Wall Street Journal
August 12, 2005

The Realtor Racket

Why are Governors and state legislatures enacting regulations to make
buying and selling homes as expensive as possible?

We ask this question because in recent weeks three normally
level-headed Republican Governors -- Matt Blunt of Missouri, Rick Perry
of Texas and Bob Riley of Alabama -- have signed into law legislation
that protects Realtors from discount competitors.

About a dozen other states have also buckled to the National
Association of Realtors lobby. They've effectively become partners in
what looks suspiciously like a price-fixing scheme, whereby discounters
are prevented by law from charging fees below the industry norm of 5%
to 6% of the home sales price. The financial victims of this cartel are
middle-income home buyers and sellers who are required to pay brokerage
fees that can easily be several thousand dollars above a competitive
market price.

Real estate brokers are under increasing price pressure from Web-based
home-buying services and other discount brokers. With state lawmakers
so often bellyaching about the decline in "affordable housing," one
would expect politicians to salute these low-fee entrants to the
market.

Instead, state legislatures and real estate commissions -- which happen
to be populated by Realtors -- are enacting laws that make price
competition illegal and thus treat Realtors as if they are members of a
closed shop union.

The Realtors argue with a straight face that their political efforts
are somehow in the interests of the home-buying public. Maybe we're
missing something here, but in almost every other consumer industry --
booksellers, retailers, home appliances, insurance, banking, stock
brokers -- the introduction of Internet and discount sellers has been a
phenomenal financial benefit to customers. Discount airlines have cut
airfares by 60% or more, to the economic benefit of everyone with the
exception of the incumbent competitors.

* * *

Economists call this process of squeezing out transaction costs
"disintermediation." If any industry is ripe for this, it is the $70
billion-a-year real estate brokerage market. Yes, fees have fallen
modestly to about 5.1% on average in recent years. But a new study by
the Brookings Institution and American Enterprise Institute concludes
that in an unimpeded free market, fees should be dropping much faster
-- particularly amid a real estate boom that has doubled home values
over the past decade. Many, if not most, of the services that Realtors
provide don't vary with the sales price, so the percentage fee should
fall as home price rises.

The problem is that state lawmakers are squashing such competition
through two types of laws. First, they make it illegal for brokers to
provide rebates on their commissions, which is an overt impediment to
price competition. So, for example, LendingTree.com is prevented under
these laws in about 10 states from continuing its popular practice of
providing several thousand dollars of rebates and coupons at Home Depot
to homeowners who use its real estate services. Discount real estate
agents would also be prohibited under many of these laws from
advertising their lower prices in newspapers.

The second legal device used to restrain trade are "minimum service
requirements," which prevent real estate brokers from providing limited
services to home sellers for a negotiated fee. These rules outlaw the
increasingly popular choice of home sellers who contract with an agent
to list their homes for a flat fee of typically around $500, but then
handle all the other aspects of the home sale themselves in order to
save $5,000 to $10,000 in additional fees.

More than a dozen states (see nearby list) have enacted these
requirements, which are analogous to telling McDonald's that it can
sell french fries only if the customer also buys a hamburger and Coke.
We'll also note the supreme irony that states and the federal
government sued Microsoft for illegally "bundling" its software,
whereas in the real estate market the states are requiring bundling. In
either software or real estate, the choice should be up to the
individual sellers.

In some states, real estate agents collude to boycott homes that are
being sold by agents who provide commission discounts. This practice is
a clear breach of the fiduciary duty of the agent to find the best home
at the lowest price for clients. Instead, the brokers are in effect
finding homes for their clients that will afford them the highest fee
structure. To our knowledge, neither the National Association of
Realtors nor the state real estate commissions have ever sanctioned a
real estate agent for this breach of ethics.

How large is the restraint of trade rents in this industry? One
back-of-the-envelope way to quantify the costs to consumers is to
compare the 5.1% standard fee in the U.S. to the industry average in
other countries, which is estimated at about 3.6%. This means Americans
are paying about $20 billion a year more for real estate services -- or
about $3,000 on an average priced home -- than are home buyers in other
nations.

In its own internal documents, the Realtors association acknowledges
that the purpose of its state lobbying is to keep competition out and
fees high. In an April 22 memo to its state affiliates, the national
office urged members to keep agitating for "state laws that are
designed to replace competition with regulation." The memo added that
"Realtors have the right to lobby for legislative and regulatory action
-- even if the effect of such action would be anti-competitive."

In response to a recent U.S. Justice Department complaint against a
Kentucky Real Estate Commission policy that prohibited brokerage
rebates and "other inducements to attract customers," the Realtors also
acknowledged that these laws are intended to keep prices as high as
possible.

