to expect the benefits of free and open competition, which implies the best goods and services at the lowest prices. Public and private organizations often rely on a competitive bidding process to achieve this end. The competitive process only works, however, when there is competition and prices are set honestly and independently. Illegal Everywhere: Price fixing isn't just illegal amongst competitors. It is also illegal amongst professional associations. No one is above the law! The national, state, or local Board of REALTORS® and state government agencies can't do things like set a uniform commission rate.

Quiz Level 23 a) up to three times the damages they incurred. The Clayton Act also states that, if a party sues another party, they are able to claim up to *three times* the damages they incurred, plus and court and attorney fees.

The Clayton act allows a party to claim court and attorney fees, as well as: a) up to three times the damages they incurred. b) up to five times the damages they incurred. c) up to two times the damages they incurred. d) up to four times the damages they incurred.

Quiz Level 23 b) a conditional agreement offering a desired product or service ONLY on the condition that the party agrees to purchase a second product or service. A tie-in agreement is a conditional agreement stipulating that a product or service desired by a party will be offered ONLY on the condition that the party also agree to purchase a second product or service. Next Page

The antitrust violation known as a tie-in agreement is defined as: a) any effort made by competitors to jointly establish a fixed rate, price, or commission. b) a conditional agreement offering a desired product or service ONLY on the condition that the party agrees to purchase a second product or service. c) an agreement between competitors to NOT do business with another competitor to induce the other competitor to change business practices or fail. d) when competitors agree to portion the market amongst themselves.

The NFL Takes on Real Estate

Time for a few examples of price fixing! Let's say Matthew Stafford and Aaron Rodgers are real estate agents (they decided to take a break from the NFL) and they decide, together, to set their commission rates at a ridiculously high 50%. Matthew and Aaron are the only brokers in the small town of Petoskey, so when Tom Brady wants to buy a house in Petoskey, he doesn't have many options. He buys a house and pays a 50% commission because he has no other option. If Matthew and Aaron hadn't engaged in price fixing, Tom could have gone to Matthew, found Matthew required a 50% commission, and then brought his business to Aaron. Matthew would then have had to lower his commission rate in order to stay competitive.

Facts of a feather d) market allocation.

"I'm sorry, sir, but I don't take customers from that side of town. Go to Broker María; she'll help you out. That's her territory." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather c) tie-in agreement.

"So for the home inspection, you'll be using Phil Ye. He does all our home inspections." a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather a) group boycott.

"That advertising firm is way too expensive. We should all stop using them, don't you think?" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Facts of a feather b) price fixing.

"Ugh, I hate capitalism. Marv, other broker whom I see casually at parties, why don't we raise prices for our services?" a) group boycott. b) price fixing. c) tie-in agreement. d) market allocation.

Chapter 1: Introduction to Ethics

After completing this chapter, you will be able to: . Discuss the importance of law, ethics, and morals in real estate practice. . Explain the purpose of the National Association of REALTORS® Code of Ethics. Why It Matters: When faced with a sticky situation, how will you respond? And who will you listen to, when there is a chorus of voices inside your head (fellow agents, your broker, your mom, whoever) all offering contradicting advice? Never fear - I have guidelines for you. This chapter will give you some nice, sturdy rules that you can apply in a variety of circumstances. Key Terms: . ethics

Chapter 4: Antitrust Legislation and Penalties

After completing this chapter, you will be able to: . Discuss the purpose of the Sherman Antitrust Act . Identify who enforces this act . List the penalties incurred for violating antitrust legislation Why It Matters: Okay, so you know what the main antitrust activities are (throwback to group boycotts, market or customer allocation, and the like from the last chapter!), but licensees will need to know what specific acts prohibit these activities and what the penalties are for violating them. Key Terms: . Sherman Antitrust Act

Chapter 2: Risk Management

After completing this chapter, you will be able to: . Understand ways agents open themselves to risk. . Implement ways to reduce your risk as an agent. Why It Matters: Risky Business isn't just a Tom Cruise movie, Yoni . Real estate is the original risky business: There's a lot of money involved, a lot of rules, and a lot at stake. It shouldn't surprise you to know that real estate is particularly litigious. Don't fear, though - forewarned is forearmed. The more you know ahead of time, the less likely you are to mess up. So, let's learn about the common risks in practicing real estate - and how to reduce them! Key Terms: . liability

The Big Three: Antitrust Acts

Antitrust laws started becoming a big issue in the late 1800s as gilded-age "robber barons" used their wealth and power to create monopolies. The government thought it was a good idea to step in and create laws to help promote healthy competition, and thus the Sherman Antitrust Act was born. When this didn't stop people from skirting the laws and doing whatever they wanted, Congress passed two additional laws in 1914: . The Federal Trade Commission Act . The Clayton Act But both the FTC Act and the Clayton Act overlap with their parent law, the Sherman Antitrust Act. Usually, when you are guilty of something from the FTC or Clayton, you are also guilty under Sherman. Because of this, we're going to focus on the main restrictions outlined in the Sherman Antitrust Act. Who knows, maybe I'll even introduce you to Sherman at the end of the level (your buddy Ace has connections). 😉

