Real Estate Protectionism

Brian Doherty | January 4, 2007

Another gem from the pile of magazines and professional journals I've been trying to catch up on around year's end: From the June 2006 issue of Governing, a long and detailed account of the political power of the realtors lobby in various states. It notes that given ongoing improvements in the ability of people to spread information and make deals about houses for sale, that the pro realtor might be in as much danger as the professional old-style travel agent has been in these days of Expedia and priceline.com. Author Alan Greenblatt then notes that realtors (a registered brand name, by the way, that the real estate agents themselves would like to see always capitalized) are doing their level, and influential, best to stop that from happening:

It might be too soon to bet on that scenario, and the reasons are
the involvement of Realtors in the political process and the
protections they have already crafted to stave off the threat. The
many state rules governing their profession, including the newly
created ones such as minimum-service requirements, serve as serious
barriers to entry, helping Realtors preserve their control over the
market.In the opinion of critics, the rules mean both higher fees for
Realtors and higher prices for houses. For Robert Lande, a professor
at the University of Baltimore School of Law who is associated with
the American Antitrust Institute, the new minimum-service laws are
merely the latest phase in a permanent campaign by Realtors to keep a
stranglehold on property transactions. "They've got a sweet deal,"
Lande says. "You fix the rules of the game to insulate each member
from hard competition."

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|1.4.07 @ 1:49PM|#

Where do you think the loudest squeals come from whenever a flat tax (and the consequent elimination of the home mortgage interest deduction) comes up? Without that little government price support program, house prices would fall, and the rillters would take a pay cut.

|1.4.07 @ 1:59PM|#

"They've got a sweet deal,"

"Lande says. "You fix the rules of the game to insulate each member
from hard competition."

Yes indeed.

Of course the real estate agencies are hardly the only instance of this - car dealerships the funeral home industry come to mind as additional examples of the same thing.

Realators and car dealers are two of the biggest rent seeking leaches in today's economy. There is no reason for either of them to exist in this day and age.

|1.4.07 @ 2:06PM|#

Do car dealers really exist anymore? I've heard that the stealerships make very little money on sales of autos, they profit mostly on the hold-back (incentive from mfgr to move units) and from service.

Hell, with edmunds.com only suckers pay dealer mark-up.

|1.4.07 @ 2:17PM|#

Yes Guy they do. While Edmonds has hurt them, there are still enough suckers out there to keep them in business. There is no reason why you can't go to Honda.com or Ford.com and buy a car and have it shipped to you and know you are getting the best price. The only reason you can't is that car dealers get state legislatures to pass laws to prevent you from doing it.

|1.4.07 @ 2:43PM|#

That's why we call it the REIC. (Real Estate Industrial Complex)

|1.4.07 @ 4:05PM|#

yeah the price of real estate is jacking up because of the Realtors...pigs fly also and I just saw a house cat chasing a Rottweiler, the weirdest thing is that all the rivers now are red...

But i am sure glad the latest issue of "Screw the Tax Payer Bureaucrat Magazine" decided to point out all the evils a private non-union organization perpetuates on the American home buyer.

|1.4.07 @ 4:13PM|#

Without that little government price support program, house prices would fall, and the rillters would take a pay cut.

Wow, because I hear all the time Realtor's saying all that bad stuff about a flat tax...because as we all know that the Realtors big problem is not lack of inventory due to government regulation of land use...but that they can't sell property at inflated prices.

Hey after we beat up on the traditionally libertarian Realtors lets move on to kicking the shit out of the Builders.

|1.4.07 @ 4:19PM|#

One thing we should look at is home prices in Utah where Realtors are controlling prices and then lets look at states like New York and Washington where Realtors have less influence...and then lets compare price differences to comparable properties...

but that would be the logical thing to do right...we would much rather blame those bastard capitalistic salesmen...

|1.4.07 @ 4:24PM|#

You OK, joshua? You seem a bit irate today.