The brokers admitted that the policy "inhibits free trade" but defended
the regulation by arguing that it was necessary to "avoid a bidding
war" and to protect against a "lessening of profits." And this was
their defense. The Kentucky Real Estate Commission reversed itself,
though the brokers no doubt will now scurry off to the state
legislature to get a new law enacted.

* * *

The Realtors have the First Amendment right to lobby for such
anti-consumer legislation. But let's please dispense with their
pretense that these laws are intended to "assure that the market for
the sale of real estate functions efficiently and in the interests of
buyers and sellers."

We have nothing against real estate agents or their trade. In fact, we
think the Justice Department is wrong in its recent antitrust complaint
demanding that the National Association of Realtors allow online
sellers access to its Multiple Listing Service. The listing service is
a privately owned data base, not a public utility, and the Realtors
should have the right to share it with whomever they wish.

However, with their lobbying for state-imposed restraints of trade, the
Realtors are the ones doing financial damage to millions of home buyers
and sellers. We don't know who is more at fault he the Realtors who
maintain that such protectionism benefits consumers, or the pliant
state lawmakers who actually believe them.

They've got the best politicians money can buy.-Jitney

I've thought it remarkable that the realtors have gotten away with this
for as long as they have. It looks exactly like pricing fixing and
trying to lock out competitors, which if any other industry did it,
they would have the FTC and DOJ all over them.

As for state restraint of free trade, here in NJ I saw one a few years
ago that was remarkable. A local radio station had a promo going where
a gas station was selling gas at a deep discount. The state officials
show up and close them down, because there is a law in NJ that you
can't sell gas for less than cost. Now what's more remarkable is that
somebody in NJ govt was there in a few hours to enforce a law that
almost no one even knew existed.

Perhaps things vary from state to state, but when I was telling our
realtor here in Michigan about my brief experience as a real-estate
salesman many years ago in another country and mentioned the sliding
scale of commission (5% on the first bit and decreasing from there on
up) used by the real estate agents' organization there, he said, "That
sounds like price-fixing, which is illegal."

Perce


On 08/12/05 01:08 pm tossed the following
ingredients into the ever-growing pot of cybersoup:

I've thought it remarkable that the realtors have gotten away with this
for as long as they have. It looks exactly like pricing fixing and
trying to lock out competitors, which if any other industry did it,
they would have the FTC and DOJ all over them.

As for state restraint of free trade, here in NJ I saw one a few years
ago that was remarkable. A local radio station had a promo going where
a gas station was selling gas at a deep discount. The state officials
show up and close them down, because there is a law in NJ that you
can't sell gas for less than cost. Now what's more remarkable is that
somebody in NJ govt was there in a few hours to enforce a law that
almost no one even knew existed.

Where I live, in Missouri, Real Estate Brokers are free to negotiate
any terms and conditions that they choose into a listing agreement.
They can charge as much or as little commission as they please. The
problem with undercutting what is considered the "standard" commission
rate of six percent is that buyers' agents aren't going to bother
showing homes to potential buyers if they commission amount isn't going
to make it worth their time. Therefore, these discount brokerages are
cutting their own throat because their listings won't be sold as often
as listings with a higher commission rate.

As for six percent being high. People who claim that have no idea what
a real estate agent does to earn his three percent (three percent
because most agents have to split their commission with their broker).
Sometimes you have to put in hundreds of hours of work, hundreds of
miles of "showing properties", hundreds of telephone calls just to sell
one piece of property, and maybe make a couple of thousand dollars on
it. I would say that for the "average" REALTOR (not the high-profile
super-realtors), they make about 15 dollars an hour in a good year.
Hardly unreasonable in this day and age.


chula

"chula" writes:
....
As for six percent being high. People who claim that have no idea what
a real estate agent does to earn his three percent (three percent
because most agents have to split their commission with their broker).
Sometimes you have to put in hundreds of hours of work, hundreds of
miles of "showing properties", hundreds of telephone calls just to sell
one piece of property, and maybe make a couple of thousand dollars on
it.

Three percent of 200,000 is 6000 and 200,000 is less than lots sell for.
And, with computers and databases you can search, some claim that there
is less work involved today than there were when all this was big thick
books of photocopied information, if you were lucky.

I would say that for the "average" REALTOR (not the high-profile
super-realtors), they make about 15 dollars an hour in a good year.
Hardly unreasonable in this day and age.

