The Real Deal New York

Breaking the Hamptons’ clubhouse mindset

Exclusionary East End brokering further depresses market, but practices may be changing
By Candace Taylor | July 01, 2009 02:34PM

With its veneer of wealth and privilege, the Hamptons may not seem like a hotbed of unethical real estate practices. But industry insiders say the very exclusivity that attracts the rich and famous allows questionable behavior to flourish — perhaps more than in any other real estate market in the country.

“[The Hamptons] really is like the Twilight Zone,” said Laurie Mindnich, a salesperson at Options Realty, which is based in Riverhead. “The way that sellers and buyers are treated out there is horrific.”

During the real estate boom, as properties changed hands for eye-popping prices, many homeowners were blissfully unaware of unsavory behavior. But now that the market has come to a screeching halt, the region’s notorious lack of transparency is worsening the downturn, locals say.

As homeowners complain about the lack of exposure their properties are getting, brokers, desperate to sell homes and spurred by a recent lawsuit, are displaying a greater willingness to share data. Meanwhile, the real estate listings Web site StreetEasy launched a Hamptons site last month that’s expected to improve transparency.

“It’s definitely a huge change from a few years ago, when no one wanted to share anything,” said Derrick Gross, a business analyst at StreetEasy.

Part of the club

The clubby world of the Hamptons real estate industry has long been dominated by a tight-knit group of well-connected agents.

“It’s not a market that you just walk into and do business just because you have a real estate license,” said Michael Daly, a broker with the online firm Redfin and author of the Hamptons Real Estate Blog. “You have to be a member of the club, so to speak.”

Such clannishness has persisted because many wealthy Hamptons buyers demand the utmost discretion and because the real estate community has been slow to incorporate technology.

Most of the largest firms in the Hamptons do not post their listings on the Multiple Listing Service of Long Island (MLSLI), brokers noted — and until two years ago, they shared listings data with each other by fax. In 2007, Web-based listings exchange system Open RealNet Exchange (OREX) was introduced, allowing agencies to electronically transfer or e-mail information on their listings to other agencies. But facts about listings that are readily accessible in other markets — including basic information like address, price, and days on market — are still very rarely included in Hamptons listings.

“It’s 1970s real estate,” said Mindnich, whose company often conducts broker price opinions (BPOs), which are used by banks to estimate a property’s value in situations that require shorter turnarounds and less cost than traditional appraisals, such as short sales, foreclosures or refinancings.

The information needed for BPOs on the North Fork is available to brokers in minutes online through the MLS, but the only way to obtain information about some Hamptons properties for sale is by speaking to their listings agents, which can take days of trading voice-mail messages. The delay, Mindnich said, is making it difficult for cash-strapped owners in the Hamptons to get BPOs and, in turn, refinance quickly to prevent a foreclosure or short sale.

Moreover, the lack of technology makes it easier for agents to disguise unethical practices because they can purposefully limit the visibility of certain listings.

Of course, almost all brokers recognize that they have an “obligation to sellers.”

“It’s in [their] best interest to have as many brokers as possible on [their] listings,” said Judi Desiderio, the CEO of Town & Country Real Estate in East Hampton.

Mindnich, however, pointed to the differences in practices on the North and South Forks to illustrate how the lack of cooperation and oversight may be worsening the slump.

“The North Fork, in terms of lis pendens and sales activity, is doing better than the Hamptons,” Mindnich said. “We need accessibility and the availability of facts and figures. In this market, it’s more important than it’s ever been.”

Unfair rules

In March, the sluggish market, combined with the growing dominance of OREX in the Hamptons, prompted a lawsuit that’s bringing greater scrutiny to East End real estate practices.

Since 2007, the majority of area firms have begun using OREX and its accompanying Web site, HREO (Hamptons Real Estate Online), to post listings and share them with other firms.

George Simpson, owner of competing data service Suffolk Research Service, and his wife, Jean, a broker, filed the suit against OREX and 25 firms and individuals who use it, including the Corcoran Group and Prudential Douglas Elliman. The suit alleges that the defendants have “enacted and enforced various anticompetitive and unfair rules, policies, practices and procedures.”