Article 16: Respect Existing Agreements

Article 16 says: 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. This article refers to contacting someone who already has an exclusive representation agreement with another Realtor. Do NOT attempt to steal away someone else's clients. Of course, it's possible to contact a potential client (who is already represented by someone else) on accident. A license holder could be farming for listings and mail some advertising literature to an entire neighborhood. If some of the homes in that area were already listed, then the owners may have shared the information with their listing agents. A sales agent who already secured the listing may jump to the conclusion that the mailing only went to their client's address and that the license holder who sent out the ad was trying to steal away the client. Of course, there's a way to clear up confusion in this kind of situation. Rather than automatically filing a complaint under the Code of Ethics, the agent who felt that their client was being stolen should try to get clarification from the other agent first. Check the MLS: To avoid the situation altogether, take a careful approach if you do choose to send mailers out to a neighborhood. Remove any addresses for which the home is already listed. You can do this by entering the name of the subdivision into the Multiple Listing Service and finding out which homes are already on the market. You've gotta be careful out there, Yoni . Clients Who Don't Disclose: You could even be accused of working with someone else's client because the client contacted you and failed to mention that they already had representation. The client may be unsatisfied with their current agent and seek out another without properly terminating their first representation agreement. Or the client may not even know that they are not supposed to contact other agents. Scenario: Avoiding Confusion: An owner is frustrated that their home has not sold yet, but notices that a certain agent in town has been showing the property more than any of the other agents have. The owner of the home contacts this agent and asks if she would like to list the property. The license holder that the seller contacted should say that she cannot do it at this time, but if the home doesn't sell by the end of the listing period it is currently under, she would be happy to help then. This may cause the owner to cancel his listing with the first agent so that the new agent can have the listing next. The best way to avoid confusion and a possible complaint would be for the second agent to send an email to the first one explaining what happened in their conversation with the homeowner (with approval from your broker of course). It's good to include a statement that you have no intention of taking over the listing while there is a contract in place.

The Takeaway

As a licensee, you will have to answer to antitrust law. There's no way around it! In Chapter 4, you learned: ✅ The purpose of the Sherman Antitrust Act and who enforces it. ✅ The penalties incurred for violating antitrust legislation. Only one chapter left! After we learn about trust accounts let's call it a day - sound like a plan, Stan? (I know your name is not Stan.

Ace Study: Dawning of a New Error

Before we end this chapter, let's work our way through one more scenario. The Cast: Dawn: A new sales agent trying to make her way in the world. Harold: A cranky old broker. The Story: Dawn, a brand new agent fresh on the scene, decided to market herself through the mail to a large subdivision so she could (hopefully) get some listings. She sent a promotion of herself to every home in the subdivision without checking to see if some of the houses were already listed. It turned out that some of the homes were listed with other real estate companies. Harold, a longtime broker of a company where one of the houses is listed, called Dawn to yell at her. Harold accused her of attempting to steal away their clients and told her that she was violating Article 16 of NAR Code of Ethics. The Discussion: So did Dawn actually violate the Code of Ethics? No, she did not. 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 canvas, 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. If Dawn had specifically mailed fliers only to houses that were already listed, that would be a violation. But what she did was completely legal. Harold was in the wrong in this situation.

Bid Rigging

Bid rigging occurs when competitors conspire and coordinate to choose the winner of an auction. Bid rigging allows competitors to control auction prices and - you guessed it - is another per se antitrust violation. As a licensee, you would be most likely to see this in the foreclosure market. It might look like one agent persuading another not to bid on a certain house, or coordinating bids to keep prices down. If any discussion of auctions comes up between you and another agent, see your way out of that conversation as quickly as possible.

Quiz Level 23 a) True. Commission rates must always be negotiable between brokers and clients - it's the law!

Commission rates between a broker and a client must always be negotiable. a) True. b) False.

Standards of Care

E&O insurance carriers will often evaluate a brokerage in relation to their compliance to standards for care and conduct. If they're going to insure you, they want to know how well you comply with certain rules. These standards come from the following, in order of their level of importance: . Statutory law. . Common law. . Public regulation. . Specific promises, representations, or information supplied between the parties. . Particular actual experience and skills of the professional converged with handicaps and/or inabilities of the client or customer. . General industry practice. . Standards from private trade associations (for example, the National Association of REALTORS®). . Common sense (my personal favorite). . Felt community morals or sense of justice. . Other areas of influence. These standards of care are useful to know about, as you can see all the different areas in which you should strive for compliance.

