FTC Staff Comment Before the New York Division of Licensing Services Concerning the Regulation of Real Estate Licensees

V90003~
150 William Street. 13th FL.
New VOfl<. N V. 10038
(212) 264-8290
Ur\ITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
SEW YORK REG!ONAL OFFICE COMMISSION AUTHORIZED
July 	6, 	1990
Ms. 	Gail A. 	Bates, 	Director
Division of 	Licensing Services
N.Y.S. 	Department of State
162 Washington Avenue
Albany, 	New York 	12231
Dear Ms. 	Bates:
The 	staff 	of the 	Federal 	Trade 	commissionl is 	pleased to
respond to 	the 	request 	of 	the 	Department of State 	for 	comments on
the preliminary 	"Codification of Rules 	and Regul~tions Affecting
Real 	Estate 	Licensees" 	("Proposed Regulations"). 	We understand
that the 	Proposed Regulations 	are 	intended to 	reduce confusion
and misunderstanding among consumers, 	real 	estate brokers and
salesperso~ ("Licensees") 	and to promote better 	"operational
standards."
The 	Proposed Regulations would, 	among other things, 	require
Licensees 	to make 	specified disclosures 	to home 	sellers and
prospective buyers 	regarding, 	for 	example, 	Licensees' 	obligations
to 	each: 	proscribe 	certain 	forms 	of 	representation, 	such as dual
agency: 	and 	limit specified 	contract terms, 	such 	as 	the duration
of 	listing agreements. 	We believe that disclosure 	requirements
may benefit 	consn-era 	in 	some 	circumstances, 	which we 	discuss
subs&quently. 	We note, 	however, 	that 	the 	Proposed Regulations'
1 	This 	letter presents 	the views 	of the 	staffs 	of the 	Los
Angeles 	and New York Regional 	Offices and the 	Bureau of
Competition 	of the 	Federal 	Trade 	Commission. 	They are not
necessarily the views 	of 	the 	~ommission or of 	any 	individual
Commissioner.
2 	OUr comments 	are 	limited to the 	potential 	effects of the
Proposed Regulations' 	residential 	real 	estate brokerage provi-
sions 	and, 	in particular, 	to 	those proposed 	regulations 	that .ost
significantly may 	affect 	consumers. 	We express 	no 	opinion as to
the 	Department of 	State's 	authority to promulgate the
regulations.
3 Memorandum from Gail 	S. 	Shaffer, 	Secretary of State,
State 	of New York, 	to Members 	of the Real 	Estate 	Industry
(December 18, 	1989).

limitation 	of 	certain real 	estate 	practices 	and contract 	terms
unnecessarily may harm some 	consumers.
I. 	INTEREST AND EXPERIENCE OF THE 	STAFF
OF THE 	FEDERAL TRADE 	COMMISSION
The 	Federal 	Trade 	Commission 	is 	charged with preventing
unfair methods 	of 	competition and unfair 	or defeptive 	acts 	or
practices 	in 	or affecting 	interstate 	commerce. 	consistent with
this 	mandate, 	the 	staff of 	the 	Federal 	Trade Commission often
submits 	comments, 	upon request, 	to 	federal, 	state, 	and 	local
governmental 	bodies 	to help 	them 	assess 	the 	competitive and
consumer welfare'implications 	of pending proposals.
The 	staff 	of 	the Commission has 	considered numerous 	issues
relating 	to 	competition 	in 	rea1
5 estate markets, 	including New
York state 	real 	estate markets. 	In 	addition, 	the 	staff of the
Commission's 	Los Angeles Regional 	Office conducted 	a 	study 	of the
residential 	real 	estate 	industry. 	That 	study 	included 	a 	nation-
wide 	survey of 	consumer experiences with 	real 	gstate brokers,
some 	of 	the 	findings 	of which 	are 	noted below.
II. 	PROPOSED 	DISCLOSURE REQUIREMENTS
Section 4 of 	the 	Proposed Regulations would 	impose 	on
Licensees various 	disclosure 	obligations 	designed to 	ensure 	that
all 	prospective parties 	to 	real 	estate 	transactions 	understand
4 15 U.S.C. 	§ 	41 	et 	seg.
