Thursday, March 30, 2006

Star's Sellout To Realtors?

The Indianapolis Star handed its opinion page over to Indiana's realtors today, allowing a guest column from the sponsor of the "Realtor Protection Law", Rep. Tim Harris, and a "friendly" letter-to-the-editor from the industry's lobbyist to argue that the pro-industry bill is actually pro-consumer. This after the Star allowed one out-of-state consumer advocate to blow the whistle on the consumer wrip-off law, which benefits only greedy realtors. And, for the record, the Star has devoted not one column inch of its news pages to the self-serving law.

In his guest column, Rep. Harris says, "I thought I would set the record straight by giving factual information" in response to the March 19 letter-to-the editor. Here is what Patrick Woodall of the Consumer Federation of Amerca wrote about Harris' legislation:

At the urging of traditional real estate brokers, the Indiana legislature quickly and quietly passed a bill that would make homeownership even more expensive. House Bill 1339 requires all real estate brokers to provide "minimum services." This seemingly innocuous change is an attempt to protect brokers' 6 percent commission from market competition. Unfortunately, Gov. Mitch Daniels signed this anti-consumer bill.

The change will require real estate agents to provide a full set of services -- marketing the home, receiving offers from potential buyers, sales negotiation and handling closing procedures -- even if the homeowner doesn't want or need these advisory services. It is an attempt to prevent consumers from accessing a range of new, lower-cost real estate models.New brokers, for a much lower fee, will market homes in the multiple listing service and provide marketing support but allow the homeowner to handle everything else -- show the house and negotiate the closing -- or hire a different party to provide those services. For example, many homeowners have turned to for-sale-by-owner services, which provide little more than a multiple listing and a yard sign . . .

In other services, new business models using the Internet and technology brought improvements years ago -- such as in securities brokerage and travel -- but the changes are only beginning to affect the real estate industry. Rather than embracing market competition, industry leaders are attempting to use government to preserve the old model and prevent consumers from using less expensive real estate services.

Similar efforts to limit competition from Internet real estate brokers drew a Justice Department antitrust lawsuit against the National Association of Realtors. And the same effort is behind the Indiana legislation.

The Antitrust Division of the Justice Department, along with consumer groups and many new real estate brokers, opposes the law. Gov. Mitch Daniels did not act in the best interests of consumers and homeowners when he signed this legislation.



Harris argues that Woodall suggested the new law would end the fee-for-service business model. He writes, "The letter implies that HB 1339 will prohibit the discount brokerage business model. This is simply not true. Go to http://www.flatfeemlslisting.com/ and you will see that these firms still operate in states that have passed laws similar to HB 1339. No evidence has been produced showing an adverse impact on the discount brokerages operating in these states."

Rep. Harris is correct that the new law doesn't bar fee-for-service agreements, but he skirts the real issue. The fee-for-service Woodall referred to in his letter was an agreement where the homeseller purchases for a small fee a service which allows the seller to perform seller duties normally performed by the agent, such as meeting with the buyer's agent to negotiate the terms of the sale and preparing counter-offers and otherwise taking actions to bring about the sale of the home. Fee-for-service brokers may still offer services which require them to perform all of these duties for the homeseller, but at a much higher price.

AI explained the new law's impact on fee-for-service provider Home Yeah recently. We wrote:

As much as Slimak is concerned about the impact on his own business, he points out that the big losers are Indiana consumers, who are deprived of real choices in selling their homes because of the protective nature of the new law. When the new law takes effect on July 1, 2006, it will impact HomeYeah's Market + product the greatest according to Slimak. For a flat fee of $499, a homeseller can market their home through HomeYeah, plus have their home listed on the Multiple Listing Service (MLS), which is managed by the local board of realtors. This requires the homeseller to offer the buyer's real estate commission (i.e., 3%-3.5%), while paying HomeYeah only the flat fee of $499. The Market + service represents 62% of HomeYeah's existing business.

As of July 1, 2006, Indiana's "Realtor Protection Law" will bar HomeYeah from offering this service. That's because the new law mandates that a selling agent provide a minimum amount of services in order to accept a fee for their service, such as marketing the home, receiving offers from potential buyers, sales negotiation and handling closing procedures, even if the homeowner doesn't want or need these advisory services. If a homeseller wants to utilize HomeYeah's services, it will now be required to purchase a much costlier service for $1,999, regardless of whether the homeseller wants the additional services.



In the case of Home Yeah, yeah, you can still use their fee-for-service, but the homeseller will have to pay $1,500 more for a service it could have purchased for just $499 prior to the enactment of the new law. According to Home Yeah, up to now, 62% of its customers choose the lower-cost service, many of whom are financially distressed and need to be able to sell their home for the lowest possible cost. Other homesellers choose the service because they are more savvy and don't need the services provided by an agent. The new law does nothing to protect homesellers; it only limits the choices they have in marketing and selling their new home by forcing them to select a more costly service if they choose the fee-for-service route rather than the traditional sales route, which requires them to pay a commission of 6%-7% to the sales agent.

