Real estate bill raises antitrust concerns

Idaho Senate committee unanimously recommends passage of bill

POSTED: Monday, March 12, 2007

by Lora Volkert

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Tags - Fizbomap, Genius Realty, Idaho Legislature, Idaho Real Estate Commission, real estate

The Idaho Real Estate Commission watered down proposed legislation when federal Department of Justice attorneys told the commission it could violate antitrust laws.

The legislation would have made it mandatory for real estate agents to perform certain services for their clients.

According to the commission’s meeting minutes, two DOJ attorneys said the proposed legislation would prevent consumers from saving money by hiring brokers to perform only certain services, such as listing a property on the Multiple Listing Service, and selling the house themselves.

The original legislation would have restricted competition and consumer choice because the duties could not have been waived, according to the DOJ attorneys’ comments.

The current bill still contains “mandatory” language, but it only mandates that agents be available to present purchase offers to consumers and doesn’t force them to act as the go-between if consumers don’t want them to, according to Idaho Association of Realtors lobbyist John Eaton.

Members of the Senate Commerce and Human Resources Committee were surprised when Heinrich Wiebe, broker and co-owner of Genius Realty and Fizbomap.com, told them about the Justice Department’s objections, which he discovered when he requested information about the bill. Fizbomap offers “unbundled” real estate services, allowing consumers to pay only for the services they want, such as an MLS listing.
Jeremy Pisca, an attorney for the Real Estate Commission, confirmed that the Department of Justice thought the original version of the bill would have resulted in restraint of trade. “Needless to say, this is the watered down bill,” he said.
Asked if the DOJ had seen the new legislation and expressed an opinion on it, Pisca said, “I do believe that they still object to this legislation … I understand they have sent a letter to the chairman of this committee saying they don’t like it.”
Members of the committee turned to face Sen. John Andreason, who seemed as surprised as anyone by the turn in the conversation. “I have an e-mail from them asking if we need their help,” he said.
Nevertheless, committee members felt comfortable enough with the legislation to unanimously recommend the Idaho Senate pass it. The bill has already passed the House.
Eaton said the bill would solve the problem of real estate agents who list a property and then essentially abandon their clients. When the client has a question about an offer on their property, they’re told the agent doesn’t provide that service. If the customer has signed an exclusive contract with the agent, he can’t hire another agent to help him.
The bill shouldn’t affect Fizbomap, Eaton said. The bill says agents only have to be available to present the offers, not that they have to provide that service, he said. “If the customer doesn’t want those services, the agent doesn’t have to perform them,” he said. Fizbomap would be covered because it makes its agents available to customers, thereby meeting the minimum requirement.
But Wiebe wasn’t convinced. He’s concerned by two terms in the bill: what it means to be available, and what it means to present an offer. The terms are undefined.
“Can offers present themselves or do they need a presenter?” he asked. “Does it require a presentation? What’s the standard for that? What does it mean to be available? Time is of the essence – does it mean you’re available Monday through Friday, 8 to 5 except holidays? What if they have another full-time job? What if they’re in another country?”
Because he’s required to present an offer should the customer want him to, he asked, doesn’t that effectively obligate him to know all about the offers? And how would he gain that knowledge except by being involved in the transaction? That would effectively make him a middleman.
“A customer ought to have the choice to not include me if they don’t want me,” he said. “They don’t want necessarily to have a real estate agent in the middle of the sale.”
***
To contact the author of this story, send e-mail to: lora.volkert@idahobusiness.net.

1 Comments

We are surprised that some members of the Idaho Senate weren't aware of the problems with this bill. Here's an email we sent to eight Idaho Senators along with additional background on Feb. 28:
Dear Senator:

We are contacting you on behalf of our members in Idaho to urge you to oppose HOUSE BILL NO. 135, which would require many Idaho homeowners to pay for real estate services they neither want nor need. Similar legislation in other states has been condemned by President Bush’s Department of Justice and Federal Trade Commission, consumer advocacy organizations and many conservative publications (see an article from this month’s Readers Digest and an earlier stories from the Wall Street Journal, below).

American homeowners have benefited greatly from Internet technology, which has enabled them to assume many of the responsibilities of selling their own home. The savings can be substantial – for as little as $200 they can list their home in multiple listing services and have the listing broadly disseminated over the Internet, where today 80% of all home buyers search for homes. This is a substantial saving from the typical 6% commission charged by traditional full service real estate brokers (or about $12,000 on a $200,000 home).

This new business model has worked well for both home sellers and buyers alike. None of the aforementioned organizations (President Bush’s Department of Justice, the Federal Trade Commission, and consumer advocacy organizations) have received complaints from home buyers or sellers about this new opportunity for consumers to save money when they sell their home. When state real estate associations in other states were asked to produce consumers with complaints to document the alleged problem they have been unable to do so. We suggest that you ask the Idaho Real Estate Association to give you the names of home buyers or sellers in your district who have been injured by discount real estate brokers so you can verify their claims.