The Simpsons are seeking $18 million in damages.

OREX and its accompanying internal data management system, RealNet, charges members around $40,000 a year, which is prohibitively expensive for many small firms, the suit said. It also lets members choose which brokerages will receive their listings.

“There’s a component of the system that allows agents to decide the agencies with whom they’ll co-broke, as opposed to sharing listings with everybody,” said James Young, a principal broker at the East Hampton firm Rosehip Partners, which is not party to the suit. “You can pick and choose.”

That aspect of the system has worsened exclusionary practices that existed before OREX came along, George Simpson said.

For example, when his wife was the manager of Southampton’s Elliman office, an agent from the firm Alan Schneider Associates (which is now part of Corcoran) “refused to send my wife’s office any faxes or co-brokes for almost a year, because he wanted to exclude Prudential,” Simpson said.

Over the last two years, some brokers say OREX has crystallized those previous practices, since not all firms can afford it — and even if they can, other firms can still choose not to share listings with them.

“There’s a history of protectionism out here,” said Daly, who has worked for both Corcoran and Elliman in the past. “Now that it has gone from faxing to digital, it’s still about trying to eliminate the number of outside agencies that can come into the market.”

But Daly said now that the market is faltering, practices like not publishing a property’s address have begun to push customers to the breaking point.

“It really infuriates a lot of customers, because they’re like, ‘Enough of these games,'” he said.

Furthermore, as the real estate market has plummeted in recent months, Simpson said, the prominence of OREX is making it even harder for some firms to survive. He pointed to the Tuma Agency in Montauk, which recently closed, as a prime example.

“There have been a number [of small agencies] going out of business out here because of this practice, and a number of others are complaining and hurting,” Simpson said.

Nicholas Khuri, managing partner of RealNet and the owner of OREX, said his company is merely a technology provider.

“It is not our place to get involved in issues such as with whom, and why, agencies do not share their information,” he said. “We expect them to abide by the law.”

Mindnich, who is not a member of OREX, said because large Hamptons firms do not share with her company, she’s had to tell interested buyers that she can’t show them Hamptons houses. Such tactics not only hurt her business, but also hinder sellers trying to unload their homes in a difficult market.

“I can’t imagine a seller saying, ‘I don’t want Corcoran involved,'” she said. “You have to wonder how much sellers know, and would they approve if they really understood?”

Desiderio, whose agency is named as a defendant in the suit, said that while “a few agencies pocket the listings,” most cooperate with each other.

“All the local companies have always shared information quite well,” she said.

Meanwhile, some brokers also question the fact that large companies like Corcoran and Elliman are members of MLSLI but do not put their South Fork listings in the system, despite MLS rules that require members to post all their properties.

“The bulk of real estate brokers and realtors out there are not on MLS, they’re all on OREX,” said John Nickles, the principal member of Lewis & Nickles Real Estate and president of the Hamptons and North Fork Realtors Association, known as Hanfra.

He said Hanfra has tried to launch its own MLS, but “it’s not getting much traction.”

“People who are involved in OREX don’t see the benefit of MLS,” he said. “They’re just used to doing business the way they’ve been doing business.”

Representatives for the Long Island Board of Realtors, which operates MLS Long Island, did not return phone calls for comment.

Easing resistance

The fact that the downturn hit Wall Street — the Hamptons’ lifeblood — so hard may, ironically, help change things for the better on the East End.

Desiderio said she’s noticed that agencies — even those that seemed reluctant to co-broke in the past — now seem to be sharing listings more often.

“That’s what a bad market will do,” she said. “They’re not so quick to try to sell it in-house.”

Daly said he too has seen a shift. “There’s even a growing drone for an MLS in this market among agents who have been through this very low-volume market,” he said.

Another change for the better, he said, may be the presence of StreetEasy. The site aims to increase transparency by using municipal data to disclose closed sales, price changes, days on market and other information.

StreetEasy won’t be a magic bullet, especially since information is so inaccessible in the Hamptons, but some firms have already started providing information directly to the site, Gross said.

“Hopefully we’ll enact some change,” he added. “They really need more alternatives out there.”

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