realtors fight unbundling (and pols help them)

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The management at shlep was too busy preparing for liftoff, on Sept. 3, 2006, to pay sufficient attention to the New York Times article “The Last Stand of the 6-Percenters?.”   Nonetheless, we want to bring it to your attention, now, because it highlights the battle being waged by real estate brokers and agents (realtors) to deprive home sellers and buyers of the benefits of unbundling, price discounting, and the information-access potential of the internet.   Although most sellers and buyers still hire real estate agents, neither are required to do so, and there are self-help materials available to guide the do-it-yourselfer through this process, or make it possible to do some of the tasks traditionally performed by brokers.  Of course, you have to be able to find an agent willing to unbundle his or her services and take on discrete tasks at a lower price.  [See the Nolo.com articles Do You Need a Real Estate Agent to Sell Your House? and Should I Hire a Real Estate Agent or Lawyer When Buying a House?  

  

That’s nice, you might say, but why is a website focused on self-help law focusing on this topic?  The answer is that realtors have been trying (successfully in several states already) to get laws passed that would make significant unbundling unlawful.  Here’s how I explained the situation last year at f/k/a, in the posting “Realtors and Legislators Are Selling You Out“:    

  

Realtors like receiving that large, uniform commission — usually 6 or 7 percent of the purchase price — every time they sell a home.  Therefore, they dislike discount brokers, and particularly those who unbundle services and let home sellers pay a flat fee for each service or an option package. Of course, if the realtors conspired together to exclude, punish or otherwise disadvantage cut-rate or fee-for-service brokers, they would violate the antitrust laws. 
   

However, realtor associations have found a sword against discount brokers and a shield against the antitrust laws:  They’ve been successfully lobbying state legislators, who have dutifully enacted so-called “minimum service laws” (in the name of consumer protection, of course), which require brokers to provide a broad set of services, regardless of whether the consumer wants or needs them.  Because trade associations can lobby without violating the antitrust laws (under the Noerr-Pennington doctrine), and they receive “Parkeror State Action immunity from the antitrust laws for conduct that is required under a state law, consumers in many states have no antitrust protection against minimum-service laws, and now face fewer choices and higher fees when they sell or buy a home.

RealtorSign According to the GAO, ten states have or are considering minimum service requirements for brokers.  (see A Summary of the American Antitrust Institute Symposium Competition in the Real Estate Brokerage Industry, by Norman W. Hawker, Sept. 21, 2006, at 18; and related articles reprinted by the Real Estate Law Journal, Vol. 35, #1).   The Federal Trade Commission and Department of Justice have attempted to stymie this legislative end-run around competition and consumer choice by realtors, by filing advocacy submissions in Texas, Alabama, Missouri, and Wisconsin.  So far, though, their efforts have been fruitless.  The two agencies stated in their advocacy letters that “that these laws would reduce consumer choice and likely lead to higher prices for real estate brokerage. Further, in reviewing minimum-service brokerage proposals in several states, we have not encountered any evidence of consumer harm from limited service brokers (for example fraud or misfeasance) that would justify these minimum-service laws.”
   

The FTC did get a consent agreement from the Austin [TX] Board of Realtors in July, 2006, after bringing charges that they were illegally restraining competition from discount brokers, by effectively preventing consumers with real estate listing agreements for potentially lower-cost unbundled brokerage services from marketing their listings on important public Web sites.  Unfortunately, such restrictions would be perfectly legal if the realtors got them adopted by the Texas legislature, which gladly passed a minimum services law last year for their friendly realtors. 
   

Sellers of homes should not have to go the complete FSBO route (For Sale By Owner) in order to escape the high uniform commission fees regularly charged by realtors. For example, the seller who wants to show the home and advertise it herself should be able to find real estate agents who can lawfully perform other more complicated tasks.  Also, buyers shouldn’t be deprived of using less-expensive internet-based agents (who often rebate a large portion of the fees they get for the sale).  For there to be a “middle ground,” however, citizens must be vigilant against the passage of minimum brokerage services laws.  [Read the entire NYT article for more colorful details, and also the response of a weblogging realtor at 360Digest, who was quoted in the piece saying the discounters may be “trying to manufacture controversy.”]
   

Legislative  HouseForSale  ?

update (Oct. 12, 2006): According to Mark Nadel’s AEI-Brookings Article on real estate broker commissions, discussed at length in our update post, there are seventeen states with minimum services laws that restrict unbundling: Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Missouri, Ohio, Oklahoma, Pennylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin.   [thanks to David Fischer at Antitrust Review weblog for pointing to this post]

5 Comments

  1. shlep: the Self-Help Law ExPress » Blog Archive » real estate “broker” updates

    October 12, 2006 @ 8:27 pm

    1

    […] david giacalone – October 12, 2006 @ 8:27 pm · Studies & Reports, News Items Here are two new items that relate to last night’s post realtors fight unbundling, and to the theme that real estate brokers are trying to keep home buyers and sellers “broker” than should happen in a truly competitive marketplace: 1]  The Federal Trade Commission announced a real estate broker enforcement sweep today, explaining that it would litigate against two real estate groups and accept consent agreements from five others: According to the press release (dated Oct. 12, 2006): The Federal Trade Commission today charged two real estate groups operating multiple listing services in the Detroit, Michigan, area with illegally restraining competition by limiting consumers’ ability to obtain low-cost real estate brokerage services. The Commission also announced consent agreements with five other groups operating multiple listing services in parts of Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, that have discontinued the challenged conduct. […]

  2. Stu

    November 22, 2006 @ 6:34 am

    2

    There needs to be a better way for people to conduct a simple real estate transaction. We often point people to real estate firms for the paperwork this way people can sell there homes FSBO and save from not having to pay the commision.