5 	See, 	e.g., 	Multiple 	Listing Service Mid 	County, 	Inc., 	110
F.T.C. 	482 	(1988); 	Orange 	County Board of Realtors, 	Inc., 	106
F.T.C. 	88 	(1985). 	Enforcement matters 	involving non-New York
State 	real 	estate markets 	include 	Florence MUltiple 	Listing
Service, 	Inc., 	110 	F.T.C. 	493 	(:988); 	and Multiple 	Listing
Service of Greater Michigan 	City Area, 	Inc., 	106 	F.T.C. 	95
(1985).
6 	The Residential 	Real 	Estate 	Brokerage 	Industry,
Washington, 	D.C.: 	Los Angeles 	Regional 	Office 	of 	the 	Federal
Trade 	Commission 	(1983) 	("staff Report"). 	See 	also 	Butters,
Consumers' 	Experiences with Real 	Estate Brokers: 	A Report en the
Consumer Survey of the 	Federal 	Trade 	Commission's Residential
Real 	Estate 	Brokerage 	Investigation, 	Washington, 	D.C.: 	Federal
Trade Commission 	(1983).
2

Licensees' 	agency 	status and obligations. 7 In substantial part,
the 	disclosure 	requirements 	appear 	to be 	a 	resyonse to 	some
prospective buyers' 	misunderstanding of the 	role 	and 	obligations
of 	Licensees who 	are 	assisting themsin 	"house hunting," 	but who
may be acting as 	agents 	of 	sellers.
Prospective buyers 	typically 	are 	introduced 	to properties by
agents 	retained by home 	sellers 	or by cooperating brokers who
seek to 	share 	in 	cemmissions paid by 	sellers and who may be 	sub-
agents 	of 	sellers. 	The circumstances 	surrounding 	"the house
7 	An agency may 	arise by express 	or 	implied agreement. 	An
implied agreement may be 	inferred 	from 	facts 	and 	circumstances,
especially the words 	and conduct 	of 	the parties. 	In general,
unless 	an 	agreement 	to the contrary 	is 	established, 	a 	real 	estate
broker 	is 	deemed 	to be 	an agent 	of 	the 	seller--typically because
the 	seller 	is 	responsible 	for 	paYment 	of 	the commission to be
earned. 	However, 	seller responsibility 	for 	paYment of a 	coop-
er~ting brc~~ar's commission ordinarily does 	not preclude the
parties' 	agreeing 	that the broker will 	represent 	the purchaser.
See, 	e.g., 	CUrrier, 	Finding the 	Broker's 	Place 	in the 	Typical
Residential 	Real 	Estate Transaction, 	33 	U. 	Fla. 	L. 	Rev. 	655, 	660-
65 	(~9S1).
8 	For 	example, 	Section 4(a) 	of 	the 	Proposed Regulations
provides 	that 	"[a] 	licensee 	shall make his 	agency 	status 	and
obligations 	clear to 	the 	clients, 	customers 	and 	other 	licensees
with whom the 	licensee deals." 	Section 	4(g) 	provides 	that
"[w]hile 	representing a 	Client, 	a 	licensee 	shall 	not, 	by words 	or
conduct, 	cause 	a 	customer 	or customer's 	agent 	to 	believe 	that 	the
licensee 	can 	or will 	represent 	the 	interests 	of 	the 	customer."
And 	Section 	4(j) 	states 	that 	"[w]henever the words 	or conduct 	of
a 	customt''t" 	indicate 	that the 	customer has misconstrued or misun-
derstood 	the 	relationship 	between the 	licensee 	and the 	customer,
the 	licensee 	shall 	take prompt, 	unequivocal 	and 	affirmative
action to 	clarify the 	true 	relationship between the 	licensee 	and
customer."
