In case his testimony in front of the Subcommittee on Housing And Community Opportunity, part of the House Committee on Financial Services which is pro-banks, wasn't enough to damage the real estate industry, J. Bruce McDonald, deputy assistant attorney general for the antitrust division of the Department of Justice sent out a press release of his prepared remarks.
So far the press has been compliant, ever eager to pile on whomever is in the government's crosshairs, and his remarks are sure to generate more venom against the real estate industry.
Among the opening salvos McDonald throws is that more than 8 million homes are sold each year, and that the Government Accountability Office said in its 2005 Report, "Real Estate Brokerage," that consumers paid about $61 billion in real estate brokerage fees.
Too bad those figures are out of date. The NAR just announced results for June, when sales continued a year-long decline to a seasonally adjusted annual rate of 6.62 million units in June. What that means is if sales continue at exactly that pace, 2006 will end with exactly 6.62 million houses sold. More telling, housing prices are flat -- in June 2006, housing prices were only up 0.9 percent over June 2005.
The California Association of Realtors says that housing prices are well below the double-digit increases of previous years to a little over 6 percent, but that won't last long. Housing inventories are piling up 26 percent higher than last year.
For the first time since 2001, California and the nation are in a buyer's market.
Without the momentum from a seller's market, many of Mr. McDonald's points lose their jab -- namely that "when this important industry does not function competitively, it can be very expensive for home buyers and sellers."
This nation hasn't seen a true buyer's market in over 15 years. If anything, the market is about to turn into a bloodbath for sellers. They are going to need professional help more than ever.
Next, Mr. McDonald reminds the Subcommittee, who needs no reminding, that the DOJ is engaged in two pursuits: enforcement actions to "protect competition and consumers" and educating "state governments about the competitive effects of rules governing brokerage services ... ."
He points out that some brokers have begun "providing information on homes for sale to their customers through the Internet," yet despite this time-saving efficiency, the cost of providing brokerage services "appears to have decreased," but "consumers are paying more. ... In fact, from 2000 to 2004, fees paid for brokerage services grew by roughly 50 percent ... ."
Like others who criticize the earnings of agents, McDonald doesn't realize the costs of operating a brokerage or making listings available to the public, and frankly it's none of his business. This is America, and brokers should be able to earn what the market will bear. If this is about earnings, then isn't there something wrong with CEO's of publicly held companies making 500 times the average worker's salary, especially when workers salaries have been flat for years? Even Congress wouldn't pass a raise to the minimum wage for fear of hurting big business.
Just because something is on the Internet doesn't mean it automatically costs less to market. Unlike other consumables, where the marketing pictures and romance can be used over and over, each home is individually marketed by individual agents. Not only do they pay for virtual tour operators, listing specialists, mailers, websites, website marketing, and other fees to market a home, the fees to their MLS have increased. MLSs have had to upgrade their aggregation and policing software, hire tech staff and in some cases create and market their own websites in order to drive consumers directly to their members so that their members aren't paying expensive referral fees to third parties on the Internet who have more money to intercept consumers further upstream.
In addition, because of the demands of sellers, brokers have not been able to replace their print advertising costs with Internet advertising costs. If anything, brokers and agents are paying more money than ever to market homes and chase down leads.
He saved his big guns for the last -- state governments and minimum service rules. "State authorities have been urged by some to adopt so-called "minimum services" rules, which would require that real estate brokers provide a certain minimum package of services," he writes. In response to consumer demand, that some would prefer to pay less for brokerage fees and do some of the work themselves, "new broker business models offer smaller packages of broker services, in exchange for a smaller total fee."
Yet, da-da-ta-dummmmm, "some brokers are resisting these developments, encouraging their state legislatures, regulators or local real estate boards to impose restrictions that prevent any broker from offering less than a specified list of the minimum services."
Isn't service what licensure is for? State licensure requires a minimum level of duty to the client -- why not a minimum level of service. Isn't that duty, but spelled out in a way that consumers can understand?
The DOJ claims that it hasn't found evidence of consumer confusion, but it has squarely ignored the cases the NAR has brought before it, which include considerable confusion among brokers. If a company supplies limited service, does its liability in the transaction decrease accordingly? If a selling broker helps a limited service broker's client with a question because the limited service broker refuses to answer it, does the selling broker's risk of being sued increase? What about fiduciary duty?
If a limited broker isn't helping her client with negotiations and contracts, then why does she need to be licensed by the state? Putting a listing into an MLS and doing nothing more is an advertising function, as proven by cases in California and New Hampshire where local boards are battling for-sale-by-owner advertising services. The courts so far have backed the for-sale-by-owner sites that they don't need to be licensed to perform the advertising functions that they do. If that's true, then why would these broker be required to have a license? They want a license for one thing only -- access to the MLS database that they wouldn't have otherwise.
If getting the DOJ to provide you access to services in the name of competition isn't anti-competitive to the ones who are already following their state licensing laws by providing the traditional services that consumers have come to expect, I don't know what is.