E&O Insurance

Errors and Omissions insurance protects agents and brokers in the event of accidental legal violations. These accidents can include mistakes and failures to complete required tasks (negligence). Note: Errors and Omissions insurance is NOT protection for intentional wrongdoing. Insurance Just Makes Sense: You have car insurance, right? In professional real estate practice, particularly residential sales and management, a license holder's odds of being claimed against are greater than those involved in an auto accident and greater than those of their house burning down. One normally has insurance in the event of such catastrophes, so it would make sense for a broker to maintain an E&O insurance policy for the brokerage's protection and require that its license holders also maintain such coverage as well. If a party sues, they are likely to try to sue the brokerage, the sales agent, the title company, etc. How It Works: When a letter or call comes into the office about an unhappy client or customer, the broker needs to be informed immediately. If a sales agent is the one to receive the call and fears telling their broker about the conversation, they should be advised that concealing this is not a good idea. Tell the truth and protect everyone! Here's the thing: If the lawsuit is filed first before the errors and omissions insurance company is informed, the insurance company will not step in and help. Their assistance is only available prior to the court case. Errors and omissions insurance protects against mistakes, or errors, someone might make, like quoting the square footage of a home incorrectly. And in the case of an omission, it's possible an agent might accidentally leave something out that should have been disclosed. We're all human, after all. (Well... except me. I'm a full-fledged robot, and hey, I'm proud of it.) One possible example of an omission would be something like an agent forgetting to tell the buyer that a portion of the lot was in the flood zone. That's a big omission. 😮 But alas... please remember: This policy will not cover any type of fraud or any other act that was performed intentionally.

Ethics

Ethics are standards of conduct agreed upon and recognized by a particular group or culture. For example, there are business ethics that pertain to the corporate world. Doctors have a standard of ethics that shape their behavior as doctors. While laws dictate the bare minimum level of acceptable behavior, ethics dictate what is considered acceptable at a higher level. We obey laws because if we don't, we could be incarcerated and/or held financially liable. We behave ethically, however, because it is the right thing to do, whether by society's standards, or by the standards of our industry, or by the standards of whatever group we belong to. Ethics depend on the opinions of others for definition and consensus. Ethics for License Holders: As a real estate agent, you'll need to not only follow the laws, but you'll also need to adhere to the codes of ethics agreed upon by your industry. If you belong to an organization like the National Association of REALTORS®, there are consequences for failing to adhere to their Code of Ethics. Consequences for violating these published codes of ethics can include disciplinary action, loss of membership, suspension or loss of real estate license, as well as potential litigation.

Boycotts and Advertising

Group boycotts could also be against an entity other than a broker, such as a website, newspaper, or advertising firm. If two or more agents or brokers talk about how they don't like the prices of their advertising firm, decide not to use them anymore, and persuade several other agents not to use them either, that is a group boycott and a per se antitrust violation. Brokers should not collectively reduce their advertising, or refuse to advertise altogether, in order to force a publication to lower its advertising prices or change its policies. This kind of boycotting would impede the freedoms of an open market, as agents and brokers would be setting advertising rates instead of factors like supply, demand, and the publisher itself.

Trust Accounts in Real Estate

In the real estate world, a trust account wouldn't be used for transferring brownies. Trust accounts would be used for things like holding security deposits for property managers or earnest money while a transaction is waiting on approval. What's the Point? The purpose of trust accounts is to provide an account that is separate from operational or personal accounts in which to maintain and account for transaction-related funds. Aliases: It should also be noted that trust account and escrow account can be used interchangeably. This account may also be called a custodial trust. In this chapter, I'll be using the term trust account. But all names represent the same account: An account that holds something (an asset) on behalf of one party until a transaction is completed and that something can be given to the other party. Fiduciary Duties: Trust accounts are good safeguards. They help make sure that license holders fulfill their fiduciary duties (give it up for OLDCAR!), because they don't get any money from the trust until the transaction has gone through. Location: Usually, a trust account is opened in a bank in the same state in which the licensee resides.

Quiz Level 23 a) utilizing an illegal tie-in agreement. A tie-in agreement is a conditional agreement stipulating that a product or service desired by a party will be offered ONLY on the condition that the party also agree to purchase a second product or service.

Jekyll (an agent) and Hyde (a mortgage lender) are best friends. Jekyll wants to help Hyde get business so Jekyll offers a lower commission if clients agree to use Hyde for their mortgage. Jekyll may be guilty of being a good friend, but what else is he guilty of? a) utilizing an illegal tie-in agreement. b) agreeing to an illegal market or customer allocation plan. c) organizing and illegal group boycott price fixing with his competitors. d) price fixing with his competitors.

All Is Fair in Love and Lemonade

Let's consider another close-to-home example. Sally is an ambitious seven-year-old girl who has always dreamed of running a lemonade stand on the street in front of her house. To make her dreams come true, she goes to her local grocery store, buys as many lemons as she can carry, and hand squeezes the most delicious lemonade known to man. (This is quite a feat, as the lemons are very large and Sally, being a seven-year-old, has very small hands.) Sally sets up shop on the street in front of her home, advertising her freshly squeezed lemonade - only $1.00 a glass! But, little does she know, Zeke From Down the Street was spying on Sally. He likes her idea and decides to set up his own lemonade stand, just four houses down. But Zeke's lemonade is only $0.75 a glass. To Sally's dismay, all of her neighbors flock to Zeke's stand. "Sorry, Sally," Miss Maple says as she rolls past with her walker. "I have to get the most bang for my buck, ya know?" But Sally won't go down without a fight. When the afternoon rush subsides, she goes over to Zeke's stand. They agree to set their lemonade prices at a whopping $2.75 per glass. Zeke will no longer have the most competitive price, but they'll both make more money. The Moral of the Story: Sally and Zeke are price fixing at their lemonade stands. They are inhibiting free and open competition, hurting their friendly neighborhood consumers. Obviously, antitrust laws won't prosecute Sally and Zeke and throw them in jail (that would be a bit extreme, they are only seven). Licensees guilty of price fixing, on the other hand, won't be so lucky.