9 	The 	listing agreement used by members 	of 	at 	least one Hew
York State multiple 	listing service, 	Rockland 	County Multiple
Listing System, 	provides 	that the 	home 	seller engages 	every
member of 	the mUltiple 	listing 	service 	as 	his 	or her authorized
agent. 	The 	subagent designation 	is more 	often 	intended by
cooperating brokers 	in New York State, 	the Handbook of Multiple
Listing 	Policy 	(1980) 	of the National 	Association 	of Realtors
("HAR") 	providing, 	in Section 1.2:
A MUltiple 	Listing Service 	is 	defined 	as 	a 	means by
which 	one 	Participant makes 	a 	blanket unilateral 	offer
of 	subagency to the 	other 	participants and 	as 	a
facility 	for 	the 	orderly correlation and dissemination
3

hunt"m may 	lead 	some 	prospective buyers 	to assume 	that 	Licensees
represent 	them, 	whether or not 	it 	is 	so. 	prospective buyers 	who
unknowingly 	treat 	sellers' 	agents 	as 	their own may be harmed 	in
at 	least 	two ways. 	First, 	they may unintentionally 	reveal 	to
sellers' 	agents--and 	through 	the agents 	to 	the 	se1Iers--"propri-
etary" 	bargaining-related 	information. 	Second, 	prospective
buyers may 	unwittingly 	fail 	to 	secure 	fiduciary 	representation or
assistance, 	such 	as 	the 	services 	of 	a 	buyer's broker or an 	ap-
praiser. 	The 	Staff Report 	on 	the 	residential 	brokerage 	industry
provides 	some 	support 	for 	the belief 	that 	a 	substantial 	number of
prospective buyers 	beliene themselves 	to 	be 	"represented" 	by the
brokers who 	assist 	them. 	Insofa~as some 	of these 	brokers may
see themselves 	as 	sellers' 	agents, 	consumer 	injury may result.
Where, 	as 	may be 	true here, 	some 	consumers 	lack 	information
necessary 	to protect and advance their 	interests, 	adoption 	of 	a
regulation 	requiring the 	disclosure 	of pertinent 	information may
be beneficial. 	Whether or not 	such a 	regulation will 	promote
consumer well-being may depend on the 	utility of 	the 	information
to 	be disclosed, 	the manner 	in which 	it 	is 	to be 	disclosed, 	and
of 	listing 	information among the 	Participants 	so that
they may better serve 	their 	clients 	and 	the public.
Approximately 	90% 	of the 	nation's mUltiple 	listing 	services 	are
affiliated with 	the 	NAR. 	See 	Staff 	Report 	at 	8.
ID 	For example, 	prospective buyers 	often 	initiate the
contacts with 	Licensees. 	Thereafter, 	prospective buyers may
share 	a 	great deal 	of 	personal 	information--about 	family 	needs,
about personal 	preferences, 	and 	about 	economic circumstances,
among 	other things--with 	Licensees. 	Prospective buyers 	and
Licensees may spend 	a 	considerable portion.of 	their time 	for
several 	days 	in 	succession 	in one 	another's 	exclusive 	company.
These 	circumstances 	also may bear on whether or not 	an agency
between a 	Licensee 	and 	a 	prospective buyer will 	be 	implied. 	See
note 	7 	supra.
II 	Nearly three 	quarters 	of the 	home 	sellers and 	of the
home buyers who 	responded 	and who 	had participated 	in co-brokered
transactions 	believed that the 	cooperating brokers were, 	in 	some
sense, 	"representing" 	the 	buyers. 	Staff Report at 	8, 	14, 	and 	180
et 	seq. 	Nearly three 	quarters 	of 	the 	home buyer-responders
reportedly 	told 	the 	agents with whom they worked the highest
price 	that 	they 	would pay 	for 	the 	property sought; 	and more 	than
four 	fifths 	of these 	buyers 	believed tha~ the 	agents would 	keep
that 	information 	in confidence. 	Staff Report 	at 	186.
See 	note 	9 	supra.