The complaints seem to have more to do with real estate licensing creating a government-approved gatekeeper, rather than "How dare they engage in commerce!" The complaint may or may not be an accurate reflection of the problem, but it's hardly an anti-capitalist notion.

|1.4.07 @ 4:35PM|#

As a realtor and a part of that big conspiracy I might add a few things. Realtors most certainly do not drive the housing bubble but they DO conspire to keep commissions high. Simple foolishness, greed, and land use restrictions drive the property bubble. Real estate agents are trained very specificaly to never refer to "standard comission rates". Lest anyone should think there was any conspriacy to keep rates favorable. I only have a brokerage to save money in my primary business of contracting and generally my experience with "professional" realtors is that they are a sleazy lot, but I'll say this in their defence: sometimes you want a sleazball on your side. Like for instance when buying or selling a piece of property.

|1.4.07 @ 4:53PM|#

The complaints seem to have more to do with real estate licensing creating a government-approved gatekeeper, rather than "How dare they engage in commerce!" The complaint may or may not be an accurate reflection of the problem, but it's hardly an anti-capitalist notion.

There is no law that prevents private owners or even third parties from selling land and there are plenty of non-Realtor licensed real estate agents in my area or state...and the Realtors are not in the business of changing that.

Read the article agian thoreau and if you can't find the anti-libertrain underpinnings then you are blind or brain dead...here are some things that should set of your loss of liberty alarms...

Not surprisingly, Utah has some of the toughest real estate laws in the country--protecting both private property rights and the business interests of Realtors.

Realtors have lost a few minor property-rights battles recently, over
bills requiring that sellers disclose whether a registered sex offender lives nearby or whether their properties once housed meth labs. A number of states also have found property-transfer taxes a relatively painless way to raise money during recent budget crunches.

I am not saying the Realtors are Cato...but they are a hell of a lot closer then is being portrayed with the comments here so far or with Doherty's gist.

|1.4.07 @ 5:08PM|#

I thought you were complaining about the comments here, joshua, not the article. My bad.

|1.4.07 @ 5:31PM|#

I thought you were complaining about the comments here, joshua, not the article. My bad.

hell its both!!!

But to be specific as to the comments I would say the complete lack of skepticism toward an article written in Governance magazine peppered with big government advocacy that criticizes a non-union private trade group has raised my ire.

Disclosure: I am not a Realtor but I work at a in a land development/Real Estate company who's agents, broker and owner (my boss) are Realtor...personally i like the builders better at least locally...they seem to have more guts.

|1.4.07 @ 5:33PM|#

"Wow, because I hear all the time Realtor's saying all that bad stuff about a flat tax...because as we all know that the Realtors big problem is not lack of inventory due to government regulation of land use...but that they can't sell property at inflated prices.

"Hey after we beat up on the traditionally libertarian Realtors lets move on to kicking the shit out of the Builders."

Boo hoo. Convince me that government subsidies (which the mortgage interest deduction surely is) drive prices down. And when you're done, convince me that the people from the Board of Realtors I have seen on CNBC arguing against the flat tax were just in my imagination.

|1.4.07 @ 5:42PM|#

I don't have time to RTFA right now, but to throw in my $0.02...
It's incidental to the business I'm in, so I read articles in trade mags about their legal battles with independent real estate agents occasionally, but I don't follow them too closely. From what I understand, the Realtors are a private association which owns the MLS, so I don't really have a problem with them keeping it for themselves. Somehow or other, though, they do bring the gov't into their fights a lot of the time. Perhaps that's fair enough since the gov't sticks their head into their business all the time, too.

Personal experience with Realtors and all other stripes of real estate agents tells me that 95% of them are greedy idiots. If you choose to sell your home yourself, however, you are most likely even dumber, because they are highly functioning idiots who know how to get you the best price for your home. You will probably over or undervalue your home. You will not market it as well as they can. You do not have access to their MLS. They screw things up all the time, but they are still better at their jobs than you are.

I apologize if this is not pertinent.

|1.4.07 @ 5:45PM|#

They screw things up all the time, but they are still better at their jobs than you are.

This is basically what I tell the folks in my organization who try to end-run the legal department.

|1.4.07 @ 5:57PM|#

"If you choose to sell your home yourself, however, you are most likely even dumber, because they are highly functioning idiots who know how to get you the best price for your home."

Additionally, they have conducted an extremely effective "education" campaign to convince would-be buyers that they will never be able to successfully complete a real estate transaction without the expert assistance and guidance of a Realtor*.