Liability

Let's get this party (I mean chapter) started with some straight talk about liability, which is the state of being responsible for something. As an agent, you're gonna have a lot of liability (as in, there are a lot of things that, if you mess them up, you can be held legally responsible). It's probably the biggest thing you have to worry about. So let's talk about liability and what agents can do to minimize it and keep themselves safe. Why Learn About Liability?: Just as it is best to obey speed limits when you drive, the best way to avoid disaster in professional real estate practice is to know the rules and follow them consistently. However, an unfortunate fact of the matter is that real estate professionals work in an environment that lends itself to lawsuits. The following reasons help explain why you could be vulnerable to others taking legal action against you: . Lots of money is involved. When thousands (and hundreds of thousands!) of dollars are at stake, people are less likely to "just let it go" if they feel that they have been wronged. . Agents have a lot of details to keep straight. We're talking multiple clients, calendars full of important dates, and loads of legal documents. Sometimes things fall through the cracks or errors are made. . There are a lot of important boundaries that license holders must not cross. That means you should always act according to your fiduciary duties and never give legal advice that you're not qualified to give. Vicarious Liability: We've already talked about this in the course, but remember: Brokers are vicariously liable for the license holders that are employed under them. Vicarious liability makes one liable without wrongful intent and even though they did not commit the actual, physical act or omission that directly generated the damage. If you have a child, it's kinda like when you have to apologize for them making brutally honest observations in public. 😳 In addition, this type of liability is present in liability at law by reason of marriage. For example, in states where community property laws prevail, one spouse is responsible for the acts of the other spouse on personal service contracts such as listing agreements or buyer representation agreements.

The Golden Rule

Let's take a closer look at a selection from the preamble of the Code of Ethics to get a better sense of its mission: The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal. In the interpretation of this obligation, REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, "Whatsoever ye would that others should do to you, do ye even so to them." While the NAR Code of Ethics goes above and beyond the scope of the law, it contains nothing that would go so far as to harm the public (or your clients). There is also not anything in the code that would cause the sales agent to make less money. What the Code of Ethics DOES aim to do is guide agents and brokers in situations that can be ethically tricky — thereby, hopefully, preventing complaints from clients and customers. Remember the Golden Rule upon which the Code of Ethics is based: Treat others the way you wish to be treated.

Article 3: Cooperation with Other Brokers

Let's take a closer look at three notable Articles in the NAR Code of Ethics and how to avoid complaints under these. All license holders (whether Realtors or not) can benefit from learning from the mistakes of others. This can help you become a better agent! Article 3 says: REALTORS® shall cooperate with other brokers except when cooperation is not in the client's best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. When might this happen? Let's look at a situation in which the seller-client tells the listing agent that the owner does not want the listing company to cooperate with a particular company. The first time this happens to a license holder, they may not know how to respond. But Article 3 requires Realtors to cooperate with the other broker, with one exception. The exception is that a Realtor does not have to work with the other office if it is not in the client's best interest to do so. Some license holders would consider it always in the best interest of the client to work with any other license holder. What is the license holder to do? The most likely way you will convince a client to allow cooperation is by explaining that the more exposure their property has in the market, the better chance there is of meeting or exceeding the contemplated price. Remind them that it's good to have as many eyes as possible on the property. It's compelling advice. But at the end of the day, the agent must respect the client's wishes. As always, the client's interests come first. How to Respond: So when the other broker calls the listing agent to show the property, the listing agent will have to say, "I'm sorry, but the owner has asked me to avoid cooperating with anyone from your office." The question may come up as to why. You should always respond with, "It's confidential." The listing agent should follow up the phone conversation with an email restating what was said in the phone call. Make sure you clearly convey that you are acting at the direction of the client and complying with their wish not to cooperate with the other office and not your own preference as the listing agent.

Significant Court Cases

Let's talk about some antitrust court cases! . United States v. Standard Oil (1911): In this case, the Sherman Antitrust Act was applied, and Standard Oil, which enjoyed a huge percentage of the market, was forced to break up into 34 companies. . McLain v. Real Estate Board of New Orleans, Inc. (1980): In this case, the Supreme Court decided that real estate commission price-fixing was within the scope of interstate commerce, and therefore sufficient to be challenged under the Sherman Antitrust Act. . United States v. AT&T (1984): AT&T is the oldest telecommunications company in the country. Many smaller companies were unhappy about this, and claimed that AT&T was a monopoly. The case was settled so that AT&T agreed to break into seven different companies. . Moehrl v. The National Association of Realtors (2019): This recent class action lawsuit alleges that NAR plus some of the biggest real estate firms in the country conspired to require that home sellers pay inflated brokers' commissions when listing a home on the MLS. The complaint points to the NAR rule that requires all brokers to offer buyer broker commissions when listing a property on MLS, and alleges that this rule drives up costs to sellers and restrains price competition among buyer brokers. As of early 2019, nothing has yet been decided on this case.

