Restraint of Trade

9 May 2005



US Considers Suing Realtors over Pending Bylaw

America is in the midst of a housing boom, if not an outright speculative bubble. This, of course, is good news for people who help people buy and sell homes -- the real estate brokers. In a gold rush, the one guaranteed of making money is the man who sells picks and shovels. In a real estate boom, that position is taken by the brokers. But good times aren't ever good enough to suit business leaders. The 1.2 million member National Association of Realtors want to limit commission discounts and Internet listings. So, Uncle Sam is thinking about suing.

Traditionally, the brokers in the US get a 6% commission which is usually split down the middle between buyer's broker and the seller's. On a $100,000 house, this is not a bad monthly pay check; on a $500,000 house, it looks a whole lot better. But it does drive up the cost to the consumer. Naturally, there is a market pressure to find ways to reduce that 6%. Discounts are policy at some brokerages that use the Internet. And those who wish to sell a property without a broker can now list their property on the Internet instead of just the local paper, reaching a great many more potential buyers. And when selling a $500,000 home, saving a few points off the 6% commission adds up quickly.

So, like all professional associations, the NAR has opted to try to prevent the market from undermining its members' take-home pay. The argument they make against discount brokers is a legitimate one that many players of the stock market will recognize -- discount the commission and one often discounts the service. Yet, surely an informed investor/consumer who doesn't need that "extra" service shouldn't have to pay for it.

As for the Internet, the bylaw proposed by the NAR would permit its member-brokers and agents to avoid listing properties on the Internet. The argument here is that these people work pretty hard and long hours to get the listing, and by putting it on the World Wide Web, other brokers are getting a free ride. And this, too, has some merit. But in whose interest is this restriction of information from the market place? Surely not the buyer who would want the widest possible number of properties to consider. Nor is the seller benefiting from a diminished number of potential buyers. The agents and brokers are the winners.

There is a ready solution to this situation, and that is to remove all legal restriction on the actions of licensed brokers. Permit the discounting and Internet listing of those who want it, and allow the rest to avoid those actions. And let the market decide the result. Interestingly, Wall Street has found that there is enough room for discount, Internet, no-frills stock brokers (order takers really), and for full-service operations. Could it be that the Feds and the NAR are making a mountain out of a molehill?


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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