Decades ago I was given sanitized records for a small town multiple
listing organization. All I had was that a sale had been signed and
a number for the agent, but no way for me to track that back to any
actual person or sale. I found that the vast majority of members in
this town had sold zero or one house in the last year, and that was
when you were very lucky if you made a hundred dollars on a sale,
not thousands or tens of thousands. Less than ten percent of the
realtors had handled something like three quarters of all sales in
the year. (And a single person had sold triple what the next highest
person had, when I totalled these up, did a histogram and showed it
to the person who had given me the data they immediately said they
knew who the highest total person was, even without any info, that
person was an "enforcer" who would do anything up to maybe breaking
your kneecaps to get you to sign, but you would then crawl down to
the courthouse the next day and get out of it)

So, to the point, at that time if you had no job but didn't want to
admit that you could "be a realtor", a respected profession, for a
few dollars a year. Some of these folks became a realtor just to
sell their own house. Others just needed somewhere to go "to work."
And thus, the population of people in this game may still be wildly
skewed and averages may give you very very distorted ideas of what
is going on.

(If you get a chance, go watch the free American Investors Network
marketing promo that they are running around the country. They
give you some idea what their plan is and they let me out of the
thing at the end without beating me up until I would sign up.
They claim property values are going up more than 40% a year in a
few areas of the country and they are going to get you in on that.
I'm not suggesting you pay the $3000 fee to join but it is an
informative couple of hours)

my father got a real estate license years ago in college. He's never sold
property but was involved heavily with it as an attorney. When i moved to
Georgia, he checked & found he could become licensed here for something like
$150 since he was already licensed in other states. He got it solely to
save me several thousand on my house -- i listed him as my broker & he got
the 3% commission applied to reduce the final price.




So, to the point, at that time if you had no job but didn't want to
admit that you could "be a realtor", a respected profession, for a
few dollars a year. Some of these folks became a realtor just to
sell their own house. Others just needed somewhere to go "to work."
And thus, the population of people in this game may still be wildly
skewed and averages may give you very very distorted ideas of what
is going on.

On Sun, 14 Aug 2005 10:19:38 -0400, "anon"
graced this newsgroup with:

my father got a real estate license years ago in college. He's never sold
property but was involved heavily with it as an attorney. When i moved to
Georgia, he checked & found he could become licensed here for something like
$150 since he was already licensed in other states. He got it solely to
save me several thousand on my house -- i listed him as my broker & he got
the 3% commission applied to reduce the final price.




So, to the point, at that time if you had no job but didn't want to
admit that you could "be a realtor", a respected profession, for a
few dollars a year. Some of these folks became a realtor just to
sell their own house. Others just needed somewhere to go "to work."
And thus, the population of people in this game may still be wildly
skewed and averages may give you very very distorted ideas of what
is going on.



huh? How did he get a brokers license??? A realtors license and a
brokers license are different.

i didn't know there was a difference, i just know he has the necessary
licenses.



huh? How did he get a brokers license??? A realtors license and a
brokers license are different.

Percival P. Cassidy wrote:
Perhaps things vary from state to state, but when I was telling our
realtor here in Michigan about my brief experience as a real-estate
salesman many years ago in another country and mentioned the sliding
scale of commission (5% on the first bit and decreasing from there on
up) used by the real estate agents' organization there, he said, "That
sounds like price-fixing, which is illegal."

The sliding scale is common in California, as is non-percentage based,
flat fee commission.

Only a very naive seller pays 6% on a house more than $200K or so.

x-no-archive: yes

reading some of these posts, it appears the buyer also gets charged
commission on the sale price?

so, who's zooming who?? In the UK, just selling agent gets (??)% - property
often gets marketed through several agencies, who share the cut- they may
also get commisssion on surveys, mortgage & insurance if arranged through
them - not neccessarily at the best rates for the buyer though..

is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?

buyer beware!

In the US, normally the seller pays a commission, with full commission
being 6%. When the house gets sold, the selling real estate agency
splits that with the buying real estate agency.

On Mon, 15 Aug 2005 07:42:43 +0100, "crofter" wrote:

is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?

Yes. Typically the contract a person signs when listing his home with
the sellers agaen prohibits this. If it does occur, the listing agent
can sue for hsi portion.

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor (who happened to be an old friend of my
wife's family, otherwise we might well not have signed such an
agreement). One of the provisions in the standard contract form was that
if we bought a house (even if it was one we found ourselves) within some
specified time period (three months, I think), he was still to get his cut.

No doubt there would be corresponding provisions in a seller's agency
contract.

Perce

On 08/15/05 02:42 am crofter tossed the following ingredients into the
ever-growing pot of cybersoup:

reading some of these posts, it appears the buyer also gets charged
commission on the sale price?

so, who's zooming who?? In the UK, just selling agent gets (??)% - property
often gets marketed through several agencies, who share the cut- they may
also get commisssion on surveys, mortgage & insurance if arranged through
them - not neccessarily at the best rates for the buyer though..

is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?

buyer beware!