Common Pitfalls

Now that you know how common Errors and Omissions are in real estate lawsuits, let's take a look at what agents and brokers are most likely to goof on: . Negligence in determining or stating quality, condition and repair (latent defects, valuation, size, wrong lot, zoning, HOA, title claims, etc.) & negligent non disclosures. . Agency (breach of fiduciary duties) claims. . Short sale specific malpractice (often negligence). . Fraud or intentional non-disclosure. . Statutory claims (business practices, RESPA, etc.). . Breach of contract (covered varieties).

License Holder vs. Realtor

Now that you understand these more abstract concepts, let's get down to nuts and bolts. We'll spend the rest of this chapter talking about the National Association of REALTORS® Code of Ethics. Real Estate Associations: Getting a real estate license does not make someone a Realtor (also written as REALTOR®). That person would simply be called a license holder. However, most real estate professionals join a board of Realtors, such as the National Association of REALTORS® or the Georgia Association of REALTORS® (GAR). They make the move to become a Realtor because they see the value in belonging to an organization that provides so many benefits. There are two groups who are less likely to become Realtors: . License holders who work in a rural area where the board does not exist or is too far away 🌵 . License holders who practice commercial real estate. They have their own methods of sharing listings with each other. However, the local board is available to them and some do join it. A Higher Standard: Realtors are different from other real estate practitioners because the Code of Ethics and Standards of Practice of the National Association of REALTORS®* requires a higher standard than the law requires. If you belong to NAR, you gotta follow this code! *Note: That title is a mouthful, so for the purposes of this level, we'll refer to this document as the NAR Code of Ethics. Sound good? 👍

What's Antitrust?

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public. -Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations. So says Adam Smith, an economist sometimes known as "The Father of Capitalism." This quotation expresses the sentiment that when people of the same business get together, they often conspire to work with each other to the detriment of the public. In other words...this quotation presents antitrust sentiments. So, What's Antitrust?: Antitrust laws are legislation aimed at promoting competition and preventing unfair trade practices and monopoly, including collusion, price fixing, and allocation of markets. The most important federal law is the Sherman Antitrust Act. We'll go over that in the next chapter. Antitrust laws were created over a century ago, but they've been continuously updated to reflect the modern business climate. But because these antitrust laws are so old, there have been tons of cases involving antitrust violations. That's why there are such things as per se violations, which are acts that are considered inherently illegal. This is because they've been proven illegal over and over again. Never Collude, Dude: These per se violations are types of collusion. Collusion is an unlawful agreement between competitors to monopolize a market, disadvantage other competitors, or otherwise undertake activities in violation of fair trade laws. Antitrust: Basic Categories: Most behaviors that fall under the umbrella of antitrust activity are forms of colluding and can be more specifically categorized as one of the following: . Price fixing . Group boycott . Market or customer allocation . Tie-in agreements Let's examine each of these behaviors a little more closely. I want to trust you have a good handle on them by the end of the chapter!

Price Fixing Activities

Price fixing is any effort made by competitors to jointly establish a fixed rate, price, or commission, and it is considered an antitrust violation. It occurs when competitors agree to do any of the following: . Raise or fix prices for their goods or services. . Set a minimum price they will not sell below. . Reduce or eliminate discounts. Setting Commission Rates: Nope!: In the world of real estate, price fixing might look like a group of brokers getting together and agreeing to set the commission rates in their area. That's illegal. Commission is the method by which home buyers and sellers compensate brokers and, thereby, agents (you). So by colluding with other brokers to set commission rates at a certain amount, those brokers would be engaging in price fixing. While each brokerage firm is free to determine the commission or fee it will charge clients for services, representatives of the brokerage firm may NOT discuss such matters with representatives of another brokerage firm. That's collusion! Remember: Commission rates must always be negotiable between the broker and their client! Discussing Split Commissions: Yep!: A broker may discuss the amount of a cooperating fee desired from another broker, but only within the context of a specific transaction. For example, let's say Ben and Jerry are agents representing a buyer and seller, respectively. The seller's commission was already determined in the listing agreement, but Ben and Jerry could still negotiate how the commission is split. To do this, Ben and Jerry have to talk about that commission. That conversation is allowed. All the Price Fixin's: It is possible brokerages will have similar pricing or commission structures. This can happen organically because of market conditions, and it is fine and 100% allowable. Similar pricing only becomes illegal, and truly becomes price fixing, when two or more people come together and decide as a partnership/group that they're going to set their pricing and/or commission rates to a specific amount. See the difference?

Quiz Level 23 a) organizing a group boycott. A group boycott is an agreement between two or more competitors to NOT do business with another competitor for the purpose of inducing the other competitor to change its business practices or fail altogether. Next Page

Scrooge does not want to pay the advertising firm in his area; he thinks their prices are too high. Scrooge persuades all of the agents in his area to stop using the advertising firm so the firm will have to lower their prices or go out of business. Scrooge is guilty of: a) organizing a group boycott. b) price fixing. c) establishing antitrust law. d) market allocation.

