The American Homeowners Grassroots Alliance (AHGA) is a national bipartisan advocacy organization representing the nation’s 70 million homeowners. AHGA believes that preserving and enhancing home ownership should be a national policy priority. AHGA believes that homeowners and home ownership are generally benefited by domestic and international free market policies.

AHGA has carefully reviewed policy documents and testimony from the real estate and lending sectors and other sources on the issue of allowing banking organizations to be involved in real estate brokerage. From the consumer perspective there are significant potential benefits of such a policy. Those benefits clearly outweigh the limited potential risks. In addition a substantial majority of consumers would like the option of “one stop” shopping for real estate services. For these reasons AHGA believes that consumers will benefit if banking organizations are involved in real estate brokerage and urges Congress to support the entry of banks into this market.

Opponents argue that because banks lack the invaluable experience in local real estate markets and the in-depth knowledge of real estate law, consumers will suffer. While it’s true that most banks currently don’t have core real estate brokerage competencies, both experience and common sense suggest it is unlikely that consumers will suffer. Companies in the banking and real estate sector have successfully entered each other’s markets without serious problems. Federal savings institutions, credit unions nationwide, and commercial banks in about half of the states have had the ability to engage in real estate brokerage for a number of years. Many real estate companies, including Long & Foster, Century 21 and Coldwell Banker and many others currently provide brokerage, mortgage lending, title insurance, and property insurance. Consumers have substantial protection in the fact that real estate practice is heavily regulated, and state licensing requirements establish minimum competencies that all participants must demonstrate. Rather than build those competencies from scratch, it is likely that many banks will enter the real estate brokerage market through partnerships with or the acquisition of small local real estate agencies that have substantial experience in their real estate markets and in-depth knowledge of real estate law.

Another argument against permitting banks to enter real estate brokerage is that it will accelerate the consolidation process currently underway in both the real estate and lending sectors. This would reduce competition and increase costs to consumers. This is not a strong argument either. Other larger economic factors are driving the consolidation that will almost certainly continue in banking and real estate (and many other sectors as well), whether or not banks are allowed to enter real estate brokerage. AHGA believes that any contribution of this new policy to the consolidation process will be small. If banks are permitted to enter real estate brokerage the most visible difference will likely be that banks instead will purchase some of the small real estate brokerages that would otherwise be purchased by large real estate brokers. Because there will be more bidders the small independent brokers will benefit from higher selling prices when they sell their businesses. Fortunately there are a very large number of existing competitors in both sectors, so it would take many years before consolidation reduces the number of competitors in either sector to the point that any company or small group of companies could override market forces in determining prices of banking and real estate services. If and when we ever reach the point that market forces do not prevail in setting real estate service prices and lending prices and rates, U.S. antitrust laws are available to stop anticompetitive behavior.

Lastly, opponents argue that permitting banks to enter real estate brokerage creates a conflict of interest in that a lender owning a real estate brokerage will try to sell follow-on products or services to its clients its other services, and in many cases those products or services will not represent the best value for the consumer. Most consumers recognize that the products or services of only a few companies in a given industry can represent the very best value for a particular consumer. They also recognize that the consumer is in the best position to determine his or her needs and priorities and it is the consumer’s responsibility to sort out which products or services represent the best value. Cross-selling of follow-on products is a very common practice in many sectors, and the products and services a company seeks to cross-sell are no different with respect to their potential fit to a consumer’s needs that the product or service that attracted the consumer in the first place. AHGA believes that most consumers are sophisticated enough to recognize that any company’s follow-on products or services also may or may not be the best value for the consumer and act accordingly. There is therefore no greater conflict of interest between a consumer and business regarding a follow-on product or services or the product or service that attracted the customer in the first place.

In addition most consumers do substantial research regarding competing real estate and mortgage lending services before buying, selling or financing a home. There is a wealth of free and inexpensive information available to consumers on those subjects from a wide range of sources, including AHGA’s sister education and research organization, the American Homeowners Foundation (AmericanHomeowners.org). Almost every source strongly urges consumers to comparison-shop every major component of real estate services.

There are several arguments in favor of permitting banks to enter real estate brokerage. Businesses cross-sell because it is more efficient way to market, i.e. the costs are lower. In a competitive marketplace a share of marketing cost savings will inevitably be passed on to consumers in the form of lower fees and/or rates. In addition to potentially saving homeowners money, the closer coordination of home brokerage and lending services under one roof also potentially reduces the time between purchase and settlement, which can often be very important to consumers as well. These likely cost and time savings are a substantial potential consumer benefit. They would indirectly benefit individual real estate agents, because they will get their commissions sooner and the reduced costs and time savings will likely mean more home buyers and sellers.

Consumers are very concerned about the protection of their financial and other personal data. Currently RESPA requires that all real estate companies and banks provide disclosure notice to the customer of multiple services offered by affiliated firms. In addition banks are currently subject to greater privacy regulation than real estate companies. The current regulatory proposal to allow banks to enter the real estate brokerage requires real estate brokers to provide greater protection to the privacy of consumer data. Consumers support this requirement and will benefit from greater protection.

One stop shopping is by itself a substantial benefit to many time-starved consumers. Many home buyers are couples with two demanding jobs and often more demanding children. We believe many of those home buyers consciously and intentionally trade convenience for economy in many decisions. They make that choice with full awareness that they will likely be forgoing a better offer if they took the time to shop around.

From a policy standpoint the question is whether federal legislators should deny consumers this freedom of choice, and if so, what is the appropriate alternative. While AHGA strongly encourages consumers to take the time to shop competitively for all real estate and financing services, AHGA also believes consumers have the right to make their own choice. In addition, recent home sellers favor allowing banks to offer real estate brokerage by a 2 to 1 margin according to a 2001 survey.

For this reason AHGA urges members of Congress to oppose S. 1839 and H.R. 3424. If Congress concludes that the risks of permitting banking organizations to be involved in real estate brokerage outweighed the benefits, then consistency would require that federal savings institutions, credit unions nationwide, and commercial banks in several states that engage in real estate brokerage to divest themselves of their real estate businesses. Since the primary arguments against the bank’s market expansion go to core competencies and potential conflicts of interest, then conversely the many real estate companies that currently provide mortgage lending should also be required to divest themselves of their real estate lending businesses. While these steps would apply the principles contained in S. 1839 and H.R. 3424 on a consistent basis, it would deny many consumers what they want - one stop shopping.

If Congress truly believes action is necessary to protect consumers it would be more effective to require consumers to meet some minimum level of due diligence before entering a real estate or lending transaction (i.e. demonstrating that they have interviewed three real estate agents before listing a home, looked at three houses before making an offer to buy a house, or considered three lenders before applying for a loan). However as previously stated AHGA believes this would be too much of a restriction of personal choice.

In deciding whether to support real estate companies or bankers on this contentious issue, AHGA recommends that Congress choose the side consumers. Congress can best serve consumers by supporting the implementation of regulations to permit banking organizations to be involved in real estate brokerage.