Of course, Rep. Harris clues us in on the fact that he has a vested interest in maintaining a tight relationship with the traditional realtor community. In defending the new law, he writes, "I have been involved in the real estate industry as a title insurance agent for more than a decade and can assure you I would never author legislation that would lessen consumer choices or harm the industry." Thanks Rep. Harris for explaining your selfish desire for screwing Indiana's homesellers.

The Star also gives column space today to the realtor's chief lobbyist, Karl Berron, who sheparded this consumer wrip-off bill through the legislature. He has the audacity to tell Star readers, "Woodall's criticisms are not only inaccurate, they are borderline offensive." The services hard-pressed and consumer-savvy homesellers will no longer be able to purchase in Indiana Berron refers to as "hit and run listings." He explains, "This happens when a firm lists a property for sale, charges an up-front fee and then abandons the project, leaving the consumer with no representation. Consumers often then turn to the agents of potential buyers to help them through the transaction, even though that agent works for the opposing party in the transaction." Berron doesn't have a similar problem with an agent getting to walk away with half of the commission for the transaction for doing nothing but listing the property, which is often the case.

Nice try Karl, but the Justice Department doesn't see it the same way. As AI previously reported, "The Justice Department and the FTC have warned several states in recent months that such laws hamper innovation and competition, and have formally objected to industry-supported proposals in Oklahoma and Texas." Indiana has now made itself a target of anti-trust action by the Justice Department by virtue of enacting this self-serving law to limit competition for Berron's industry.

AI hopes that the advertising the realtors purchase from the Star has not in some way affected its ability to provide unbiased news coverage to its readers. It is remarkable that a law which so dramatically alters the real estate legal landscape in Indiana has so far escaped mention on its news pages.

The Indiana Law Blog has its own take on today's development. Click here to read.

6 comments:

Anonymous said...

I currently listing my home, through HomeYeah.com. I have choosen to proceed this way, as I can eliminate 3% seller's agent commission in lieu of a $499 MLS fee.

This new law doesn't help me, in fact, it hurts. I could do a lot with $5100 that it would save me.
Perhaps I could use it for the cost of gasoline to get to/from work for the rest of the year.

The government has no right to tell someone how they may or may not conduct the sale of their home. It protects realtors, not homeowners.

And the Indianapolis Star should publish a full-front page story on the issue, as I don't believe most of us are aware of this issue. I think that if homeowners were aware - you were hear far more protests.

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Joe Shoemaker said...

Anonymous:

While I appreciate your position, there are a few fatal flaws to your argument.

1. All things are NOT equal. You only "save" money on the sale once your property actually sells. For argument's sake, what if it takes an extra 4 months to sell your home, and you actually sell it for 1% less than you might have using a full-service Real Estate Broker? How much did you save then? Simple math tells me you actually SPENT and extra 2% more than you would have had the home sold faster and at a higher price.

2. Most full-service brokers don't get paid anything up-front. Having paid someone $499 up front removes their incentive to actually WORK to SELL the place.

3. Indiana does, in fact, have every right to dictate the conduct of people to whom it issues licenses. That being said, Indiana law permits you to sell your home on your own, hire an attorney to handle the paperwork, hire a Title Insirance company to handle that end of things, etc.

4. Today, there are over 20,000 houses on the market in Central Indiana. If you believe that all you need is a sign and an MLS listing to sell your house, I can't tell you how wrong you are.

5. I think you might be interested in reading a quote from John Slimak, owner of HomeYeah/HomeChoice: "In the old system, listing 25-30 listings in one month (2 agents) was obtainable. With the new law an agent can’t perform as many transactions due to the work load. Agencies must now add more agents and raise cost to perform the similar type of listing numbers."

Hmmmm...whose butt is Mr. Slimak interested inprotecting here...his or yours?

The simple reality is this. There are HUNDREDS of options today for you to use a flat-fee, limited service, or otherwise a la carte Broker to list your home. The new law does nothing to prevent that. That one broker - yours - chooses to scream about how he's being forced out of business and that consumers are being ripped offf doesn't make it true.

Sell it yourself, hire a limited service broker, hire a full service broker...all those choices still exist.

Best wishes.

Advance Indiana said...

Joe,

The problem with your argument is that there are some homes that pretty much sell themselves. I live in a downtown area where homes are purchased often within days of going on the market. In these situations, owners know they can sell without the additional assistance of a broker and save thousands of dollars. I will give you that other homes will take much longer to sell if there is not a full service broker working a sale, but this new law denies people the choice to decide what's best for them.

Joe Shoemaker said...

Advance Indiana:

You say, "this new law denies people the choice to decide what's best for them."

This is simply not true. You still have the choice to use any kind of Broker - or none at all - that you choose. Given that you're an Attorney, you are probably more than able to handle all of the contract negotiation should you need to sell your place.

There are dozens of Brokers in operation today - September 22, 2006 - that'll provide you bare-bones services for a VERY LOW flat fee...if that's what you require. HB1339 DOES NOT prevent limited service, fee-for-service or flat-fee Brokers from offering their services.

Some will also do additional marketing if you choose for a fee.

And there are those Home Sellers who wish to pay for full-service marketing, advertising and representation services. Options exist for everyone.

Just because John Slimak yells very loudly doesn't mean that what he says is true.

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