The only licensed trade in the US that has state government mandated minimum service laws attached to it is the real estate brokerage business. No such mandate can be found for doctors, dentist, attorneys, CPA’s, travel agents, plumbers, electrician, heating/cooling techs, barbers, hairdressers or any other trade or profession.
While it’s ridiculous to suggest that the professions and trades identified here have no standards of practice or laws, it seems equally ridiculous for the state real estate regulators to micromanage one trade at the exclusion of other licensed trades and professions.
Consumers, along with the US Department of Justice (Antitrust Division), The Federal Trade Commission and Consumer protection groups are wondering the same thing.
The real estate industry, like all businesses has a certain mystery about it. Most consumers know very little about the inter-workings of the real estate industry except that most feel that real estate agent fees are too high.
Thankfully, most consumers don’t use the services of real estate agents frequently enough to become familiar with the industry is the unspoken attitude of the mega brokerage companies and Real Estate Commissions. The Kentucky Real Estate Commission (KREC) recently came under criticism for running radio spots disguised as public service announcements designed to scare do-it-yourself home sellers (FSBO) from going it alone. Although it was an unusual step to take, the Chairman of the KREC was quoted in Inman News as saying that “ we just wanted to give something back to the real estate agents that put the money in”.
He went on to express his sorrow that sellers were “circumventing” real estate agents by selling their house without the services of a real estate agent, according to the Inman News article.
The real estate industry is built around a membership-only database known as the Multiple Listing Service (MLS), governed, though not owned by the powerful National Association of REALTORS (NAR) in Chicago. Some industry leaders believe that without the MLS, the National Association Of REALTORS along with the state and local affiliates would have no reason to exist.
There is no question, according to most REALTORS, that the most valuable tool that the NAR brings to the table is uniformity and consistency in the Multiple Listing Service.
This is the heart and soul of why the state real estate regulators micromanage the real estate industry through unnecessarily restrictive rules and laws. The National Association of Realtors has no power to directly get laws passed, however, they do have massive power to influence those that do…the state real estate regulators. Maintaining the status quo is the paramount objective of the REALTOR Group and their most effective tool to accomplish this objective has been the state real estate regulators’.
The fact that State Real Estate Regulators are actually dues paying members of the National Association of REALTORS makes it a bit easier. They are REALTORS in most cases. Each state has a slightly different makeup for the real estate commission, but in Kentucky, for example, this rule making body consist of active REALTORS and a lawyer. Many people see it as stretch to view this group as objective with respect to consumer protection at least.
What holds the industry together and keeps the services priced at a uniform level of around 6% nationwide since the 1960’s is the unique cooperative agreement between brokers known as the Multiple Listing Service (MLS)
This cooperative agreement offers both advantages and disadvantages to consumers. The advantage rest in the huge database of housing information available, while the disadvantage lies in the limitations imposed in order to access it. For REALTORS the advantage lies in the ability to advertise their listed property to other REALTORS and accelerate the process of finding a successful buyer in exchange for giving up about half of the commission earned.
State real estate regulators have adopted rules and promoted laws mandating that real estate brokers perform certain specific task when working with sellers in order to stay in compliance with the state law. These tasks make it legally risky for a real estate broker to offer his services to consumers that may, for example, want to sell their house by owner (FSBO) and purchase MLS access separately.
These laws and rules alone have eliminated some home selling options formerly available to consumers and caused brokers to withdraw offering these money-savings brokerage options in some states. The effect of these rules and laws, according to the American Homeowners Grassroots Alliance, may be to the determent of price sensitive home sellers nationwide.
Since minimum service rules only came into existence when the threat of a larger numbers FSBO’s became real, it’s fairly easy to trace the connection to each other. The influence of the National Association Of Realtors is obviously at work in these state real estate regulator’s offices and the keys to the office of the State Real Estate Commission now hang at Realtor Association HQ.
The following states are reported to have broker minimum service laws or rules. Alabama, Texas, Florida (allows consumers to waive services), Illinois, Indiana, Missouri, New Mexico, Oklahoma, Utah and Kentucky.
Note: Correction Policy. Contact author to update the list of states that have minimum service laws on the books.