Crime and Punishment

Sherman Act violations involving agreements between competitors are usually punished as criminal felonies. Penalties: . Individual violators: Fined up to $1 million and sentenced to up to 10 years in federal prison for each offense. . Corporations: Fined up to $100 million for each offense. In addition, violators are subject to discipline by their state license law board. Collusion among competitors may also involve violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes - all of which the Antitrust Division prosecutes. The Clayton Act also states that, if a party sues another party, they are able to claim up to three times the damages they incurred, plus any court and attorney fees. That cost will look different for every case, but it will always be pretty expensive. 💰 Enforcement: But who enforces these costly penalties? The Antitrust Division of the U.S. Department of Justice (DOJ) handles criminal and civil prosecution of Sherman Act violations. To investigate antitrust violation cases, the DOJ may: . Work with the FBI . Monitor calls . Hire informants . Utilize secret listening devices No matter how sneaky you think you may be, Yoni , the DOJ is probably sneakier! 🕵️‍♀️ The FTC also handles civil enforcement action, and private parties can bring lawsuits against persons or individuals to claim the damages they have suffered. What This Means for You: Be careful about what you say. Even if you half-jokingly whisper to your competing agent friend that you dislike another competitor and someone overhears this, you could be found guilty. There's nothing you can do at that point. If you're taken to court, you might not even be given the chance to defend yourself. I know all these rules (and penalties!) might seem a little daunting, but the key to avoiding these violations is simple: Do not ever discuss prices, commission, competitors, or just money in general with other agents from other brokerages. That is the business of your company and your company only. Even though real estate is a tight-knit community with a lot of overlap between competitors, it's important that if you feel like your conversation might be steering you down a path of illegality, hightail it out of there. It might even be a good idea to announce to the people around you that that's the reason you're leaving.

NAR Code of Ethics

The NAR Code of Ethics has been guiding real estate industry practices for many, many years. There have even been a few instances in which courts have used the NAR Code of Ethics as their guide to deciding the outcome for an accused party, even when the accused was not a member of NAR! The Code of Ethics aims to make it a little bit easier for you to make good choices in your capacity as a real estate professional. It demands that you treat ALL parties fairly and honestly — not just those you represent. Recall that the NAR Code of Ethics requires a higher standard than the law requires. However, if the Code of Ethics and the law conflict, the law takes precedence. The Old Kid on the Block: The NAR Code of Ethics was adopted in 1913 to establish a widely held code for conducting business in a proper fashion. Over time, the Code of Ethics has evolved to keep pace with practices and business concepts that may have changed or developed throughout the Code's life span. You may get tested on that 1913 date. Here is a silly memory trick. The Titanic sunk in 1912 (close enough). Think to yourself, "NAR-ver let go, Jack!" Updated Annually: The NAR Code of Ethics must change with the legal issues and practices of the time to remain relevant and maintain its place as the industry standard. To do this, NAR updates it annually. The following information presented in this course was taken from the Code of Ethics and Standards of Practice of the National Association of REALTORS®, effective January 1, 2019. Code Content: The Code of Ethics consists of a Preamble (an introduction) and 17 Articles. These articles cover three main categories of duties: . The first nine Articles are Duties to Clients and Customers. . Articles 10 through 14 are Duties to the Public . Articles 15, 16, 17 are Duties to REALTORS® Some of the Articles are further clarified by Standards of Practice. A Standard of Practice gives an example of how a particular Article has been applied. Summary of the Articles Enjoy! in file (NAR_CodeofEthics)

Sherman Antitrust Act

The Sherman Antitrust Act is a landmark law that was passed in 1890 that prohibits the formation of trusts, or monopolies, in the marketplace. It governs business by regulating anti-competitive conduct to promote fair competition on behalf of American consumers. It also allows the government to prosecute and penalize anyone who violates this act. Actions do have their consequences, Yoni . Compare to RESPA: Remember RESPA? Sure you do. RESPA and the Sherman Act are pretty different, but keep in mind that both protect consumers, and both go after anti-competitive practices. Prohibitions: The Sherman Act prohibits the commerce-restraining activities we talked about in the last chapter: . Price fixing . Boycotts . Market or customer allocation . Tie-ins And any and all activities that restrain and monopolize business. Purpose: But remember that this act exists for one basic reason: . To protect consumers and businesses by creating healthy competition, while keeping prices low and quality high. For this reason, any violations of antitrust laws are taken very seriously. Any activity that even approaches a violation of antitrust laws should be avoided.