----------

Here's another good one from the Realtors*: "The seller pays the commission."

Stop and ask yourself where the seller gets the money which is paid to the Realtors*.

|1.4.07 @ 6:14PM|#

but I'll say this in their defence: sometimes you want a sleazball on your side. Like for instance when buying or selling a piece of property.

Can you tell me at precisely what point in time the realtor got to be on the side of their customer?

The realtor is on the realtor's side. The realtor's side is only interested in a commission. If you under price your house, your realtor will NOT tell you, likely as not -- because under pricing makes it easier to sell the house.

It's "bird in the hand" philosophy.

Twice I've sold a house, and twice ALL the realtors I called told me to under price it. I went above what they "suggested", and both times had no problem getting my asking price.

You (and joshua) will have an exceedingly difficult time convincing me the realtors ever were, or ever will be, on my side of anything.

|1.4.07 @ 6:18PM|#

joshua, btw I have to conclude that you see absolutely nothing wrong with the AMA? Or similar ilk.

I'm not anti-business, and spare me the insult that I'm "anti-libertarian". But I'm also not so stupid as to believe all private business transactions are all pristine, simply because they are private transactions.

Businesses are just as capable of contriving to screw people as any government ever was.

|1.4.07 @ 6:35PM|#

I'm a real estate broker for convenience with my contracting business and there are time when I use an outside realtor to list properties. Sometimes the sharks are usefull.

|1.4.07 @ 6:51PM|#

Genghis,

In any business transaction, everyone is looking out for #1, otherwise, they would not be involved in the transaction. The listing agent's interests coincide with yours when you sell your home. Higher sale price = higher commission. There is a listing strategy that you may not be aware of:
List a home under what is normal for the market, the low price generates a lot of interest, offers start pouring in, a bidding war starts, and the home ends up selling for higher than your target price.

P Brooks,

Most buyers aren't savvy enough to ask the seller for a 2-3% discount off the price to account for the lack of a selling agent's commission. Besides that, most buyers don't want to hunt through listings, set up viewings, and act as hard-ass negotiators. To most buyers, the work the agent does is valuable.

Twice I've sold a house, and twice ALL the realtors I called told me to under price it. I went above what they "suggested", and both times had no problem getting my asking price.

So wait are Realtors driving up prices to bloat their commissions or keeping prices low by screwing their customers into selling their land on the cheap???

What the hell it is both....Realtors are also the cause of cancer.

thoreau|1.4.07 @ 7:02PM|#

Businesses are just as capable of contriving to screw people as any government ever was.

I agree, but many libertarians would probably say that the sentence is meaningless. Whic is the problem with libertarianism.

|1.4.07 @ 7:19PM|#

"the Realtors are a private association which owns the MLS"

Wrong. There are over 900 MLS' in the US. Many of these are owned by local Realtor boards but not all bt any means.

Each MLS has it's own rules concerning who owns the listing data once it's been uploaded to their systems.

"The realtor is on the realtor's side."

Of course they are- but they still act as a buyer or seller's advocate in negotiations. There are many positives to this such as keeping an emotionally charged situation(due to the money involved) under control.

"The realtor's side is only interested in a commission. If you under price your house, your realtor will NOT tell you, likely as not -- because under pricing makes it easier to sell the house."

Again I have to disagree. There are foolish Realtors out there(as in any profession) but one of their responsibilites is to look at the local market and price the accordingly. Plus real estate agents do get many of their clients through word of mouth and repeats.

|1.4.07 @ 7:21PM|#

t,

To say that that is a problem with libertarianism is analogous to saying that the problem with medicine is that it doesn't teach you how to repair your car.

Good point.

|1.4.07 @ 7:25PM|#

"the Realtors are a private association which owns the MLS"

Wrong. There are over 900 MLS' in the US. Many of these are owned by local Realtor boards but not all bt any means.

Sorry, StupeMan! I was simplifying. Essentially, the MLS is controlled by Realtors, but not by independent agents.

|1.4.07 @ 7:28PM|#

Two posts came in ahead of mine. I meant "good point" to thoreau.

highnumber, it sounds like you missed the point. I surely don't get yours.

|1.4.07 @ 7:35PM|#

I gotcha.

