Monday, October 15, 2007

Is the DoJ out to get NJ Realtors?

Last week, the Department of Justice's anti-trust division launced a new Web site,

The purpose of this site, according to the Department of Justice, is to encourage more competition in the real-estate marketplace, thus creating market forces that will lower commissions and help consumers.

In theory, I suppose this sounds good. When you look at all the pressures on real-estate companies that have come since the maturing of the Internet, though, I have to wonder if this is really what will happen. Numerous referral systems, the costs of developing ever-more-sophisticated Web sites, expensive training, giving agents a bigger share of the commission, the growing cost of omissions-and-errors insurance and many other other costs and pressures have taken a lot of profit out of the real estate buisiness for the broker-owners. When market forces force people to work on ever narrower margins, what usually happens is that the big guys find a way to survive and the little guys don't. The little guys sell out to bigger companies or they quietly go away. And what does that do to competition?

The thing that disturbs me most about this federal push to break Realtors, though, is that they want to open the business of representing sellers to any cowboy or yokel who can create a Web site or a referral system, regardless of their ethics.

Long ago, New Jersey created a Real Estate Commission.The Real Estate Commission requires anyone in this state who represents homesellers or homebuyers to have a real estate license, and in order to take the test to get the license, you need to take 175 hours of instruction about real estate law. I took the class back in the 1970s after the licensing course, which I think in those days may have been about 150 hours (any of you old-timers in the business are welcome to jump in with a comment and correct me). It wasn't necessarily the best preparation for how to negotiate a sale, but it did cover a lot of basic law and math. We learned how to calculate acreage and sales commissions, and we learned about fair housing law. I have to say, I think that licensing has been a good thing. It's not a fool-proof protection for consumers, but it certainly helps.

Well, the all-knowing federal government, in the form of the Department of Justice and the Federal Trade Commission, is taking a different view. In a FTC memorandum earlier this year and this new DOJ Web site now, the federal government seems to think that the Realtors are restricting trade, with the help of their state Real Estate Commissions. The idea of protecting consumers from unscrupulous, ignorant people isn't that important anymore. The size of the commissions is.

I got an e-mail this morning from a disgruntled Foxtons client in Staten Island. She's upset because Foxtons refuses to release her from her listing contract, but whenever she calls them about the sale of her house, they are not available. Nobody answers her calls, nobody has helped her negotiate. Some other Realtor came up with an offer on her house and negotiated it without Foxtons' help or participation. She has no intention of paying Foxtons any commission and considers them in breach of contract.

Yes, Foxtons is a licensed company that should be bound by the real-estate commissions in the states where it operates, and in this case, the licensing process didn't protect this woman in Staten Island. But, I continue to maintain that Foxtons had an unrealistic business model, one that never made enough from each sale to remain profitable. Foxtons never bought the idea that people need good service -- maybe some of its agents did, but the company's overall record of customer service was abysmal. It seems to me that if the FTC and DoJ have their way and we get a lot more discounters in the market place, we're going to see a lot more of this kind of discomfort from people who work with unlicensed cowboys who are in the business for a quick profit, poor service and worse results.

But I digress. The DoJ names 12 states that are particularly egregious for not allowing rebates on commissions. New Jersey is one of them.

Now I ask you, what is the point of this? Can anybody negotiate the size of a sales commission in New Jersey? Of course they can. In fact, every real-estate agent is required to say that every sales commission is negotiable.

What's the difference between an agent saying "I'll sell your house for a 5-percent commission" or an agent saying "I'll sell your home for a 6-percent commission, but I'll give you a 1-percent rebate at the closing?"

The difference is, the straight 5-percent commission is easier to understand. And with the rebate, you have to ask the guy to clarify if he's giving you back a 1-percent of the selling price or a 1-percent of the commission, which would actually leave you paying more than 5 percent.

This whole idea of removing the controls created by the state real-estate commissions and opening the market up to anybody without a license smacks to me of the same idea of de-regulating the savings-and-loan associations. Remember where that got us?

What's your opinion?

No comments: