Real Estate Broker Community Under Investigation By The Feds
BATTLECALL GUEST EXPERT: Attorney William
Bronchick Of LegalWiz.com
Until recently, the only option a seller had to engage a real estate broker
was to pay a fixed--rate commission. Well, not really...commissions are not fixed
by law, they are fixed by custom. Or, are they really fixed at all? That's the
question the Justice Department is looking into.
Price fixing has been illegal in the United States for a long time. But, as a
customary fashion, an industry often ends up looking like a "fix" because all
the players want to look competitive. Hence, the "standard" 6% listing fee.
Until recently, virtually every real estate broker quoted 6%, and if a broker
advertised less than 6%, the community was in shock and often shunned him.
Buyer's agency is also something relatively new, that is, an agent who
represents the buyer. If the buyer's agent brings a buyer to the table and the
property is listed by a different agent, then the 6% commission is split,
generally 50/50 or something like 2.8% to the buyer's agent and 3.2% to the
listing agent. Since most buyers are procured by the buyer's agent, the listing
agent's role has been greatly diminished in recent years.
So, one day sellers started asked the question, "what do I need a listing
agent for?" The answer to that question is simple...you need to get your property
on the Multiple Listing Service (MLS), otherwise you aren't likely to get it
sold. After all, most buyer's agents look to the MLS for properties for their
clients.
Many listing agents smartened up by offering a limited--service product for
less. The flat--fee broker simply places your property on the MLS for a flat fee,
rather than a percentage of the sales price. In some markets, some agents are
doing it for as little as $250. The buyer's agent still gets 2.8% for bringing
the buyer to the table, but the seller must coordinate the showings with the
buyer's agent, review the purchase offer and complete the sale without the
assistance of the listing agent. The fact is, most real estate investors are (or
should be) savvy enough to use do all of these tasks without the assistance of
an agent.
AGENT VS. BROKER VS. REALTOR
In most states, one must be licensed as a broker to list property. An agent
works under a licensed broker. A realtor is a broker or agent who is a member of
the National Association of Realtors. Most agents and brokers are Realtors, as
well as members of a local board. Throughout this article, I use the term
"broker", "realtor" and "agent" synonymously.
So, what's the problem? If you want full service, you pay 3.2%, and if you
want no service, you pay just a few hundred bucks and do the work yourself.
Sounds much like the stock brokerage industry, doesn't it?
Well, it seems that the "gold old boy" network doesn't much like the
discounters. I don't blame them, because it hurts their business. But price
fixing is illegal, isn't it? That's what the Justice Department is looking into.
According to CNN Money, a federal investigation alleges that full service agents
in Tulsa Oklahoma engaged in "boycotting", that is, refusing to show their
buyers properties that were listed by discount listing agents. The Attorney
General has also sent letters to lawmakers in Oklahoma and Texas, urging them to
reject proposals that would effectively prohibit brokers from engaging in
discount fee services. These propsed laws require brokers to provide certain
services that discount brokers would normally forego.
The Realtor community claims that the public is being protected by requiring
agents to provide these services because the consumer might make costly mistakes
doing it on this own. Sounds reasonable, but why do the Feds allow discount
stock brokers? The answer, to me, is simple: don't treat consumers like babies,
let them make their own decisions. Sure, many consumers will screw it up, but
that's their choice. The state bars, backed by lawyers, tried to outlaw software
programs, do--it--yourself kits and legal form publishers, but the consumers won
the battle. In reality, the consumer is more likely to make mistakes doing their
own legal documents, but that's their choice. A smart consumer who does not feel
comfortable preparing his own living trust will pay a lawyer to do it.
Personally, I'm all for the discount listing services, especially for
investors who know what they are doing. If a homeowner does not feel comfortable
using a flat--fee, no service broker, they are free to pay the full commission to
get the full service.
For more information, please visit LegalWiz.com
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