I do have to say that the demise of real estate agents is going to be a long time coming if at all.

The travel agent analogy is not a good one. Travel agents were essentially did data entry positions. Realtors do much more(or should). They have expert knowledge of their area, They have relationships with mortage brokers, tradesmen, inspectors, etc. They provide a buffer in negotiations and market clients properties.

Yes- I work in the industry.

|1.4.07 @ 7:59PM|#

Genghis,

Of course some businesses are out to screw people over. Shady people are shady in business, religion, friendships, etc. Libertarianism is not a cure for shadiness. It is not a set of ethics. If you come to libertarianism through a belief in the non-aggression principle, your belief in it may be derived from your ethics, but libertarianism does not give you your ethics.
I can be a libertarian or a socialist and join the BBB.

|1.4.07 @ 8:01PM|#

If thoreau's point was that businesses contrive to screw people over via legislation, then, yes, I missed his point, because I do not understand how he can think that libertarians approve of that.

Larry A|1.4.07 @ 8:34PM|#

Was a time I moved to a new state every year or so.

Think of driving into a strange town, doing all the research to find which areas were safe, out of the local flood plain, had good schools, etc. Then researching the local real estate market to figure out pricing. Then trying to find all the homes for sale from classified ads, sorting out the ones you might possibly want, and physically find them in a new town. Then negotiating with the current owner. Then arranging title search, inspections, financing, etc. Then complying with all the arcane government real estate sales requirements, which are different in different locations. Then making sure all the bases were covered so your new home stayed bought. In a four-day househunting trip with your spouse.

Then facing people coming in and doing all of the above when you get ready to sell and move away, particularly the part about making sure the house you sell stays sold.

Realtors earn their fees, and MLS is a godsend.

|1.4.07 @ 10:12PM|#

They screw things up all the time, but they are still better at their jobs than you are.

This is basically what I tell the folks in my organization who try to end-run the legal department.

I'll be dipped -- it's comparative advantage!

|1.4.07 @ 11:06PM|#

My problem is that realtors price fix. They all charge the same commision.

Someone explain how this is possible? What keeps me from going to realstate training and chargeing 4%?

|1.4.07 @ 11:10PM|#

sam_h,

There are agents that charge less, and you can negotiate the listing agreement. Make sure that your listing agent is still offering the selling agent whatever is considered to be the norm in your area, otherwise you'll get fewer showings.

|1.5.07 @ 12:28AM|#

What I haven't seen mentioned yet is the unspoken agreement among realtors to ignore FSBOs. Once I read somewhere in something like a consumer advice magazine that a buying agent should be actively looking for properties you might be interested in, including properties for sale by owner (emphasis mine). HAH! DOUBLE FUCKING HAH!

If you have an agent to help you buy a property, they will ignore FSBOs as much as possible, *even if they offer a commission to buying agents*. Helps keep people using agents to sell. They all know it's in all agents' best interest to prevent FSBOs from being successful.

The other point to be made is that yes, it's helpful to have an agent help you navigate all those forms. All of which are required by gov't, most of which are nonsense, and I don't see realtors lining up to lobby the gov't to make the process simpler. If buying and selling most other commodities were as complicated and costly, the economy would grind to a halt.

|1.5.07 @ 12:30AM|#

And I'm sure this thread is dead, but don't even get me started on why an agent should make 3x as much selling a 300k home as a 100k home, when it requires exactly the same amount of work (assuming each is correctly priced).

Thomas Paine\'s Goiter|1.5.07 @ 1:47AM|#

but that would be the logical thing to do right...we would much rather blame those bastard capitalistic salesmen...

Awwww, how sweet. joshie is a rillter.

Thomas Paine\'s Goiter|1.5.07 @ 1:52AM|#

They have relationships with mortage brokers, tradesmen, inspectors, etc.

You mean "They get kickbacks from mortage brokers, tradesmen, inspectors, etc."

|1.5.07 @ 10:59AM|#

"You mean "They get kickbacks from mortage brokers, tradesmen, inspectors, etc."

