While RESPA may have outlined what is and isn't a real estate brokerage, new battles at the local level are putting the question to a test.

A new rule by the Texas Real Estate Commission seeks to define the boundaries of real estate brokerage by adopting an amendment to "define the minimum level of service to a consumer in a real estate transaction." The new rule requires all brokers to include helping clients with negotiations as part of their services to consumers.

That prompted Austin discount broker Aaron Farmer to instigate a lawsuit against the Commission, claiming the Commission was trying to help full-service brokers hold on to their six percent commissions by cutting discount brokers out of the industry. Farmer's attorney was able to obtain a temporary restraining order last week from the courts, blocking the new rule from going into effect at least until a hearing is held, or the restraining order runs out.

Discount brokers and traditional brokers are about as friendly as the McCoys and Hatfields, and this conflict brings the enmity to a new head.

Farmer’s firm, Texas Discount Realty charges a flat fee of $495 to put a seller’s home in the MLS. A full service broker may charge about six percent and pocket all of the fee, or split that fee with an agent, and the broker and agent representing the other side of the transaction.

But the differences don’t end there. Once the home is listed, Texas Discount Realty performs no further services, while the work just begins for a full-service brokerage to get the home sold. If more consumers take advantage of discount models, that could put more pressure on the already slim profits traditional brokers yield for full-service.

"They are trying to keep the status quo," says Farmer, "the way things have operated for 50 years. I'm for options for people, and this rule eliminates an option for consumers.

One of Farmer's listings, says Farmer, is with a real estate attorney who by this new law could not negotiate his own contract.

"The real estate commission is saying that someone who just got their license yesterday knows more than a real estate attorney," says Farmer. "I realize that's an extreme example, but if you follow the letter of the law, that is what they are saying."

But not every consumer is a real estate attorney.

"They have the right to sell their own property," argues Farmer. "There is no law prohibiting them from being for sale by owner. I'm doing the industry a favor. I'm listing them (sellers who would otherwise be FSBO's) in the MLS, and getting a lockbox put on the house, and I'm getting them to sign a contract guaranteeing that they will pay a three-percent ocmmmision to a buyer's agent. Basically, I'm cutting my own commission, not the other agent's."

The Texas Association of REALTORS (TAR) backs the new law because some consumers would choose the discount brokerage route who would be better protected using the services that include negotiation. Bill Stinson, vice president of governmental affairs for TAR, told the Austin Statesman, “This is strictly a consumer-protection angle. We feel like every consumer in Texas should expect a minimum of service if a broker in Texas will represent them."

Due to the pending litigation, Texas Real Estate Commission’s general counsel Loretta DeHay was not able to counter Farmer’s claim to Realty Times.

”The restraining order is until January 21st, 2003,” said DeHay, but she declined to say whether the Commission will petition to get the restraining order rescinded or what actions the Commissions and its attorneys will take in the meantime.

Farmer is hopeful that the Commission will back down.

"We had a restraining order placed that was good for two weeks," explains Farmer. "The day after the hearing, the attorney for TREC asked to extend the restraining order. My attorney who specializes in administrative law says this is unheard of. The Attorney General told my attorney that he has asked TREC to go back and revisit the rule. That is the reason for the extension. The TREC commissioners will meet again on Jan. 6th. The restraining order getting extended is public record. My feeling is it may not even go to the hearing after the TREC meeting; it may be over.

According to the Texas Register (scroll down to TREC 535.2) the new rule states that “the public benefit anticipated as a result of enforcing the section will be clarification that a real estate licensee is required to provide a minimum level of service to a consumer in a real estate transaction. A real estate licensee must accept and propose offers and counter-offers, answer any questions regarding offers and counter-offers, and assist in developing, communicating and presenting offers and counter-offers for the broker's client.”

The amendment was adopted under Texas Civil Statutes, Article 6573a, §5(h), which authorizes the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties, and the new rule was set to go into effect November 26, 2002 before it was put on hold by the restraining order.

A hearing could take place on the matter within the next couple of weeks.

Published: December 5, 2002

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