Article 12: Issues with Advertisements

The complaint filed most often under the code is regarding Article 12. It says: REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations. REALTORS® shall ensure that their status as real estate professionals is readily apparent in their advertising, marketing, and other representations, and that the recipients of all real estate communications are, or have been, notified that those communications are from a real estate professional. Of all things, there have been quite a few Realtors who have gotten themselves into trouble for failing to disclose the name of their real estate company and/or their professional status as a Realtor in advertisements, which they were using for farming for listings. Farming means that the Realtors were trying to send out "seeds" in hopes of receiving a "harvest" of listings. Some Realtors do not put the necessary information on mailed postcards, magazine ads, and even on signs. Even though the discussion is about Realtors, most state license acts do require that all license holders place the name of their broker or the business name that they are working under to let everyone who sees the ads know where this person works and which broker is responsible for their actions. Even though it's the kind of issue that the average consumer may not identify, other real estate agents may be more likely to notice the discrepancy and file a complaint against a fellow professional. The Use of REALTOR®: Many people who are not license holders are not likely to know about the requirement in Article 12 that states that when a Realtor writes ad copy, they are supposed to put the word REALTOR® in the ad somewhere. Email Addresses: If a license holder does join a local board and become a Realtor, there are email addresses available with the word REALTOR® in the name. You can obtain an email address with the word REALTOR® in it by contacting the National Association of REALTORS®. Advertisements: License holders have to be honest in all their communications, including advertisements. Whenever you report a fact in your advertisements or listings, quote the source from which you got the information. This practice can be helpful in lowering your liability if it turns out that what you stated as a fact is actually a piece of misinformation. Like your school teachers used to say, always cite your sources! 📖

Ethics vs. Morals

The main differentiating factor here is that ethics are determined by an external group and are standardized, while morals are held internally and vary by the individual. An individual's behavior may be ethical, but not moral in the eyes of that individual. Let's take a look at a couple of examples. Scenario: Attorneys: Consider the plight of a public defense attorney. An attorney may believe morally that murder is wrong and that those who commit murder should be punished accordingly. However, a public defender is bound by ethics to defend their client in a court of law to the best of their ability even if they know the client is guilty of murder. Is the attorney betraying their personal morals by adhering to professional ethics? On the one hand, the attorney strongly believes murder is wrong and victims of murder deserve justice. On the other hand, every American citizen is entitled to competent legal representation. A public defender's ethical duty is to provide that competent legal representation to ensure the rights of the accused individual are upheld. In this case, the ethics of the legal profession conflict with the attorney's personal morals. EXAMPLE: A doctor may want to comply with the request of a suffering cancer patient and euthanize that patient. However, euthanasia is not generally permitted by the ethical standards of the medical field (and is illegal in most states). Perhaps the doctor is of the opinion that euthanasia is moral. The doctor may hold the belief instead that allowing the prolonged suffering of a patient who wishes to die is immoral. In this case, the ethics of the medical profession conflict with the doctor's personal morals.

The Georgia Uniform Deceptive Trade Practices Act (UDTPA) 🍑

This law concerns price-fixing and other activities that would restrict competition. It's similar to FBPA, but covers more areas of deceptive practices. The major difference between the two is that under the UDTPA, no actual consumer transaction has to take place for a violation to occur. EXAMPLE: Three brokerage firms in Athens conspire to fix commission rates. They then advertise their "competitive rates" in the newspaper. The fact that the advertisement contains misleading statements is alone sufficient to prove a violation of the Act. No sale needs to take place and no proof of consumer reliance on the advertisement must exist for a violation of the UDTPA to have occurred. Scenario: Foul Play: The members of a multiple listing service conspire to exclude new firms from the service. This is violation of the UDTPA because the purpose of the arrangement is to discourage competition. So, under the UDTPA, the excluded firms could bring suit against the members of the listing service and recover for any damages. Notice that the excluded firms are business entities and have not engaged in a consumer transaction. However, they can still recover damages for a trade restriction that has caused them harm. This would not be true under the FBPA where, remember, a consumer transaction has to take place. Penalties: If the state prosecutes under this Act, it can obtain an injunction and impose fines. Anyone bringing a civil action against a wrongdoer can recover three times the amount of their loss (also known as triple, or treble damages), plus attorney fees and court costs.

Trusty Terminology

We've used the word "trust" several ways in this course. Let's refresh: Antitrust means antimonopoly. The use of "trust" here is not very similar to the one we'll get into below. It's confusing, I know. I'm sorry. So, at the beginning of this course, we learned that a trust is a legal entity where control of some asset or property is transferred by a grantor (trustor) to a third party (trustee) to be held for the benefit of another (beneficiary). The most common example of a trust is when someone (a trustor) creates a trust to manage their wealth so it can be distributed to their heirs (beneficiaries). A deed of trust is similar. It's a trust used in real estate to allow lenders to ensure they secure a borrower's property. Whereas a mortgage creates a lien on a property for the lender, a deed of trust literally gives the right to the property to another party. With a deed of trust, the property's legal title is held "in trust." Now let's go on to trust accounts. They adhere to the definition of "trust" that you've already learned. For example, let's say: . Your friend Ariana has $5. . Ariana says she will pay this $5 to John as soon as John gives her one of his world-famous brownies. . Ariana gives the $5 to Clara (an uninterested third party). . Clara holds the $5 until John delivers the brownie to Ariana. . When John delivers the brownie to Ariana, Clara gives John the $5. In this scenario: . Ariana is the grantor or trustor. . Clara is the trustee. . John is the beneficiary. (And your buddy Ace wants a brownie.)

Quiz Level 23 a) acts that are considered inherently illegal. Per se violations are acts that are considered inherently illegal. They have been proved to be illegal time and time again.

What are per se violations? a) acts that are considered inherently illegal. b) acts that are sometimes considered illegal and depend on a judge's ruling. c) acts that are never considered illegal. d) acts that are considered illegal in some states.