Nevertheless, protectionist elements in the full service real estate services sector are falsely claiming problems that do not exist with this new business model. In order to protect their traditional 6% commission, they seek to mandate services that would raise the costs those services. Many of your constituents would be forced to pay more money than is necessary to sell their home. This undermines the rights of Idaho homeowners, is anticompetitive, and is contrary to the spirit of free enterprise. For these reasons HOUSE BILL NO. 135 should be opposed by both conservative and by liberal Idaho senators.

We constructively suggest an alternative approach, which was adopted by the Virginia legislature last year. With the support of the Virginia Association of Realtors, the U.S. Dept. of Justice, and our organization, the Virginia Legislature passed legislation that would require all real estate brokers and agents to disclose to prospective home sellers all services that they do and do not provide to home sellers. All of us feel that this approach would assure that home sellers are not in any way mislead regarding what services they could expect to receive, while still allowing home sellers to choose the type of real estate services that best meets their needs and save money on real estate transactions.

We hope you will share this information and constructive suggestion with your colleagues in the Idaho Senate.

Thanks for your consideration.

Bruce Hahn
President
American Homeowners Grassroots Alliance

Serving the interests of the nation's 75 million homeowners and future homeowners since 1984.
The American Homeowners Grassroots Alliance is a nonpartisan consumer advocacy organization dedicated to assisting the nation's 75 million homeowners understand significant policy issues affecting homeowners and homeownership, and empowering homeowners to make their voices heard by state and federal officials.
Visit our web site http://www.americanhomeowners.org. Contact us at: 6776 Little Falls Road, Arlington, VA 22213-1213. Direct Dial: 571-214-1013; Headquarters: 703-536-7776 Fax: 703-536-7079.

Real Estate Ripoff
You could save big selling your home -- if only the brokers would let you.

From Reader's Digest
February 2007

Blacklisted
Last fall, Marjorie Deprez decided that she didn't need a traditional real estate broker to sell her Chappaqua, New York, home. After all, she had bought the house as an investment and wanted to maximize her profit any way possible. So she paid an online discount broker a flat fee of just under $1,000 to list her home on the Internet.
Deprez would handle everything else. She'd pay the buyer's agent a 2.5 percent commission but save on the usual seller's commission -- in this case, about $25,000. Smart idea, except when she held an open house for brokers, only a few showed up. When Deprez joked with one of them that she'd been blacklisted, the agent replied, "Who told you?" To Deprez's amazement, she was then informed that a local real estate executive had been calling brokers and urging them not to show her house.
Sure enough, Deprez got very few nibbles, even though her house was priced to sell quickly. Frustrated, she finally took her home off the market.
"It was an organized boycott," says Deprez, who reported her experience to the New York Attorney General's office. Put another way, it was a case of insiders rigging the system to protect their sweet deal. In a traditional home sale, the brokers for the buyer and seller split a commission that usually amounts to around 5 to 6 percent of the sale price. This broker fee doesn't just hit the seller's wallet; the buyer pays more because the commission gets built into the price of the home.
Without question, many sellers are quite willing to pay those commissions, since they want to benefit from services ranging from promoting and showing the property to negotiating the sale. "You also get an arbiter -- someone who can help a husband and wife agree on what price to set and which bid to accept," says Barbara Corcoran, owner of a prominent real estate firm in Manhattan.
Still, plenty of homeowners are eager to reduce their costs by using Web-based discounters to cut out the middleman -- a formula that has worked for sales of books, stocks and travel deals. But some traditional brokers have found a way to resist this threat.
Nothing is more important to real estate cartels than controlling the Multiple Listing Services (MLS), the databases of homes for sale. Real estate websites often allow home-buyers to peruse local MLS listings on the Internet. Yet they sometimes censor or omit listings sponsored by a discount broker. And many established real estate agents won't allow their own listings to appear on a discount broker's site. That spiteful move led the U.S. Justice Department to sue the National Association of Realtors (NAR), the industry's ultra-powerful lobbying group, for allowing members to discriminate against Web-based brokers. (The Justice complaint is expected to take years to resolve.)
Biased Laws
And that's not the only tactic real estate brokers are using against their lower-cost rivals. In 2005, Utah passed a law requiring brokers to provide certain minimum services to consumers. The law defined their business in a way that would keep discount competitors out of their lucrative market. So to qualify as a broker in Utah, you're now required to present sellers with all offers and counteroffers as well as help with price negotiations -- services that discount brokers often don't provide.
It was like requiring Burger King to have waiters. Pay for waiters -- or real estate agents -- if you want the service, but why mandate it? This logic didn't matter since the mainstream brokers had friends in high places.
Comment By Bruce Hahn
Monday, March 12, 2007 @ 10:35 AM

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