Editor’s note: This is the first of two stories examining the regulatory crossroads of traditional and new real estate business models. The first story looks at what state agencies are doing to implement minimum real estate service requirements that can impact new business models, and the second story will focus on local policy changes taking place. (See Part 2: Real estate policy changes spark controversy.)
It started in Texas, succeeded in Illinois and is under consideration in several other states. There is a piecemeal movement that represents a broader trend to define statewide minimum-service standards for real estate agents, and to distinguish full-service companies from those that are not full service.
At the crux of the minimum-service debate is the question of how much service a real estate agent should be required to perform for consumers, and whether it is even appropriate to set such requirements. The rise of alternative real estate business models is a major driver in this push to set standards.
In Illinois, the legislature passed a public act in August that requires agents to “accept delivery of and present to the client offers and counteroffers to buy, sell or lease the client’s property or the property the client seeks to purchase or lease” in cases where an exclusive brokerage agreement exists.
These newly required services are beyond the typical range of services provided by some limited-service and MLS-listing-only brokers.
On a more local level, some Realtor associations and multiple listing services have placed restrictions on certain types of listings and developed policies that have led some alternative real estate companies to change their business practices.
The backers of such law changes and rule changes typically say that they are working to protect consumers and trying to resolve complaints or confusion, while those companies most impacted sometimes question whether the new laws and rules restrict consumer choice and put their companies at a disadvantage.
Earlier this month, hundreds of real estate professionals gathered at a National Association of Realtors panel discussion in Orlando, Fla., to hear a discussion of “Full-Service and Limited-Service Brokers: The Legal Challenge of Working Together.” Members of the association’s MLS Policy Committee and Professional Standards Committee – key groups in making recommendations to the association’s board of directors on MLS issues and in advising about Realtors’ code of ethics – were invited to attend.
John Kmiecik, a panelist during that discussion and president of the Illinois Association of Realtors, promoted new Illinois legislation that sets minimum-service requirements for brokers that enter into exclusive brokerage agreements with clients. The law, enacted in August, also defines those exclusive brokerage agreements. During the discussion, Kmiecik encouraged Realtors from other states to study the law to see whether a similar version could be applied in their states.
Consumer protection, he said, was at the core of the effort to change the state’s real estate law.
Also during that forum, several audience members noted that other states were already considering similar legislation: Michigan, Missouri and Pennsylvania, were a few of the states mentioned. There are reports that Alabama and Wisconsin also may be considering similar measures.
The National Association of Realtors does not have any official point of view on establishing minimum-service standards, said Steve Cook, a spokesman for the association. “NAR as an organization has no official position on whether this should take place or not,” he said.
While the association encourages professional behavior by its members “and does a lot to promote it,” raising the barriers to become a Realtor could potentially become an antitrust issue, Cook said. “There are no performance standards to become a Realtor. There never have been,” he said.
Cook said the minimum-services issue definitely is drawing a lot of attention. “A lot of people within the organization are very interested in this.” The association is based in Chicago.
There is no question that establishing minimum-service standards for brokerages is a hot item across the country, said Craig Cheatham, executive vice president for the Association of Real Estate License Law Officials, an international group based in Montgomery, Ala. ARELLO is a nonprofit association that links entities involved with real estate regulation.
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It is an issue that is cropping up in jurisdictions across the nation, he said.
“One side says it’s anticompetitive, and the other side says it’s consumer protection. The debate is what level in the industry should consumers be allowed – should they be allowed to be provided a minimum amount of services? Does the regulatory industry need to come in and set a minimum level?” Cheatham said.
“The regulatory idiom is, ‘Are there any babies in the snow?’ Regulators are reluctant to come in without there first being an outcry. There are few formal complaints being filed, but it’s anecdotal evidence that’s pushing for this,” Cheatham added. There are factors that could contribute to this low reporting, Cheatham said, such as a lack of consumer knowledge about the formal complaint processes or a desire to move on after a bad experience with a company.
The success of efforts to establish minimum-service requirements may depend on the manner in which the proposed changes are presented, Cheatham said. Already there is the example of Illinois, in which the legislation easily passed, and Texas, in which the requirements have been held up by legal and political skirmishes.
In the Texas example, a discount broker fought a rule by the state’s real estate commission that set minimum standards for real estate brokers, and the state’s attorney general is considering whether to allow such a rule.
The Texas rule would have required all real estate brokers to offer assistance in developing, communicating, presenting, accepting and understanding purchase offers and counter-offers.
“It may be more style than substance – to me, it seems when a consumer-protection argument is made as the basis for this, that it is going to get a lot of play,” he said. On the flip side, a proposal that is perceived to be anticompetitive in nature may meet resistance, he said.
ARELLO hasn’t yet taken a stance on the issue of minimum-service requirements, he said, though the group will discuss the issue at a board of directors meeting in January.
Corey Scholtka, owner of BuyHomes.com, a flat-fee brokerage based in Wauwatosa, Wis., said his state may be on the verge of considering legislation related to minimum-service requirements. “I’ve had conversations with high-level executives within my association – they have stated that they have definite plans to move forward (with a new law),” he said.
Michael Theo, vice president for public affairs for the Wisconsin Realtors Association, said that the idea of setting minimum-service requirements “is one of many transactional issues that are on the table at this point, with no real concrete proposal or even consensus on whether any legislation will be introduced at all.”
Scholtka said that for alternative real estate companies across the country, the options are to fight — “I think most Realtors like myself would prefer not to go that route,” he said — or adapt their business practices to the new laws. “They can change the rules all they want but they can’t change what we charge,” he said.
Monday: Local changes in policy impact some alternative business models.
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