4

the 	countervailing 	costs 	of making the mandated disclosure. D
Accordingly, 	if the 	state determines 	that 	the market 	is 	failing
to provide prospective 	real 	estate buyers with adequate 	informa-
tion 	regarding agency, 	it may wish to 	adopt 	a 	cost-effective
disclosure 	regulation.
Section 4 of the 	Proposed Regulations 	further would 	require
each Licensee 	to 	disclose 	to prospective 	listers 	of property all
of 	its policies 	and procedures 	that 	"affect 	the marketing" 	of
listers' 	properties. 	These policies and 	procedures 	expressly
inclUde, 	but 	are 	not 	limited to, 	refusals 	to 	deal 	with 	specific
companies 	and 	refusals 	to 	offer commission 	sp~its of 	at 	least 	50%
to 	subagents, 	co-brokers, 	or buyers' 	brokers. 	It may be 	that
in 	listing their homes some consumers 	are 	disadvantaged, 	and the
efficient 	operation 	of the 	real 	estate market 	frustrated, 	because
of 	Licensees' 	u~disclosed in-house policies. 	For example, 	a
policy of 	refusing 	to 	deal 	with 	off-price brokers 	and buyers'
agents may reduce the 	exposure of 	listers' 	homes, 	possibly
affecting 	listed homes' 	time-on-market 	and 	selling prices. 	The
same may be 	said of 	a 	policy of 	s~verely restricting compensation
offered to 	successful 	co-brokers. 	Timely disclosure of these
and 	like policies would permit consumers 	to 	take 	their potential
effects 	into 	account 	in deciding with whom to 	list properties.
If the state determines 	that 	a 	substantial 	number 	of consumers 	is
harmed by 	non-disclosure, 	it may wish to 	adopt 	cost-effective
disclosure 	requirements.
We urge 	the 	state 	to 	consider with caution, 	however, 	the
requirement 	in 	the 	Proposed Regulations 	that 	all 	in-house
D 	See generally 	International Harvester 	Co., 	104 	F.T.C.
949 	(1984).
Y 	See Proposed Regulations 	at 	4(e). 	The 	reference 	to
"subagents" 	apparently 	relates 	to non-residential 	listings.
~ 	The 	requirement 	in Section 	4(e)(3) 	that 	a 	Licensee
disclose 	to prospective 	listers 	any policy to 	refuse to 	offer to
co-brokers 	and buyers' 	agents 	at 	least 	a 	50% 	share 	of the
commission may 	inappropriately discredit 	every 	split weighted 	in
favor 	of 	the 	listing 	broker. 	It may be 	preferable to 	limit
commission 	split-related rules 	to the disclosures 	contained 	in
Sections 	15(c) 	and 	16(d) 	of 	the 	Proposed Regulations. 	Section
15(c) 	provides 	that 	listing brokers must 	explain to prospective
listers 	"the 	client's 	right 	to determine 	and 	specify the 	amount
of compensation and 	all 	other terms upon which 	listing broker may
be authorized to offer compensation to subagents, 	co-brokers
and/or buyer's 	[sic] 	agents." 	Section 16(d) 	provides 	that 	every
agency agreement 	shall 	set 	forth, 	among 	other things, 	the
commission 	split that the 	listing broker 	is 	authorized to 	offer
to 	co-brokers 	and 	to 	buyers' 	agents.

policies 	and procedures 	that 	"affect the 	marketing" 	of 	listed
properties 	be 	disclosed. 	A tremendous 	variety of policies and
procedures 	could be 	deemed 	to 	"affect the marketing" 	of proper-
ties, 	and their disclosure 	could entail 	costs--including reduced
consumer 	attention 	to the most 	significant 	aspects 	of the
proposed brokerage 	arrangement--in 	excess 	of their 	benefits.