  3. Terry Shortt

    November 22, 2006 @ 12:47 pm

    3

    Kentucky Real Estate Commission Slammed by Consumer Group

    NewswireToday – /newswire/ – Elizabethtown, KY, United States, 07/28/2006 – A report by the Consumer Federation Of America labels the Kentucky Real Estate Commission (KREC) as “amongst the most aggresive at promoting the interests of the real estate industry over that of consumers”

    At issue is the dominance of the state real estate regulatory body by active brokers and lawyers and their close ties to the industry that they are chartered to oversee.

    There seems to be at least three major areas of contention that caused consumer groups, the Department of Justice, Antitrust Division, and the Federal Trade Commission to focus attention on state real estate regulatory bodies. They are:

    • Minimum Service Laws and Rules imposed by the regulatory body on brokers that virtually eliminates the possibility of purchasing real estate services on an a la carte basis that has the potential to save sellers thousands of dollars on the sale of their house.

    • Promotion by the real estate regulatory body of a convoluted form of representation called “”duel agency and designated agency”” that makes it legal to represent two opposing parties to the same transaction.

    • The imposition of “”anti-rebate”” laws that make it virtually impossible for brokers to compete with each other for business based on the price of their service.

    The Kentucky Real Estate Commission suffered a set-back in the 2006 state legislature when it’s proposed minimum service law was struck down under pressure from antitrust official, flat fee brokers and consumer groups. The commission then circumvented the lawmakers and exercised its power to create a minimum service “”rule”” that has the same effect as the originally proposed law but did not require legislative approval. Kentucky’s current minimum service rule has reportedly been a factor in the demise of some Kentucky limited service brokerage operations.

    “”Duel Agency and designated agency”” are promoted by the Kentucky Real Estate Commission and serve the industry well to the detriment of consumers, according to some observers. These convoluted deviations from common agency law make it possible for brokers to shield the fact that they actually represent neither party in the transaction while collecting a larger commission and remaining in compliance with Kentucky real estate license law.

    Up until 2005, The Kentucky Real Estate Commission enforced an “”anti-rebate”” law that made it impossible for brokers to compete for customers based on the price of their service. Served with a federal lawsuit objecting to this provision as an antitrust violation and charging the commissioners with conspiracy, the Feds and the Kentucky Real Estate Commission reached a settlement agreement that forced the Commission to stop enforcing the rebate law.

    The Kentucky Real estate commission was also criticized recently for running radio commercials  krec.ky.gov) that posed as “”public service announcements”” claiming that Kentucky licensees are “”trained real estate negotiators”” and by not working with one of them a seller could expect to lose up to 3% on their home sale. Pre-licensing training for sales agents and brokers in Kentucky actually offers no training in real estate negotiating.

    Currently the Kentucky Real Estate Commission operates independent of oversight by any branch of state government. The panel is made up of active real estate brokers and a lawyer. They generate their own taxes (fees from licensee) and spend it in any way they see fit. Expenses like $20,000 for radio commercials require the approval of no superior agency or person. Some are calling on the state legislature to review this arrangement and an effort is under way to legislate a reorganization of the Kentucky Real Estate Commission to make it more responsive.

    These and other industry friendly real estate laws/rules either created or proposed by the Kentucky Real Estate Commission (KREC) make them seem more like an industry tool than a consumer protection arm of state government in the view of many consumers.

    Many of the rules, policies and laws on the books of real estate regulatory bodies nationwide are adverse to consumers and are forcing them to pay too much for real estate services according to reports. Real estate commission cover for the industry is not unique to Kentucky. The majority of real estate regulatory bodies nationwide need closer scrutiny to detect the abuse of power when and were it exist.

    Agency / Source: TW Short Realty – FlatFeeDirect.com 270-769-2468

    Availability: All Regions (Including Int’l)

    Distribution: [+] Press Release & Newswire Distribution Network. via PRZOOM – Newswire Today  NewswireToday.com)

  4. raubin

    June 14, 2007 @ 8:15 am

    4

    Or go the way that the Spanish real estate market has taken. Basically what happens here is that if you are looking to sale your property, you visit every single agent you can find and let them list the property.

    They will then ask you what you are looking for in terms of prices, then compare your asking price to others on the market due to the unsteady property market at the moment, also the property will be looked upon by its build size which all the banks value the property upon.

    You basically agree a price, they will then add their commission on top of the property price – anything from 3% to 15%! They will then market your property at the agreed price, obviously unless the property is cheap – you more or less never get what you wanted for you property.

  5. Realtor John

    January 22, 2010 @ 6:25 pm

    5

    Make unbundling unlawful? Sounds like something real estate agents would do!The Last Stand of the 6-Percenters is a pretty good article though. The bottom line is, there should be a simpler way of buying and selling house. Seriously

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