Despite the objections of brokers who wish to provide limited services to consumers, there may be an unspoken reason why the Texas Real Estate Commission, along with commissions in other states, has proposed a new rule to establish minimum service standards. While such commissions change rules for the protection of the consumer, they may also be looking out for brokers and the industry as a whole.
Limited services in brokerage can also be known as fee-for-service, a concept which is widely accepted or rejected by brokers depending on which services are supplied. If the services don't hurt anyone's income, then there are no objections. If the services are designed to hurt other brokers' income, then there's always trouble.
Take BPOs, for example. When a broker chooses to make a little extra money on the side by doing broker price opinions (BPOs) for banks or asset managers, other brokers don't object. BPOs are regulated by most states so that they don't interfere with, or substitute for the appraisal process. In a way, BPOs are a money-making version of the universally gratis comparable market analysis, and almost everyone condones it.
But why? For some reason, it seems OK to charge banks for limited service (an opinion,) but few brokers insist on charging individual consumers for the very similar CMA. In fact, some states flat don't allow them to.
The reason is that banks are businesses. The BPO is allowable because it is a business-to-business transaction where everyone understands the rules, the language, and the limitations of the opinion. The BPO is a commodity. The CMA, on the other hand, is a courtesy.
But consumers aren't satisfied with courtesies any more. A fundamental shift in the way homes are perceived as investments has created the business-minded homebuyer. The National Association of Realtors has reported that over one-third of homes sold in 2004 were purchased as either second homes or investments. A bull housing market over the last five years has created flippers -- people who buy, do a quick fix-up, and resale at a profit. Some even buy across the country simply for the potential of housing gains.
This consumer wants what the professionals have -- access to other professionals. But they don't want to pay these other brokers the professional courtesies they are entitled to.
And there are brokers who are all too willing to help them.
In effect, these brokers are supplying for-sale-by-owner-minded consumers with tools to use the business-to-business MLS as a consumer marketplace. The consumers think they're beating the system by hiring brokers to let them enter their homes in the MLS and get a sign in the yard. They show their own homes, and in many cases, skip paying cooperating broker fees.
But the MLS as it exists today wasn't designed for consumers, although it can certainly be flexible enough to accommodate their interests. When consumers wanted to view homes online, the industry didn't upend the MLS. It created Realtor.com where listing brokers could present listings in an attractive way to the public.
But a line should be drawn where MLSs are concerned. MLSs are cooperatives, created by and for brokers, to share listings and cooperating fees, much like an apparel market showroom where clothing buyers go to see "lines." Consumers would love to be able to go in and buy off the rack, but that's not how the apparel market is set up. It's set up to serve other business owners, retailers who buy the lines to present to the public in a consumer-friendly environment with dressing rooms, and lights and mirrors. Showrooms don't have dressing rooms. The racks are loaded with samples, not items to buy.
Letting the public in a showroom undermines the relationship between the line representative and his/her true customer -- the retailer. If the public can shop at the showrooms, what's the point of stores? When dealers act as retailers, that may cut out the middleman and save the consumer some money, but is that necessarily a good thing? Letting consumers in where they don't belong can be unrewarding.
Imagine a clothing line representative showing clothes to a customer. The customer wants the clothes even cheaper, and decides to buy them directly from the manufacturer. The representative has just cut out his/her own business by letting the consumer in where the consumer should've never been allowed.
It's the nature of consumerism to attempt to beat the system until costs have dropped to the point where the consumer is endangered. But it's not the nature of consumerism to look down the road and envision the end results of their pressures. They don't see the day when air travel becomes unsafe because tickets prices have dropped so low that maintenance is cut or deferred. They don't see the day when their retail marketplaces are ghost towns and the values of their homes plummet.
One of the greatest solutions provided by the MLS is that real estate professionals work with other professionals. Putting an amateur in the boiler room isn't fair to the other professionals. It isn't fair for one broker to profit while insisting that cooperating brokers deal with the amateur seller or amateur-playing-at-professional rather than a true professional on the other side of the table.
So, the big question on everyone's mind is who is actually being anti-competitive? The full-service brokers who don't want to be cut out, or the limited service brokers who want to cut out the full-service broker? The full-service broker who doesn't want to do someone else's job without getting paid, or the limited service broker who wants to make money without performing any work that incurs liabilities?