III. 	PROSCRIPTION OF CERTAIN FORMS
OF REPRESENTATION
The 	Proposed Regulations 	may be 	construed 	to ban certain
types 	of 	representation. 	For 	example, 	Section 	5 	of the 	Proposed
Regulations, 	which specifies that 	"[a] 	licensee 	shall 	not 	repre-
sent 	adverse 	interests 	in 	the 	same 	real 	estate transaction," 	may
be 	taken 	to ban 	so-called 	"dual 	agencies." 	We have been advised
that 	the 	Secretary of State 	concludes 	that New York State 	law now
bars 	dual 	agencies 	on the 	premise that 	one 	actor 	cannot 	satisfy
fiduciary 	obligations 	to 	parties with adverse 	interests, 	and 	that
sectiFn 	5 	of 	Proposed Regulations merely 	restates 	the 	general
law.
Some 	limited 	forms 	of 	dual 	representation may 	not 	impose
conflicting obligations 	on 	Licensees, 	however. 	For example,
[a]fter 	full 	disclosure 	of 	the 	representation 	alter-
natives, 	the 	buyer 	and 	the 	seller might 	agree 	that 	the
broker will 	be 	a 	collector of 	information 	and 	a
messenger of 	positions, 	rather than a 	broker who will
investigate, 	disclose, 	advise, 	negotiate 	and 	fully
protect a 	principal's 	best 	interests.
. 	. 	.Part of 	the 	special 	arrangement 	could be 	that
.. 	confidential 	information, 	such as 	the buyer's 	ultimate
negotiaffng position, 	may not be 	revealed 	to 	the
seller. 	.
~ 	We understand, 	however, 	that 	in 	some 	circumstances
parties' 	informed consent 	to 	dual 	agency will 	constitute 	an
affirmative defense 	in 	an 	action against the 	dual 	agent. 	This
defense 	is 	not 	lightly 	established: 	"Informed consent 	is more
than 	just knowing that 	one 	and 	the 	same 	agent 	represents 	both the
buyer 	and 	the 	seller. 	The 	broker 	is 	obligated 	to 	disclose 	all
facts 	relevant to 	the buyer's 	and the 	seller's 	decisions 	of
whether or not to 	consent 	to 	the 	common 	representation." 	J.
Reilly, 	Agency Relationships 	in Real 	Estate, 	Real 	Estate Educa-
tion Co. 	63-65 	(1987) 	(emphasis 	in original).
J] Id.
€

The 	availability of 	such 	a 	representation alternative may
e::able 	some home 	sellers 	and home buyers 	to 	obtain wanted--and
only wanted--Licensee 	services 	at prices 	less 	than 	the 	cost of
separate and 	inclusive representation. 	As we understand 	it, 	the
general 	law's 	bar does not necessarily extend to 	some 	limited
forms 	of dual 	representation. 	Accordingly, 	the state 	may wish to
modify 	the 	Proposed Regulations 	to 	clarify or recognize 	the
appropriateness 	of dual 	representation consistent with the
avoidance of 	Licensee 	conflicts-of-interest.
The 	Proposed Regulations 	also 	appear to prohibit a 	listing
broker 	from 	offering subagencies 	to 	Licensees not 	affiliated with
him or her. 	Such Licensees would be 	"cooperating brokers," 	as
defined 	in the 	Proposed Regulations, 	and therjfore would not
operate 	as 	agents 	or subagents 	of homeowners. 	We 	understand
that 	the 	intent underlying restriction of 	subagency 	offers 	is 	to
avoid potential 	homeowner 	liability 	for wrongful 	acts 	and
omissions 	of brokers with whom homeowners have no direct 	rela-
tionship. 	However, 	it 	is difficult 	to determine precisely how
the proposed 	regulation would 	affect 	the 	rights 	and 	liabilities
of homeowners 	and cooperating brokers, 	and whether the proposed
regulation would impair the 	efficient delivery 	of brokerage
services. 	Accordingly, 	the 	state may wish to 	further 	~ess the
likely 	effectiveness 	and 	costs 	of the ban on 	s~agency, 	and to
modify 	the 	proposed 	regulation 	if appropriate.
IV. 	LIMITATIONS 	OF CONTRACT TERMS
The 	Proposed Regulations 	also 	contain provisions 	that would
restrict 	the 	terms 	of contract between Licensees 	and homeowners.
