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Let’s go get sued . . .

In a comment below, Jon offers this:

What are you talking about? Lawsuits against emongoo, zillow and refin? None of them are doing anything wrong…sorry to say. I looked at emongoo, zillow and redfins sites and I don’t see anywhere where they say they give legal advice.

First, I only cited legal advice with respect to emongoo.com – and we’ll come back to that. We should exclude zillow.com from this discussion, because, for now at least, they are doing nothing but running a look-up service with no legal consequences that I know of.

But redfin.com has considerable legal exposure, as does buysiderealty.com and anyone emulating the general redfin.com business model. The first and most obvious problem is the legal doctrine known as procuring cause. These sites are a procuring cause lawsuit – or perhaps a procuring cause class action suit – waiting to happen. They go out of their way to flout the rights of cooperating brokers, openly advising buyers to see homes at open houses or by contacting the listing broker directly. The NAR Code of Ethics forbids brokers from letting a procuring cause dispute impede a transaction, but there is nothing to prevent the aggrieved broker from pursuing damages after the fact. I’m not saying this will happen, but their noses are wide open.

(As a side note, the way I read buysiderealty.com’s web site, their real business is loan origination. My guess is that the real estate brokerage side of the business will be one or more separate operating entities, with the broker being hung out to dry in the event of a lawsuit.)

The entire discount sector of the real estate industry – on-line and brick ‘n’ mortar – faces huge risks on the subject of agency law. It is difficult to argue that you did everything possible to advance your client’s interests when you did everything possible to avoid knowing what your client’s interests actually are. From the outside, you might want to shout caveat emptor! But the law of agency in real estate is by now much closer to caveat venditor.

There is actually added risk for the discounters, as opposed to a more traditional business model. Since the net commission to the practitioner is so low, it seems reasonable to suppose that only the least-talented licensees will work for these outfits. With added volume as the only path to income, we get a frazzled turkey, rushed and incompetent. And deep, deep pockets full of venture capital. Who believes sharks can’t smell blood in the water?

If you click here, you will see emongoo.com promising legal advice. Presumably they disclaim agency in the fine print, but here is the actual law of agency as interpreted by real judges in real courts: If I think you’re my agent, then you’re my agent. Most of these web sites seem to me to be fools rushing in where angels fear to tread.

Also Realtors are not attorneys and if they give legal advice they are in the same danger as the guy off the street.

Precisely! Depending on the jurisdiction, real estate licensees are authorized by legislation to do a small subset of the things an attorney can do, and they are held to strict standards of accountability to make sure they are exercising due diligence and care in the performance of their duties. When they err, they risk lawsuits that can wipe them out.

Companies like redfin.com and buysiderealty.com are engaged in real estate brokerage, and they face the same litigation risks as any other real estate broker. The folks as emongoo.com might want to argue that they are an advertising medium, like the newspaper’s classified section or craigslist.com. But by offering to assist in the work incident to the transfer of real property – and taking compensation for it – I think they stand an excellent chance of being regarded by the courts as being real estate practitioners, engaged in the business of real estate brokerage.

Does this mean they will necessarily be bled white by lawsuits? No. But they really are asking for it…

Related posts:

Related posts:
  • I hear rumors all the time
  • Let’s go get sued some more…
  • Let’s go get sued again…

  • 11 comments

    11 Comments so far

    1. [...] Even so, and harkening back to the idea of law suits against RealtyBots, I seized upon the opportunity to play my favorite game as a real estate broker: Name that violation. I summarized the article to Cathy, emphasizing this: Some real estate Web sites make money on advertising. [...]

    2. [...] I don’t know if this is true or not, with respect to any of the vendors named, but, if it is, it seems to invite considerable exposure to litigation. No, not a trademark infringement suit from the NAR. A judge might reasonably hold the RealtyBot sites to the claims they are making, even if those claims are untrue. A mere real estate licensee is answerable only to the statute law of the licensing jurisdiction. Realtors are held to much higher standards, both because of the NAR Code of Ethics and because of the presumption that the aspiration to professional status implies greater education and more rigorous care and diligence. Real estate brokers, whether or not they are Realtors, are held to the highest standards. Ignorance of the law is not only not an excuse, it is not even a mitigating factor. [...]

    3. [...] All that relates back to the idea of legal exposure for real estate web sites. The trouble with limiting your contact with your client, even if this enables you to work very cheaply, is that you have no idea what your client might be saying or doing when you’re not around. The policy of all sane Realtors, when they come into contact with a potential client who is xenophobic in any way at all, is to run away as fast as possible. You may not be held liable if your client violates Fair Housing laws behind your back, but if it was in your power to discover that he might, and you did nothing to prevent the violation, you risk hearing a gavel pounding down your net worth. Even if you did properly counsel that client, liability runs uphill to the deeper pockets. This may not be just in some idealized universe, but it is the reality we live in now. [...]

    4. Laura B. July 23rd, 2006 11:12 pm

      Awesome article! If more agents realized they could go down for giving legal advice, maybe there would be a high standard of ethics & integrity.
      http://www.historiccentralphoenix.com

    5. [...] I have said before, the Redfin.com business model is a procuring cause action waiting to happen. By directing its customers to contact the Listing Agent directly, the Listing Agent becomes theinitiator of an uninterrupted chain of events leading to the close of the transaction — the legal definition of procuring cause. Redfin.com does not effect anything resembling agency — representation — until this chain of events is well established. Absent the DOJ busy-bodies, this would be settled art by now: The procuring cause of a buyer’s transaction involving Redfin.com is the Listing Agent — at Redfin.com’s own behest. [...]