On Mon, 15 Aug 2005 07:42:43 +0100, "crofter" wrote:

x-no-archive: yes

reading some of these posts, it appears the buyer also gets charged
commission on the sale price?

so, who's zooming who?? In the UK, just selling agent gets (??)% - property
often gets marketed through several agencies, who share the cut- they may
also get commisssion on surveys, mortgage & insurance if arranged through
them - not neccessarily at the best rates for the buyer though..

is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?


Yes, it's called "a contract".

buyer beware!

On 15 Aug 2005 04:45:48 -0700, in misc.consumers.frugal-living
wrote:

In the US, normally the seller pays a commission, with full commission
being 6%. When the house gets sold, the selling real estate agency
splits that with the buying real estate agency.


Yep and then the friggin escrow company takes it's pound of flesh and the
frigging title company takes it's pound of flesh.. but at least our realty
agents actully show the properties and actually do some work.

"Yep and then the friggin escrow company takes it's pound of flesh and
the
frigging title company takes it's pound of flesh.. but at least our
realty
agents actully show the properties and actually do some work. "

And a title insurance company doesn't? They are providing title
insurance, which certainly is of economic value. Without it, where
would you be if someone shows up someday from the past, with a claim
against the property?

On 15 Aug 2005 15:01:30 -0700, in misc.consumers.frugal-living
wrote:

"Yep and then the friggin escrow company takes it's pound of flesh and
the
frigging title company takes it's pound of flesh.. but at least our
realty
agents actully show the properties and actually do some work. "

And a title insurance company doesn't? They are providing title
insurance, which certainly is of economic value. Without it, where
would you be if someone shows up someday from the past, with a claim
against the property?


I'm comparing realty agents in the UK to realty agent in the USA.

Mike wrote:
On Mon, 15 Aug 2005 07:42:43 +0100, "crofter" wrote:


is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?


Yes. Typically the contract a person signs when listing his home with
the sellers agaen prohibits this. If it does occur, the listing agent
can sue for hsi portion.

I think family are exempt from this. but otherwise yes the contract
would prevent that direct sale. In fact they often have clauses that if
the house gets sold within 30 days of them being terminated as your
agent they still get comission. Though I think I would fight that one,
but its in there...

--
Respectfully,


CL Gilbert

crofter wrote:
x-no-archive: yes

reading some of these posts, it appears the buyer also gets charged
commission on the sale price?

in my case, i made a full price offer, and the seller paid all closing
costs. they paid the 3% to their agent, the 3% to my agent, etc. and
since i went through costco to find my agent, i got a $500 costco cash
card when the escrow closed. supposedly it comes out of my agents cut,
so i basically got a half percent rebate. they still got 2.5% for doing
basically nothing.

so, who's zooming who?? In the UK, just selling agent gets (??)% - property
often gets marketed through several agencies, who share the cut- they may
also get commisssion on surveys, mortgage & insurance if arranged through
them - not neccessarily at the best rates for the buyer though..

is there anything to stop someone seeing a house, then going direct to the
seller, and arranging a private (comm. free, on both sides) sale?

buyer beware!

wrote:
"Yep and then the friggin escrow company takes it's pound of flesh and
the
frigging title company takes it's pound of flesh.. but at least our
realty
agents actully show the properties and actually do some work. "

And a title insurance company doesn't? They are providing title
insurance, which certainly is of economic value. Without it, where
would you be if someone shows up someday from the past, with a claim
against the property?



how often does that happen, in real life?

"Percival P. Cassidy" wrote:

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor (who happened to be an old friend of my
wife's family, otherwise we might well not have signed such an
agreement). One of the provisions in the standard contract form was that
if we bought a house (even if it was one we found ourselves) within some
specified time period (three months, I think), he was still to get his cut.


That is a pretty silly thing to do - why would you do that? A senior moment?

David


No doubt there would be corresponding provisions in a seller's agency

This is basically unavoidable, and for good reasons

On 08/16/05 04:13 am quietguy tossed the following ingredients into the
ever-growing pot of cybersoup:

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor (who happened to be an old friend of my
wife's family, otherwise we might well not have signed such an
agreement). One of the provisions in the standard contract form was that
if we bought a house (even if it was one we found ourselves) within some
specified time period (three months, I think), he was still to get his cut.

That is a pretty silly thing to do - why would you do that? A senior moment?

Perhaps it wasn't as long as three months; but, whatever it was, it was
the wording on the standard pre-printed form.