I can't imagine why any of these would give kcik backs. The Agent wants to close deals ASAP. That's why they develop the relationships. Being able to trust other participants in the real estate transaction process(that they know what they're doing, will do it it a timely manner) is important.

There's nothing wrong with FSBO's except that real estate transaction are rather complex. I wonder how many average joes have screwed themselves trying to do it alone? ex. Do buyers know how to get their ernest money back? do FSBO's know when it's legal to keep it?

|1.5.07 @ 11:03AM|#

dead_elvis,

You are correct. Most Realtors do ignore FSBOs unless their clients spot one and ask about it. Partly, this is because they look out for their own, but also, FSBOs are notorious for trying to cut the selling agent out of the deal. They also are unfamiliar with the procedures are more likely to be trouble to work with.

TPG,

It isn't about kickbacks. It's about referrals and having relationships with people you can count on to do a good job for your clients.

Larry A|1.5.07 @ 11:45AM|#

An FSBO isn't in the MLS. Therefore an agent who is considering showing it must first check it out to make sure the ad is accurate, then contact an owner who may not speak to a realtor to arrange the showing.

Out of all the houses I looked at during my years of moving around I never saw a FSBO that was impressive enough to make even the first cut. I remember several being in the wouldn't-touch-that-with-a-ten-foot-pole category, usually concerning legal issues.

|1.5.07 @ 1:06PM|#

Zillow.com is going to change the real estate world within a few years. I trust it for pricing informartion much more than any broker, and now you can list your house at no charge. Buyers just e-mail you.

|1.5.07 @ 1:24PM|#

TomHynes,

I have tried zillow. I do not trust it. Ballpark at best. Wildly inaccurate at times.

|1.5.07 @ 1:28PM|#

An FSBO isn't in the MLS.

I don't think this is true. I think there are services that charge a small amount, something like $30, to list in the MLS.

They also are unfamiliar with the procedures are more likely to be trouble to work with.

I could see this; but I will maintain that those "procedures" are 1)largely a result of gov't regulation, which helps keep agents in business and 2) learnable by an average joe through books. I honestly don't mind paying someone for a service that helps make my life easier, but the fact that there is no meaningfully effective way to opt out, and the fact that it's a percentage and not a flat fee, bothers me to no end.

|1.5.07 @ 1:38PM|#

I have tried zillow. I do not trust it. Ballpark at best. Wildly inaccurate at times.

Zillow is incredibly useful for giving ordinary people easy access to recent sales comp data. The actual "zestimate" is indeed total nonsense.

|1.5.07 @ 2:14PM|#

I have to laugh at all the "realtors are great at their jobs" lines. All they do is find out what a home near you recently sold for and add a little to it or take some off based on sq ft and lot. There is no complicated algorithm they use. Take the DC market, houses have been for sale for over a year since the bust here. That must mean all the agents selling the homes are genius's at setting prices right? sure. When the market was good, houses sold in a day, that must mean they were setting the best price right? That's what all the overbidding was all about back in the day, it was all a realtor wisdon and not buyers and sellers coming to an agreement. It ain't rocket science, which is why when the market is good everyone and their brother who doesn't have a good paying job jumps on the bandwagon. As for moving to a new town, finding out the good areas and schools, etc, that is really simple to do these days with an internet connection and a few questions to a local. I know as much about the nortern Va housing market, neighborhoods, schools, as a realtor. If someone new came to town, I could tell them the same shit a realtor would.

|1.5.07 @ 2:22PM|#

dead_elvis,

Some of the procedures are gov't gobbledygook, but other things are understanding the types of problems that arise in such a big transaction. FSBOs don't know what to do when a homebuyer offers a higher price, but wants points from the seller to pay closing costs, the appraised value comes in under the contract price, the home inspector indicates repairs needed, etc. An agent on either side of the transaction can help smooth over a lot of the post-contract negotiations.
A good attorney helps a lot, too, but attorneys are not customary in real estate transactions in all areas.

And there are flat fee agents out there. They tend to be volume based or inexperienced though, so they usually don't do as good a job as a commissioned agent. You get what you pay for.

