More than a dozen U.S. states now have so-called “minimum-service” or “limited-service” laws, which purport to protect home buyers and sellers from the supposedly egregious conduct of “discount” brokers who don’t provide all of the traditional real estate brokerage services. These laws are unnecessary and confusing at best and detrimental to the public interest at worst.
Among the latest incarnations are new laws in Virginia and Tennessee. The Virginia version requires real estate licensees to provide certain services within an agency relationship or disclose which services won’t be provided within a limited-service representation. The Tennessee version requires real estate agents to provide certain services and, if the seller opts to “waive” any of those services, inform him or her that those services can’t be sought from any other agent in the transaction. A proposal on the table in Michigan also would require real estate agents and brokers to provide a specific set of services for their clients.
A number of these curious laws have attracted the attention of the U.S. Department of Justice, the U.S. Federal Trade Commission, state regulatory agencies and consumer advocate groups, all of which are concerned about the effect on competition and choice in the real estate brokerage sector. Those concerns are on the mark. Real estate brokerage is highly competitive among established companies, yet these same companies are quick to band together behind their powerful trade associations to protect themselves from new entrants who introduce innovative business models.
The latest laws in particular appear to accomplish little more than to add more disclosures — and presumably yet another sheet or two of paper — to an already overly complex transaction. Home sellers and buyers have a tough enough task to understand even the rudimentary aspects of agency relationships in real estate.
Even worse is Tennessee’s requirement that the real estate agent must enumerate services that he or she is not going to provide. Since no such duty is imposed on any other sort of business, such a warning seems almost perfectly designed to pressure home sellers into buying services they might not need or want.
Inman News reader Brian Jones of Century 21 Lumbertown in Muskegon, Mich., observed the true purpose of such laws, which generally haven’t been brought forward in response to complaints from home sellers and buyers, but rather as creations of state Realtor associations.
“We all know the real issue here (is) protecting the majority members (of the association), who operate full-service agencies from the so called ‘limited-service’ providers,” Jones wrote in a recent letter to the editor.
Essentially, these laws are full-commission measures for real estate brokers. Home buyers and sellers want to pay a reasonable and fair amount of money for the services they believe they need to sell or buy a home. They don’t want their choices restricted, nor do they want to pay inflated commissions that serve to protect an inefficient industry.
A slowdown in the number of home sales and the speed at which homes are being sold is bound to force a sizable number of the nation’s 1 million-plus real estate licensees to exit the business, and since many of those soon-goers are likely to be newbies, there will be fewer inexperienced licensees on either side of the transaction. That trend should make the business more efficient and result in opportunities for both traditional and lower-priced companies.
Experts may disagree on whether today’s market conditions could make minimum-service businesses more difficult to sustain. On the one hand, sellers are likely to take a much harder look at the actual dollars represented by the “full” commission, and they’re likely to wonder why they should pay the price of a new car to sell their home. Yet sellers also will be more in need of brokerage services as homes become more difficult to sell. Again, those dynamics present opportunities for both traditional and limited-service companies.
Either way, limited-service brokerage isn’t the problem, though it does present a real dilemma for any agent who is on the other side of such a transaction. Laws that mandate a certain standard of service — with or without disclosures, waivers and the like — are not the right solution to that problem. The right solution is to eliminate the commission-share system between the seller’s broker and the buyer’s broker and replace it with a much fairer, more logical and more efficient system in which sellers and buyers pay their own brokers for the services they need and want in the transaction. State laws that fixed this structural problem would be welcome.
Marcie Geffner is a freelance reporter in Los Angeles.
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