Restrictions 	on terms 	of 	contract may, 	in 	some 	instances, 	advance
~ 	See. 	for 	example, 	Sections 	l(a) 	and 	(e), 	6, 	and 	16(e).
Section 1 	contains 	applicable definitions. 	Section 	6 precludes
brokers' 	offering and accepting 	of offers 	of 	subagency 	from 	other
brokers. 	And Section 	l6(e) 	prohibits brokers' 	use 	of 	agency
agreements 	authorizing 	the making 	of 	subagency offers.
~ 	The comments 	of mUltiple 	listing 	services-and trade
associations 	regarding the 	Proposed Regulations may be 	of
substantial 	assistance to 	the 	state 	in understanding 	the
efficiency 	implications 	of 	the 	proscription of subagency offers.
~ 	For example, 	the State may wish to permit 	informed home-
owners 	to 	consent to their brokers' 	extending offers 	of 	subagency
to prospective cooperating brokers. 	This 	is 	the approach adopted
in the 	Proposed Regulations' 	application to non-residential 	real
estate 	transactions. 	See Section 7 	of the 	Proposed Regulations.
See 	also 	Section 	15, 	relating to disclosure 	of homeowners' 	rights
to determine 	contractual 	options 	that 	limit personal 	liability.
7

public 	interests. 	However, 	restrictions 	on terms 	of contract
also may 	impose 	unnecess~ry costs 	on 	consumers. 	Section 	16(c) 	of
Proposed Regulations, 	which 	limits 	listing 	agreements 	to 	not more
than 	90 	days, 	may be 	an example 	of 	the 	latter.
The 	activity 	level 	in 	real 	estate markets may vary consider-
ably 	from 	area 	to 	area 	and 	from 	time 	to 	time. 	In 	some 	instances,
a 	90-day 	listing 	period may provide more 	than enough time 	for 	a
Licensee 	to promote 	the 	sale 	of 	a 	property. 	Under other market
conditions, 	however, 	a 	90-day 	listing period may be 	quite
inadequate. 	When homeowners 	and Licensees 	are 	free 	to negotiate
the 	duration 	of 	listing agreements, 	local 	market 	conditions 	can
be 	considered 	and 	the 	interests 	of homeowners 	and 	Licensees
accounted 	for. 	In contrast, 	administrative determination of 	"the
appropriate" 	listing contract duration may 	lock homeowners 	and
Licensees 	into 	contract terms 	that, 	at times, 	serve 	neither.
Listi~ brokers may provide a 	variety of useful 	services 	to
homeowners. 	The 	availability of these 	services may depend on
listing brokers' 	expectations 	that 	the 	costs 	of providing the
services will 	b! recouped 	from commissions 	on 	sales 	of properties
listed by them. 	Limiting by 	regulation the duration 	of 	listing
agreements may 	reduce the 	likelihood that homes will 	be 	sold
during given 	listing periods, 	particularly 	in a 	"buyers' 	market."
If 	listing brokers 	believe that 	they cannot 	recover their 	costs
during the 	regulated 	listing period, 	they may 	reduce 	services
provided 	and/or 	increase 	the price 	charged 	for 	those 	services.~
In 	either 	event, 	homeowners' 	interests may 	suffer. 	Accordingly,
~ 	These 	services may 	include: 	the 	preparation of detailed
market 	analyses 	to 	guide homeowners 	in establishing 	list 	prices;
the holding 	of 	open houses 	to 	acquaint prospective 	cooperating
brokers 	and prospective purchasers with 	listed properties; 	the
preparation and 	publication 	of pictorial 	advertisements 	featuring
listed properties 	and 	other promotional 	materials; 	the 	analysis
of prospective 	purchaser traffic 	and 	feedback 	and 	the 	provision
of 	related guidance 	to 	homeowners 	as 	to 	prospective 	purchaser
objections 	(such 	as 	the market will 	not 	support the 	asking price,
or 	the 	dirty 	kitchen 	cabinets 	are turning people 	off); 	and 	the
provision 	of 	"house-sitting" 	services 	on 	behalf of 	listers 	that
have 	relocated 	at 	a 	distance 	from 	listed properties.