Quiz Level 23 d) a legal entity where control of some asset or property is transferred by a grantor to a third party to be held for the benefit of another. A trust is a legal entity where control of some asset or property is transferred by a grantor (trustor) to a third party (trustee) to be held for the benefit of another (beneficiary).

What is a trust? a) legislation established to promote competition in business and prevent monopoly. b) a legal entity where control of some asset or property is transferred from a governmental body to a third party. c) legislation established to regulate telemarketers and email advertising. d) a legal entity where control of some asset or property is transferred by a grantor to a third party to be held for the benefit of another.

Quiz Level 23 c) Ethics are determined by an external group and are standardized. Morals are held internally and vary by the individual. Ethics are determined by an external group and are standardized. Morals are held internally and vary by the individual.

What is the difference between ethics and morals? a) Morals are standardized, but ethics vary from person to person. b) There is no difference. c) Ethics are determined by an external group and are standardized. Morals are held internally and vary by the individual. d) Ethics are temporary, while morals are instilled in an individual for life.

Quiz Level 23 d) govern business by regulating anti-competitive conduct to promote fair competition on behalf of American consumers. The Sherman Antitrust Act governs business by regulating anti-competitive conduct to promote fair competition on behalf of American consumers.

What is the main purpose of the Sherman Antitrust Act? a) govern advertising by regulating misrepresentation in advertising. b) govern government entities by regulating anti competitive legislation to promote fair competition on behalf of American consumers. c) govern email advertising by regulating email advertisement requirements and qualifications. d) govern business by regulating anti-competitive conduct to promote fair competition on behalf of American consumers.

Competency, Fairness, Integrity

What three qualities best define a Realtor? According to the the Code of Ethics' Preamble: The term REALTOR® has come to connote competency, fairness, and high integrity. . How to display competency: Perform your duties as a real estate professional with expertise. . How to display fairness: Be fair and considerate in your dealings with others at all times. . How to display integrity: Always behave ethically in a manner consistent with the NAR Code of Ethics.

Quiz Level 23 d) Under the UDTPA, no actual consumer transaction has to take place for a violation to occur. The major difference between the two is that under the UDTPA, no actual consumer transaction has to take place for a violation to occur.

What's the difference between the UDTPA and the FPBA? a) Under the UDTPA, bid rigging can be legal under certain circumstances. b) Under the UDTPA, potential OR actual consumer transaction has to take place for a violation to occur. c) Under the UDTPA, the Sherman Antitrust Act takes precedence over local law. d) Under the UDTPA, no actual consumer transaction has to take place for a violation to occur.

Antitrust Law: Let's Recap

Whew! That was a lot of antitrust terminology, Yoni , but you did great. You learned about collusion and the four main types of antitrust violations: . Price fixing . Group boycott . Market or customer allocation . Tie-in agreements And you also learned why setting listing lengths and bid rigging are antitrust law violations.

NAR Code of Ethics (cont.)

Would you like to read the whole Code of Ethics? Of course you would! Here it is. Isn't it beautiful? Click on the PDF to see the full text. On the following screens, I'll describe the Code's major aspects! in file (2021_NAR_CodeofEthics)

Laws

You may have heard the terms laws, morals, and ethics used interchangeably. They are different, however, and in order to really understand ethical practice, it's helpful to learn the distinctions. Here we go! Laws are rules that are enforced by a local, state, or federal government authority to help create order in society by establishing a "social contract" between citizens and the government. The "social contract," in its simplest terms, is the philosophy that individuals, either explicitly or tacitly, consent to comply with laws (sometimes despite their own personal wishes) in exchange for the safety of law and order that government provides. Generally, laws exist to prevent citizens from hurting each other or themselves. If you violate a law, the government is permitted to hand out the punishment it feels fits the crime, and you as a citizen are required to comply. Of course, if you are wronged by another citizen, the government (aka the law enforcement and courts) is expected to carry out justice on your behalf. Law and the Social Contract: The social contract is what allows the police to throw handcuffs on you when you're suspected of breaking the law, but it's also what keeps individuals convicted of breaking the law behind bars away from the rest of population. It's what allows the court to force you to pay a fine for a speeding ticket, but it's also what allows the court to force another citizen to pay you back any monetary damages they owe you in a lawsuit. In theory, it's a mutually beneficial relationship. Laws only work if we, as a society, agree to abide by them. The looming threat of punishment by our justice system and civil courts is what keeps us in line. As such, it's the responsibility of all citizens to be aware of the laws. Ignorance of the Law: As you may have heard once or twice before: ignorance of the law is not an acceptable defense. So when you tell that police officer that you "didn't know what the speed limit was" when you sped through that intersection, he doesn't care — you're still getting a big, fat traffic citation. Similarly, you need to be aware of the laws that govern your behavior as real estate professionals. You can't simply say, "Oh, I didn't know that was the law. I'm new to this." ¯\_(ツ)_/¯

Quiz Level 23 c) Ethics. Ethics dictate what is considered acceptable at a higher level

____________ dictate what is considered acceptable at a higher level. a) Individual opinions. b) Laws. c) Ethics. d) Industry standards.