    6. [...] As I have said before, the Redfin.com business model is a procuring cause action waiting to happen. By directing its customers to contact the Listing Agent directly, the Listing Agent becomes the initiator of an uninterrupted chain of events leading to the close of the transaction — the legal definition of procuring cause. Redfin.com does not effect anything resembling agency — representation — until this chain of events is well established. Absent the DOJ busy-bodies, this would be settled art by now: The procuring cause of a buyer’s transaction involving Redfin.com is the Listing Agent — at Redfin.com’s own behest. [...]

    7. [...] I agree with this, of course, but I wonder if you would be willing to address the larger issues I have raised here and here (and elsewhere for that matter). [...]

    8. [...] Debunking Zillow.com gets dozens of unique hits every day. Let’s go get sued, a blueprint for bringing litigation against cowbird brokers scores fourth when you search for Redfin.com. I think the people at Zillow.com have been very deft in the way they have dealt with criticism. I think Kelman is drunk on his own publicity. The route to fame can be long and uncertain. But it’s just a short hop from there to infamy… [...]

    9. Jay Reifert January 27th, 2007 7:21 am

      Well. I’m no longer as impressed with your knowledge as I was when I first stumbled across your blog, Greg.

      While your blog itself is a spectacular piece of craftmanship, and your written communication skills are excellent too, your knowledge of procuring cause does not even rise to the level of anemic.

      You build your article on an entirely faulty premise. While it is true that there is also a legal doctrine of procuring cause, it does NOT come into play in Realtor to Realtor relationships.

      As Redfin agents are Realtors, they must subject themselves to the Realtor procuring cause system, which is administered by panels of Realtors who are competitors to Redfin’s business model.

      What a WONDERFUL concept, eh? Have your competitors, who revile your business model, sitting in judgment of your procuring cause arbitration.

      Redfin could only wish to get before a judge to have their cause heard under the legal doctrine of procuring cause. But, that can’t happen, for two reasons.

      1) Realtors, according to their Code of Ethics, are REQUIRED to arbitrate commission disputes before Realtor panels. If one Realtor sues another over a commission dispute, and fails to withdraw that suit, it is a violation of the Code of Ethics and can result in the offending Realtor being kicked out of the Realtor club.

      That means loss of MLS and the death of their business, so it’s pretty certain that it’s going to end up before an, aforementioned, biased Realtor arbitration panel.

      2) If the result of the arbitration decision is not liked, and most likely Redfin would not like the result, the only appeals are within the rigged, Realtor, system.

      While Redfin can attempt to take the matter to court, to get the decision overturned, the judge is going to point to the fact that Redfin agents sign a “voluntary” agreement to arbitrate commission disputes. As such, the judge will dismiss the case. The dismissal is not based on the merits of the case…but on lack, in essence, of jurisdiction.

      Of course, if Redfin agents did not sign this “voluntary” agreement to arbitrate, they would have been denied membership as Realtors and would not be allowed access to the MLS…the lifeblood of our businesses.

      This is made all the funnier, in that Redfin’s business model was exactly the reason for a change to the Realtor Code of Ethics, in January of 2005.

      Prior to enactment of what I call, “The Redfin Rule”, there was no provision in the Code of Ethics for listing agents to take a company with business practices like Redfin’s to arbitration.

      It is no surprise, to me, that the Realtors would make such a nakedly bold move, in that they had already changed the Code of Ethics in prior years, to make it so true buyer agents would also be unfairly yoked to the Realtor procuring cause system. (Something that was not true, prior to those changes.)

      It is a shame that Redfin, for their reasons, and true buyer agents for a different set of reasons, CANNOT get before a judge–within the legal system–to have their cases argued under the LEGAL doctrine of procuring cause.

      If the legal system handled the cases, the likely results would be much different, in that the judge has no competing interest with the business models of Redfin or true buyer agents, either.

      Instead of cases being decided on the (un)popularity of the practice in question, in the Realtor system where precedent is not even allowed, the legal system would set the bar much higher for determining who actually caused the sale.

      The main similarities between the legal doctrine of procuring cause and the Realtor version of procuring cause begins and ends with the shared words…procuring cause.

      The justice to be found between the two is markedly different.

      Jay Reifert, Broker/Owner
      Excel-Exclusive Buyer Agency
      Madison, Wisconsin

      http://www.real-reform.org/pc.pdf

    10. Jay Reifert January 27th, 2007 9:20 am

      As a follow-up to what I’ve just said, here’s a link to the 2007 Realtor Code of Ethics:

      http://www.realtor.org/mempolweb.nsf/pages/code

      Scroll down to Standard of Practice 17-4. Clauses 1, 2, 3 and 4 were all originally placed there in 1997, to force true buyer agents to arbitrate. Prior to then, the authority did not exist.

      17-4, 5 is the Redfin Rule.

      It surely must be nice to sit in the majority and be making rules which are intended to restrain the trade of minority practitioners, like discounters and exclusive buyer agents.

      Talk about, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce…”. (See Sherman Act)

      It’s all right there in the Code of Ethics. All some smart attorney–or attorney group–need do is begin work on connecting the dots.

      Jay Reifert, Broker/Owner
      Excel-Exclusive Buyer Agency
      Madison, Wisconsin

      http://www.real-reform.org/pc.pdf

    11. Jay Reifert January 27th, 2007 6:55 pm

      Here’s a forgotten gem–to me anyway–that talks, among other things, about the legal doctrine of procuring cause and the adverse affects of the Realtor version:

      http://www.ired.com/news/2000/0008/pcmyths.htm

      Jay Reifert, Broker/Owner
      Excel-Exclusive Buyer Agency
      Madison, Wisconsin

      http://www.real-reform.org/pc.pdf