~ 	Costs 	are 	not necessarily 	recouped 	in each transaction.
Rather, 	each 	listing broker ordinarily expects to 	recoup 	costs
over the 	course 	of 	several 	transactions.
~ 	Some 	listing brokers might 	reduce 	their 	costs 	and
increase 	their 	revenues by requiring home 	listers 	to 	separately
contract and pay 	for 	services, 	such as 	"for sale" 	advertising,
that 	now often 	are provided without 	additional 	charge pursuant 	to
listing agreements.
8

the 	state may wish 	to 	explore 	less 	restrictive 	alternatives 	to
the 	proposed Section 	16(c), 	such 	as 	requiring 	Licensees 	to make 	a
cautionary disclosure, 	or abandon 	it.
section 	16(f) 	also restricts 	the 	terms 	of 	contract between
Licensees 	and homeowners. 	That 	section provides 	that 	"[a] 	real
estate broker 	shall 	not 	use 	any agency agreement which authorizes
the 	real 	estate broker to 	limit offers 	of 	compensation to members
of any particular trade group 	or association." 	Homeowners 	typi-
cally may 	seek to 	list 	their properties 	in a 	manner that will
ensure widespread cooperative brokerage 	efforts. 	Some home-
owners, 	however, 	might prefer to 	restrict 	offers 	of compensation
to members 	of 	a 	given organization, 	where membership 	in that
organization attests 	to 	some quality of 	importance. 	For example,
organizational membership may be 	limited 	to persons having 	exten-
sive training and/or experience, 	or may 	certify compliance with 	a
high-minded 	code 	of professional 	ethics. 	ThUS, 	by agreeing to
limit offers 	of compensation to members 	of 	such an organization,
homeowners might 	increase the 	effectiveness 	of 	cooperative
brokerage 	efforts, 	or reduce the 	risks 	of 	dealing with brokers
and 	sales 	representatives who engage 	in 	ethically questionable
practices. 	Accordingly, 	the State may wish to 	reconsider the
advis~ility of adopting section 16(f) 	of 	the 	Proposed Regula-
tions.
v. 	CONCLUSION
We have 	limited 	our comments 	to matters 	substantially
affecting 	competition and consumers 	in 	residential 	real 	estate
markets. 	Within 	that context, 	we 	adhere 	to 	the view, 	in part
reflected 	in the 	Proposed Regulations, 	that 	information 	failures
that deprive 	consumers 	of the 	ability to 	act 	in their self-
interest 	are best 	addressed by adoption 	of 	narrowly 	tailored
disclosure 	requirements. 	overly broad disclosure 	requirements
may 	impose 	substantial 	and unnecessary 	consumer costs. 	Similar-
ly, 	some 	proposed 	restrictions 	on 	forms 	of 	Licensee 	representa-
tion and on 	contract 	terms may 	frustrate 	some consumers' 	efforts
efficiently to 	satisfy their wants. 	In 	those 	instances, 	careful
identification of 	the 	public policies 	to be 	advanced may permit
the 	adoption of 	less 	restrictive 	regulations, 	such as narrowly
~ 	If 	the 	proposed Section 16(f) 	were withdrawn, 	Licensees
would 	likely be 	obligated under Section 	4 of 	the 	Proposed Regu-
lations 	to disclose 	to prospective 	listers 	any 	in-house policies
limiting 	offers 	of 	compensation to members 	of a 	particular trade
group. 	See 	discussion 	at pages 	5 	and 	6 	supra.
9

tailored disclosure 	requirements, 	or the dropping 	of the proposed
r( ~gulation.
Very t~ruY	ours,
.~~ 	2:_/%~
~~~l 	l~~
Regiona 	Director
New York Regional 	Office
YlI~r (\ ,~. 	:i!~/~MaJc;y J 	k! Tiffany'll
Regional 	Director
Los Angeles 	Regional 	0 	fice
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