State regulators should take a more active role to prevent discrimination and promote competition in the real estate industry, the Consumer Federation of America advocates in a report released this month.
“Traditional brokers, and often their trade associations, have used various strategies to limit or prevent the growth of nontraditional brokerage services,” the consumer group charges in the report, “Nontraditional Real Estate Brokers: Growth and Challenges.” State regulators, the report also states, “need to supplement the efforts of … federal agencies to promote a free, nondiscriminatory residential real estate brokerage marketplace.”
It is the latest in a series of reports issued this year by the Washington, D.C.-based federation that criticize the real estate brokerage industry’s treatment of nontraditional companies and calls upon state regulators to step up their efforts to protect real estate consumers. The advocacy group is supported by about 300 nonprofit organizations and has a mission to advance pro-consumer policy on a variety of issues.
In July the advocacy group called for the independent regulation of real estate brokers, citing its survey that found about 79 percent of all state real estate commissioners “earn a living through real estate transactions,” with 70 percent working as real estate brokers or salespersons. Stephen Brobeck, executive director for the consumer group, encouraged governors and state legislators to pass measures that prohibit active real estate brokers from serving as real estate commissioners.
And in June, the consumer federation released a report that described the traditional real estate brokerage industry as a “real estate cartel” and called for “fuller and more timely consumer information, ending of discrimination against nontraditional brokers, and effective, independent regulation” in the industry. The National Association of Realtors rebuffed findings in this report, stating that the real estate industry “is one of the most competitive business environments in the world” and features about 80,000 brokerage companies and more than 2 million real estate licensees.
This latest report describes the various business models used by nontraditional brokerage companies and provides examples of industry practices that can restrict competition. Nontraditional brokers, as described in the report, “offer services, charge prices, or provide (or do not provide) representation in ways that differ from, and usually threaten, traditional brokers.”
In response to this report, the National Association of Realtors stated that consumers can choose to work with “discount, limited-service or minimal-service brokerages,” among others. “NAR’s policies foster the interests of all Realtors and real estate consumers. We support all business models and favor none.”
Debbie E. Campagnola, CEO for the Association of Real Estate License Law Officials, an international group that includes representatives for real estate regulatory agencies, did not respond today to Inman News requests for comment about the report.
There is “considerable evidence” that nontraditional brokers have grown in number and market share of real estate sales, the report states. The share of real estate sales involving nontraditional brokers rose from 2 percent in 2002 to 11 percent in 2005, according to statistics from real estate research company RealTrends cited in the report. And Wall Street Journal articles have stated that the proportion of home sellers using traditional brokers declined from 74 percent in 2002 to 70 percent in 2005.
In addition, a CFA examination of Yellow Pages directory listings of real estate agents in 10 cities found that “there has been a large increase in advertising by nontraditional brokers.” For example, listings of discount, flat-fee and for-sale-by-owner business directory listings increased by 152 percent from 1995-2005 in 10 cities studied, while listings of exclusive buyer-agent businesses grew 20 percent in that time.
Also, “the prominent and pricey display advertising” for nontraditional real estate businesses grew 31 percent from 1995-2005 while the use of “boxed” directory listings grew by 73 percent, the report states. The 10 cities studied include: Akron, Austin, Boston, Columbia, Columbus, Des Moines, Miami, San Jose, Seattle and Washington, D.C.
Traditional brokers “did not passively accept changes in service, pricing and representation options,” the report charges. Nontraditional brokers have at times faced an uneven playing field in participating in the real estate market, according to the 18-page report.
Some multiple listing services, for example, have placed some restrictions on the online display of a category of property listings that is more commonly used by nontraditional brokers, and the Federal Trade Commission has announced actions against several MLSs in an effort to stamp out this practice.
Also, the CFA report cited MLS rules that prevent homeowners from displaying for-sale-by-owner signs when working with an MLS-member company, and boycotts of companies that do not offer a high enough level of compensation to cooperating brokers.
“Because traditional brokers working with buyers are usually compensated with a ‘split’ of the commission paid by sellers, the level of that split can and has influenced their interest in showing homes. Specifically, there is much evidence that traditional brokers are reluctant, or refuse, to show homes with commission splits under 3 percent,” the report states, and includes references to complaints filed with the CFA, news articles and communications from real estate industry professionals.
While the CFA commends the efforts of the U.S. Department of Justice and the Federal Trade Commission to stop potentially anticompetitive practices in the real estate industry, the report states that “discrimination is too varied and frequent for federal agencies ever to adequately block completely. It is up to more independent and vigorous state regulators to conscientiously and fairly address every grievance filed by nontraditional brokers. And they must be willing to meaningfully sanction all egregious violations.”
The report encourages state regulators to: “intervene fairly” in cases of anticompetitive actions against nontraditional brokers, to prevent brokers’ actions that “deter competition and poach clients” from nontraditional brokers, to “act in a timely and impartial manner in disputes,” and to study state and local real estate marketplaces “for bias against nontraditional real estate brokers and models.”
Regulators, the report suggests, should also “repeal or oppose anticompetitive laws or legislation such as minimum-service and anti-rebate laws that exist in more than one-fifth of states. And they should direct state regulators to regulate the policies and practices of all service providers equally.” Several states have passed laws — in some cases despite the objections of Justice Department and FTC officials — that require all real estate brokers to perform a specific set of services for their clients (known as “minimum-service” measures), and the federal agencies have taken action against some states that prevent real estate companies from offering rebates to consumers in transactions.
The CFA report states that consumers, too, can play a role “in ensuring a more competitive, pro-consumer marketplace,” by negotiating for prices and services with real estate companies, and the report encourages consumers to file complaints with state regulators when they “see any evidence of discrimination against nontraditional services.”