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Elizabethtown, KY, United States, 03/29/2006 – The federal governments antitrust lawyers, consumer groups, and a new breed of real estate brokers offering flat fee and limited services are taking the sides of consumers in questioning the organized real estate industry and its influential trade association, The National Association Of Realtors (NAR). The NAR with its 1.2 million dues paying members ($84 per member) has millions of dollars in the bank and is not shy about using it to pay lobbyist, hire attorneys and buy advertising in an effort to slow the momentum toward a market where less reliance on Realtors becomes commonplace.
At the heart of the conflict is a tool known as the Multiple Listing Service (MLS) governed, though not owned, by the powerful National Association of Realtors (NAR) headquartered in Chicago. Some sellers want to gain access to advertise their homes for sale by owner (FSBO) and buyers want access to search for homes without necessarily committing to work with a particular sales agent or company. Both of these consumer demands run counter to the organized real estate industry which is committed to protecting the 6% commissions, keeping agents in the loop and reversing this consumer trend.
Community and state Realtor associations ,which are benefactors of the power and influence of the National Association Of Realtors, are encouraged to influence state real estate regulators to promote rules, laws and procedures that erect legal barriers for progressive brokers willing to offer real estate consumers more of what they are asking for. Under industry pressure, many states have already taken steps that are adverse to consumers and benefit the industry exclusively while touting their motivation as “consumer protection”.
Currently most brokers offer a real estate fee structure that is based on the selling price of a house. The broker earns a commission of around 6% (or the market rate) of the selling price and splits this between the buyer’s agent and themselves. More expensive sales result in larger commissions under this system and often the listing broker earns the entire amount ($12,000 fee on a $200,000 sale is common).
What seems to baffle many sellers is why the broker’s fee to sell a $250,000 house is twice as much as the fee to sell a $125,000 one. Realtors say that the amount of work they do on each transaction is virtually the same and offer no plausible reason for the disparity in fee except that “ it has always been this way”.
Consumers are also wondering why state real estate regulators are creating barriers to real estate brokerage business models that un-bundle the real estate transaction and let them purchase only what they want and need. For example, they may want to purchase MLS only while representing themselves in the sale and potentially keeping thousands of dollars out of the hands of a real estate agent and in their own hands.
Although flat fee and limited service real estate brokerage companies have been around for a long time, the popularity of using one of these companies has exploded recently as consumers search the internet, get more informed and discover the potential savings of handling part if not all of the transaction themselves.
The National Association Of Realtors (NAR) is hoping that it can run enough ads and influence enough state regulators to keep the momentum from building in the direction of this trend. No one knows where the tipping point is that might cause a complete break down of the current commission structure but the NAR is betting that it can stay out in front of it.
Perpetuating the myth that selling a house is too complex and time consuming for sellers and too legally risky for buyers is a common theme in most industry advertising programs focused on driving consumers into the open arms of the over two million licensed agents nationwide.
Even state real estate regulators have turned to running radio spots at taxpayer’s expense attempting to scare home sellers about selling their house by owner. For example see krec.ky.gov for the version from the Kentucky Real Estate Commission.
After all, “ selling or buying a house is potentially the largest investment the average person ever makes” says the radio spot “ and “it’s just too risky to try it on your own”. “Go with a licensed agent” they advise. The reality is that many active agents have been through a two-week real estate course, passed the one hundred question exam and have usually been in business for two years or less with very limited training in negotiating.
At a time when practically every other industry has undergone change that reflects the demands of consumers, the real estate industry stands virtually alone as a holdout. The two factors that make this possible are organization and funding. The National Association Of Realtors is both organized and well funded to take on a direct legal assault by the US Justice Department, Antitrust Division,mount a nationwide advertising campaign and teach state Realtor associations how to stop the spread of the limited service or flat fee real estate company business model in each state simultaneously.
Although consumers deserve more option and certainly have more choices now in selling and buying real estate than in years past, they may not actually stand a chance when faced with the power and influence of the organized real estate brokerage business that can’t afford to change.
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