|
AHGA Home
| |
|
AHGA
Congressional
Testimony on the Changing
Real Estate Market
|
|
Statement Of
The American Homeowners Grassroots Alliance
Submitted to the
Subcommittee on Housing and Community Opportunity
Holding hearings on
The Changing Real Estate Market
July 25, 2006
www.AmericanHomeowners.org
|
The American Homeowners Grassroots Alliance commends the Financial
Services Committee and the Subcommittee on Housing and Community
Opportunity for holding this hearing on “The Changing Real Estate
Market”. Real estate industry lobbying and the conflicts presented by
self-regulation are denying homeowners the opportunity to save billions
of dollars each year through the use of innovative new brokerage tools
and methods. This hearing will document the problems and enable the
Committee to begin to explore and potentially address the problems.
Many members of Congress own homes in the metropolitan Washington DC
area, where median home prices exceed $500,000. They and other
homeowners in Virginia, Maryland and DC are fortunate because none of
these jurisdictions have enacted laws or promulgated regulations that
restrict home sellers from using very inexpensive flat fee real estate
brokers that will place their home for sale in the real estate exchanges
for a much lower fee. By “exchange” we include the Multiple Listings
Services, which are collectively managed central systems for a home
seller’s broker to distribute a home listing to other brokers in order
to find a buyer. These systems include both the traditional business to
business MLS functions and the more recent business-to-consumer
functions, the latter reflected in a network of thousands of brokers’
consumer-facing websites as well as the National Association of
Realtors’ www.Realtor.com.
This network, which has evolved into an Internet-based
business-to-consumer public utility, is now used by over 70% of home
buyers in their home search process! Buyers in the metropolitan DC area
have the option of listing their home with a flat fee broker for as
little as $200 (of course for that low price the home seller must hold
their own open houses and do the other work attendant to selling their
home), versus paying the typical 6% commission for full service
brokerage services, which would amount to $30,000 on a $500,000 home.
With listed homes in the area often receiving multiple offers in the
first several weeks of listing until late last year, it is no wonder
that more metropolitan DC home sellers are using this alternative. It is
working well here and in other states where this alternative is not
restricted – we haven’t received complaints from home buyers or sellers
using this cost-saving tool. We are unaware of either other consumer
organizations or government agencies receiving any complaints from home
buyers or home sellers.
Home buyers and sellers in some other states aren’t nearly so lucky.
There laws and regulations force home sellers to pay for real estate
services they neither want nor need, and prohibit consumers from
receiving real estate commission rebates. All of us owe a great amount
of thanks to the Department of Justice for its lawsuit against the
National Association of Realtors to prevent the adoption of their
anticompetitive industry regulations that would further limit the
benefit and use of the tools of technology in real estate. The proposed
NAR rules would hasten the consolidation of real estate brokerages in
the U.S. and are adverse to the best interests of the many small and
independent real estate brokers who for years have been both the heart
of NAR and pillars in their communities. We also owe a great amount of
thanks to the Department of Justice and the Federal Trade Commission for
their joint efforts to stop state legislative and regulatory initiatives
by state real estate associations that have the effect of denying cost
saving alternatives to the very same consumers to whom the brokers owe
both their livelihood and their fiduciary duty.
Despite the best efforts of the DOJ, the FTC, and consumer advocates,
the powerful real estate lobby has them outgunned. Some brokers put
their self interest ahead of their clients’ interest and principles of
free trade to push for laws that limit competition.
Moreover, the state real estate commissions and boards appear to be
dominated by active traditional full-service real estate brokers with
conflicts of interest. We believe that most of the minimum-service and
antirebate regulations come at the behest of the state real estate
associations. Upon learning from DoJ and FTC that such regulations would
violate antitrust laws and lead to action by those federal agencies,
those same state real estate associations turned their regulatory
proposals into state legislation to try to escape antitrust enforcement.
These practices have been uniformly condemned by the media, including
the Wall Street Journal and many of the nation’s most prestigious
newspapers, magazines, TV shows and many, many others. There is clearly
a need for Congress to act.
With home equity now one of the largest forms of consumer savings, large
amounts of money are at stake for homeowners. In fact American consumers
pay more for real estate brokerage services than consumers of any other
comparable country. U.S. real estate brokerage fees in real dollars have
increased in recent years as housing prices have soared while average
commission rates have moved only a tiny fraction of a percent downward.
By contrast the Internet has substantially reduced brokerage costs in
other industries. With homeowners doing more of the home search work
themselves, the real estate agents’ work load is reduced, and therefore
traditional commissions should be declining, not increasing. And if the
dramatic cost savings of the flat fee business model were not limited by
real estate industry lobbying efforts, commissions would be dropping
even further. Clearly the evidence suggests the market is broken.
All of the problems you will hear about are the result of an overarching
reality that we hope this committee will address: the real estate
marketplace is self-regulated and currently there is currently no
participant in the process looking out for consumers’ interests. While
broker licensing is managed by state law, the brokerage markets – the
Multiple Listings Services (MLSs) -- are self-regulated and have been
used to disadvantage both consumers and innovators. Essentially, the
national trade association for real estate brokers – the National
Association of Realtors (NAR) – is appropriately carrying out its
mission to protect the interests of brokers. In so doing it is ignoring
the interests of its clients. Indeed it would not be reasonable to
expect otherwise, anymore than you could expect one law firm to
effectively represent opposing parties in a lawsuit seeking financial
damages or expect one real estate broker to effectively represent both
the buyer and seller of the same home.
The self-interest of brokers is often contrary to the best interest of
their fiduciaries, and the record is clear that the best interest of
consumers has not been a consideration of NAR or many of the state real
estate associations in their regulation of the industry’s business
processes. Indeed, they do not consult with stakeholder consumer
organizations and some of them take offense at the suggestion that
consumers should have any role at all in the process. It is therefore
important that Congress examine this area and take action to assure that
consumer interests are represented in the management the real estate
exchanges.
Markets can generally self-police if innovators are able to enter and
compete. A fairly run MLS system is essential to enable innovators to
compete. Policymakers must be very concerned when competitors can join
together to impair innovation. This is what is so troubling in real
estate brokerage. Recent enforcement actions by the Dept. of Justice and
the Federal Trade Commission strongly suggest the ability of innovators
to compete on service and price is being impaired.
On behalf of the nations’ homeowners – and more importantly, on behalf
of families who aspire to homeownership – we call upon this Committee
and Congress to take concrete actions based on the input from this and
earlier hearings. Options include additional studies on the subject in
support of legislation to address the problems, legislation outlawing
specific types of anticompetitive state legislation or industry
regulations; the creation of a federal “Real Estate Commission” that
would oversee the regulatory activities of NAR and the state
associations (much as the SEC oversees the activities of NASD and the
stock exchanges); and providing additional powers and resources to the
Department of Justice and the Federal Trade Commission that would be
dedicated to this effort. We also believe that there are other problem
areas in real estate services – such as dual agency – that deserve a
separate set of hearings and separate solutions.
The American Homeowners Grassroots Alliance (AHGA) is a consumer
advocacy organization serving the nations 75 million homeowners. More
about AHGA is at www.AmericanHomeowners.org
|
|