Full-Service Brokers Rig Real Estate Game in Their Favor, Editorial Says

As the demand for Florida home loans slows in some areas, this may not even be the largest real estate concern in the region. A recent editorial in USA Today discusses the unfair obstacles buyers face within the industry. It begins with the following questions:

- Why have real estate commissions remained above 5% even as home prices have surged

- Why does an agent of 20 years receive the same commission as a rookie?

- Why has the Internet, which has revolutionized other businesses, had relatively little effect on real estate?

As we’ve discussed, the latter issue may be changing because the online Florida home loan world is taking of. As for the other questions, they may have a common answer: because the industry is intent on keeping things that way.

Through a combination of industry rules and recently enacted state laws, the major brokerage firms and the National Association of Realtors (NAR) are thwarting innovative, Internet-based real estate businesses that could bring real change to a business that is inefficient, anti-competitive and anti-consumer. Oh yes, these changes could also bring huge savings for people who now pay ridiculous commissions to sell their homes.

If new compaies that offer lower commissions for varying levels of service gain a foothold in the real estate business, they could do for it what companies like Charles Schwab and E-Trade did for the stock brokerage industry: provide a low-cost alternative for those who wish to pursue a Florida mortgage loan themselves, while forcing down fees across a broad range of service levels.

While that might sound good to people buying and selling homes, full-service brokers see it as a threat. In the past two years, industry lobbyists, the NAR and local Realtor boards have used their clout with state legislatures to wall themselves off from competition. Some of their increasingly blatant tactics include:

• Minimum service requirements. According to the Consumer Federation of America, 10 states have essentially banned no-frills brokerages by mandating a long list of services that agents must provide, regardless of whether clients want them. In Indiana, where a new law went into effect July 1, a leading discounter has already decided to shutter its operations there.

• Bans on buyer discounts. Eleven states have barred discount brokers from rebating some of their commissions to their clients. Some start-up companies have used this practice as a way to break into a market. Most people would call this free enterprise. The full-service brokerage industry calls it unethical.

• Multiple Listing Service (MLS) rules. The NAR has proposed barring discount brokers from gaining full access to MLS listings. These services, which pool the listings of multiple firms in a given area, are a powerful tool. The possibility that they might be used to discriminate against low-cost competitors has attracted the ire of the generally laissez-faire Bush administration. The Justice Department has a pending antitrust suit against the NAR over the MLS issue.

Some in the industry say restrictions are necessary to protect consumers from unscrupulous or incompetent Internet start-ups. It’s true that some of the firms that have come and gone have been poorly conceived, undercapitalized or downright shady.

But that happens in any new industry and is no reason to crush it. In fact, many of the companies that are pulling up stakes are doing so because they are being prevented from doing business, not because they are poorly managed. We need to open up the world of Florida home equity loans and similar resources.