I can't believe I've been defending real estate agents. Most every day of the week, I am swearing under my breath about them or loudly calling them idiots. Let me repeat: about 95% of them are greedy idiots, and arrogant, too. They think they know everything about real estate transactions, but the only people involved in the typical transaction who know less are the buyers & sellers.

Let me list from dumbest to smartest the players in a typical residential real estate transaction:

1. Buyer
2. Seller
3. Real estate broker
4. Title agent
5. Loan originator
6. Appraiser
7. Home Inspector
8. Loan Processor
9. Underwriter

I'm married to an underwriter. ;-)

|1.5.07 @ 2:28PM|#

Oops, I forgot the attorneys. Plug them in between #s 8 & 9.

|1.5.07 @ 2:36PM|#

hmmmm,

Yeah, and I can throw a football better than Brett Favre.
IOW, why don't you go get a real estate license? It's the easiest money in the world, right? It's not long hours. You won't spend day after day showing people houses who end finding out their sister's cousin-in-law's brother-in-law is an agent who will kick them a little money outside closing, so they went with him to buy the house you pointed out to them. You won't waste hundreds of hours marketing a house for some nincompoop who doesn't understand that just because his neighbor's updated house sold for $400K six months ago, does not mean that his 1970s pine-paneled monstrosity will sell for $450K today. Real estate agents have a shitty job. It looks like easy money from the outside, but few of them are very successful for very long. That's why we all know at least one person who has had their real estate license and given it up.

|1.5.07 @ 3:00PM|#

FSBOs don't know what to do when a homebuyer offers a higher price, but wants points from the seller to pay closing costs, the appraised value comes in under the contract price, the home inspector indicates repairs needed, etc.

I think they don't know that stuff only if they've never bought and sold before, and didn't bother reading up on it.

I like your list though ;)

I'm curious what you (or your wife) think of mortgage agents. We didn't use one the first time, but the second time we did. Our experience was awful.

|1.5.07 @ 3:12PM|#

By "mortgage agents" do you mean mortgage brokers?

|1.5.07 @ 5:18PM|#

I think so. He supposedly shopped around for the best mortgage deal. After a while, it became apparent he was only trying to get us a deal that matched our maximum monthly payments. We had to constantly stay on top of him to make sure we weren't getting had.

|1.5.07 @ 5:31PM|#

That's a mortgage broker.
There are a lot of shady, lazy mortgage brokers. They fly-by-night.
There are a lot of upstanding, hardworking mortgage brokers. They become mortgage bankers eventually. Fewest hassles and best rates are from mortgage bankers. They are like brokers, but they put up their own money to fund the loan, then sell it immediately to an investor.
Brokers serve a purpose, especially in the subprime market, but if you have good credit, find a mortgage banker or go to your bank. Banks are usually not quite as competitive, unless they have a separate retail mortgage division.
I don't want to dis brokers (my wife & I both work for mortgage bankers who do broker most of the subprime loans we close), but the shady brokers out there are the ones who provoke the gov't into keeping a closer eye on our industry and handing down all sorts of ridiculous legislation that hurts everyone who isn't federally chartered. That same legislation to "protect" the consumer usually ends up make it harder for people with little money or poor credit to get loans, or it makes their business less attractive to businesses that play fair.

Kelton Baker|1.8.07 @ 6:36AM|#

I'm a Realtor, I recently paid my 2007 dues, but I do contemplate going independent every time each year. Being on the outside of the Realtor Association is slightly comparable to AMA or Bar membership for doctors and lawyers. Of course, the Realtor association is not an all-important embedded monopoly like those, just hugely influential.

For anyone who thinks real estate agents have it easy, consider that barely 30% of new full-time licensees last even 6 months and it gets down to single-digit percentages after two years if you count those who stay in the career full-time making regular sales.

Commissions? I'm noticing competition getting more and more cutthroat all the time among agents. Five-percent used to be considered a discount, but 5% is slowly becoming the new 6%. The one-hundred-year reign of the great 6% commission is coming to an end, but most certainly not the real estate agent. In the days of my grandfather (a broker under who I was first trained) it took hundreds of hours of work to sell a typical house. Now with new technologies and more specialized division of labor, most houses sell with a lot less work than in those days when 6% was the minimum commission.

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