Update: Faira has reached a settlement with the Washington State Department of Licensing. Under the deal, Faira agreed to hold its buyer fee in a trust account until Faira’s money-back policy expires, said Faira CEO Kamal Jain. The company was not required by the regulator to make any other changes, he added.
A for-sale-by-owner (FSBO) startup has been charged with operating as an unlicensed brokerage by a state regulatory agency.
The Washington State Department of Licensing has notified Kirkland, Washington-based Faira that the agency planned to serve the company with a cease-and-desist letter for conducting certain activities without a broker’s license, including negotiating funds in connection with transactions.
Faira’s CEO maintains Faira follows all applicable licensing laws.
The case shows how startups offering innovative real estate services can still run into regulatory hazards. It was sparked by brokers and consumers who filed complaints.
Faira’s business model
Faira’s free listing option includes traditional FSBO services, such as photography, for sale signs and lockboxes.
But unlike many FSBO services, the free option also comes with an MLS listing posted by its licensed brokerage subsidiary or a “partner broker,” as well as inspection and title reports. Faira’s paid package, which costs 1 percent of a home’s price, offers agent support services.
Public log of bids on a Faira listing page.
Faira, which shows 12 active listings on its website, is pioneering the use of “transparent bidding” and an alternative to earnest money deposits. Both are designed to eliminate “downstream negotiations” that often occur after a seller accepts an offer.
Faira posts a listing’s title and inspection reports upfront for all buyers to see, collects a $500 fee from buyers who make offers (which increases to 0.5 percent if a transaction closes or is refunded if their offer is turned down) and publishes all bids on its website. (See Inman’s profile on Faira for more information.)
Allegations
In a statement of charges sent to Faira in mid-October, the Washington licensing department said it had received six complaints about the company from both consumers and real estate brokers between November 2015 and August 2016.
It said an investigation revealed that, among other activities, Faira engaged in the following:
- Directing the entry of a listing into the Northwest Multiple Listing Service (NWMLS) through a “Faira-partnered” real estate broker
- Negotiating and filling out listing contracts
- Communicating with the “Faira-partnered” broker, with a seller having “no communication at any time” with that broker
- Collecting and holding funds “in connection with the negotiating, listing, and selling of real property,” such as by collecting fees from buyers
- Negotiating a transaction directly or indirectly by setting forth terms required in a purchase and sales agreement, such as by requiring that a buyer receive a refund of the platform fee if he or she can’t obtain financing due to an appraisal
- Informing “parties of the legalities associated with the purchase and sale agreement”
- “Opining” about “when a contract is formed,” such as by telling a buyer’s agent “you are not in contract” until Faira’s platform fee was paid
- Using for sale signs to represent to the public that Faira is engaged in brokerage services
The licensing department said that the conduct outlined in its letter showed that Faira CEO Kamal Jain, whom it said doesn’t hold a Washington real estate broker’s license, and Faira, which it said doesn’t hold a Washington state real estate firm license, were “acting and/or holding himself out as a real estate broker or managing broker.”
That conduct was grounds for a cease-and-desist order and a fine of up to $1,000 for each day “upon which a person or corporation engages in unlicensed practice,” the regulator said.
The letter, which Inman obtained through a public records request, added that the director of the licensing department “will issue a permanent order to cease and desist unlicensed real estate brokerage service activity” to Jain unless Jain requested a hearing within 20 days of the date of the letter to contest the allegations.
‘I believe this is pretty much solved’
Jain told Inman that Faira already has had a real estate broker’s license under a subsidiary, faira.com LLC, “from the very beginning” and has conveyed that to the department.
“Our attorney has talked to the [department of licensing] over the phone and they have welcomed the changes,” he said. “I believe this is pretty much solved, since the changes they were looking for are already implemented.”
He said Faira has used partner brokers for “business reasons.” Asked to specify those reasons, Faira spokeswoman Katrina Wisner said that “Faira is a technology company and we want to maintain that focus.” She said that’s also the reason why Faira holds a real estate license through a subsidiary, rather than holding the license itself.
Jerry McDonald, an administrator at the Washington licensing department, said the agency hasn’t withdrawn its charges and is reviewing a response from Faira.
Faira is far from the first real estate startup to encounter regulatory friction.
In addition to real estate laws, roadblocks for industry disruptors have included Realtor association and MLS rules, such as the MLS guidelines that the National Association of Realtors rescinded as part of an anti-trust settlement with the U.S. Justice Department in 2008.
Pushback against “paper brokers” — companies that join MLSs for access to MLS listings but don’t provide brokerage services — epitomizes the U.S. real estate system’s tendency to pose a challenge to new business models.
Editor’s note: This story has been updated with additional comments from Faira and the Washington State Department of Licensing.