And appointing a *buyer's* agent meant that he was working for *us*
rather than on behalf of the listing agent and the seller. So there were
houses we saw in which he was able to point out faults or tell us that
they were overpriced. Unless we appointed him as *our* agent, he
wouldn't have been able to do that.

Perce

Percival P. Cassidy wrote:
On 08/16/05 04:13 am quietguy tossed the following ingredients into the
ever-growing pot of cybersoup:

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor

That is a pretty silly thing to do - why would you do that? A senior
moment?

Perhaps it wasn't as long as three months; but, whatever it was, it was
the wording on the standard pre-printed form.

Just a note. There is no standard pre-printed form. In real estate deals
just about everything is negotiable. The form is only standard in the
sense that it's the form that particular agency uses and contains stuff
that they want on the form.

Anthony

my dad had a $100K judgment against someone with a lien on the guy's house.
His daughter forged a release from my father, forged notarization by her
employer (who was a notary) and all that.

my dad got wind of it & was legally 1st in line on that house. The guy who
bought it had title insurance, which paid my father. Otherwise, he would've
lost his house.

it probably is rare, but it does happen.




And a title insurance company doesn't? They are providing title
insurance, which certainly is of economic value. Without it, where
would you be if someone shows up someday from the past, with a claim
against the property?



how often does that happen, in real life?

On Tue, 16 Aug 2005 05:26:44 -0700, Anthony Matonak
wrote:

Percival P. Cassidy wrote:
On 08/16/05 04:13 am quietguy tossed the following ingredients into the
ever-growing pot of cybersoup:

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor

That is a pretty silly thing to do - why would you do that? A senior
moment?

Perhaps it wasn't as long as three months; but, whatever it was, it was
the wording on the standard pre-printed form.

Just a note. There is no standard pre-printed form. In real estate deals
just about everything is negotiable. The form is only standard in the
sense that it's the form that particular agency uses and contains stuff
that they want on the form.

Anthony


I don't think this is the case in Caliornia - they seem to be pretty
particular about using the state-approved forms, even when changes are
made to the standard terms.

On Tue, 16 Aug 2005 06:22:34 -0400, "Percival P. Cassidy"
wrote:

On 08/16/05 04:13 am quietguy tossed the following ingredients into the
ever-growing pot of cybersoup:

When we were looking for a house recently, we signed an exclusive
buyer's agency with a realtor (who happened to be an old friend of my
wife's family, otherwise we might well not have signed such an
agreement). One of the provisions in the standard contract form was that
if we bought a house (even if it was one we found ourselves) within some
specified time period (three months, I think), he was still to get his cut.

IMO, signing that would generally be a bad idea. The agent could have
been terrible, and he would still get paid. Not a good situation.
Plus this seems like a recipe for the agent to get lazy since he knows
you are stuck with him

That is a pretty silly thing to do - why would you do that? A senior moment?

Perhaps it wasn't as long as three months; but, whatever it was, it was
the wording on the standard pre-printed form.

And appointing a *buyer's* agent meant that he was working for *us*
rather than on behalf of the listing agent and the seller. So there were
houses we saw in which he was able to point out faults or tell us that
they were overpriced. Unless we appointed him as *our* agent, he
wouldn't have been able to do that.

Perce

Why wouldn't he be able to do that?

I have utilized the services of a buyers agent with the last 2 homes I
have bought. I used the same agent both times, and was never asked to
sign anything ahead of time. She was able to tell me everything she
knew about the property. Also, in the state where I live, if there
are known faults with the property, the seller is required by law to
disclose those to any potential buyer. If the agent says he is
representing you only, then there should be no need for a contract
ahead of time. When he shows you the right place and you decide to
make an offer, then get out the pen.

This is exactly why I started offering fee for service, hourly and
commission splitting real estate services. Not only are my clients
excited to be savings upwards of 5% (just did a deal where I was dual
agent and total commission on both sides was less than 1%) but I am
also making a reasonable amount of money for my efforts.

Soon most real estate transactions will be handled in this manner, but
until then check out my website for more information. a
href="www.hourlyagents.com" www.hourlyagents.com /a

too bad there's such a shortage of sneaky lawyers in the USA. Probably
no one could dream up a workaround against price-fixed brokerage. Too
bad there's only one way to ever skin a cat!

In the end, all the money the Realtors poured down the toilet won't
help them. And those State Legislators probably know it quite well.
But perhaps not. State Legislators aren't sneaky lawyers, right?

"In the end, all the money the Realtors poured down the toilet won't
help them."

Maybe so, but when is the end coming? Here in NJ the realtors are very
much in control. So, it looks like money very well spent to me.