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Hugh had sold real estate in San Diego before and believed that
the city was a good test market. Sale By Owner opened there.
Almost immediately the business had problems. As an
advance-fee broker the Department of Real Estate had to
preapprove all of its advertising. The time lag destroyed Sale
By Owner's marketing agility. Furthermore, and perhaps more
importantly, few homeowners in San Diego wanted the service. The
office in San Diego closed in November of 1982, and Sale By Owner
moved to the Palm Springs-Rancho Mirage area (Desert Area), a
resort market with seasonal buying patterns. Hugh, who was
"broke" at this point, quit the project.
The experiment continued in the Desert Area, using Hugh's
corporate brokerage license, and began to turn a profit early in
1984. However, in the same year, both Far Western and Sale By
Owner abruptly collapsed. In August of that year, Hugh's
membership with the Board of Realtors and the Multiple Listing
Service for the Desert Area, which both subsidiaries used, was
canceled. Hugh's father, McMahon, in that same month, instigated
the McMahon Litigation. As a consequence of the impending
litigation, Far Western and Sale By Owner were not able to find
another corporate broker and failed to participate in the 1984-
1985 selling season in the Desert Area. Furthermore, the suit
consumed much of the time of petitioner's management. By 1985,
both subsidiaries had ceased operations.
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