DOJ rips bill banning cash real estate rebates

In the aftermath of the CBS "60 Minutes" expose about the real estate industry and how traditional REALTORS(R) and the NAR/National Association of REALTORS(R) work to shun competition and defend their 'sacrosanct' 6% commission model it was quite interesting to receive todays Inman News advisory regarding realtor supported legislation in Tennessee that is about to be signed into law that would ban cash rebates to consumers, and the local Association of Realtors has the audacity to suggest that this law is "pro consumer".

I am quoting the Inman article:

"Realtor-backed legislation that would ban cash rebates to consumers in real estate transactions awaits the governor's signature in Tennessee.

The U.S. Department of Justice opposes the bill, which it alleges "would impede real estate brokers from competing on price and force Tennesseans to pay more in real estate commissions." Also, the legislation would reverse a decision earlier this month by the Tennessee Real Estate Commission, a regulatory agency, to repeal a statewide ban on real estate cash rebates. The commission's decision, according to the Justice Department, was in response to the department's investigation of the state's rebate restrictions.

Tennessee Association of Realtors officials say the legislation is pro-consumer and could lessen the risk that consumers will be drawn to participate in risky real estate deals."

DO not underestimate the lobbying power of the national and state associations of realtors. Even with the current downturn in the real estate market, residential real estate commissions in the US will exceed 60 BILLION DOLLARS! This is a lot of money and you can bet that the NAR and State and local associations will do whatever they can to protect the status quo.

Comments are welcome as always;

Thomas Heimann, President & CEO
Bravo Brokers, Inc.
www.BravoBrokers.com

Link to 60 Minutes Video

If you missed the 60 Minutes episode on online discount real estate vs. traditional 6%, here is a link to the video on CBS' site: http://www.cbsnews.com/sections/i_video/main500251.shtml?id=2796105n

NAR's President "dismayed" at the 60 Minutes Story

Last night CBS aired its piece about alternative business models, featuring Redfin as well as a traditional RE/MAX agent as part of the "60 Minutes" show. Personally, while the show clearly was a little biased towards new business models as opposed to the traditional 6% commission structure, I felt that this was a quality piece.

When the RE/MAX agent was confronted with the fact that Redfin had paid out over $3 Million in rebates to consumers, she 'had nothing to say'. When asked how she can justify that when home prices have quadupled in some markets, the commission is still 6%, she defended it by stating that "cost of postage" has gone up at the same time. Amazing.

What's more amazing however, is that NAR put the spotlight on the show, and behaved like an organization fighting for survival (well, truth to be told: they are fighting for survival). Tonight NAR's President Pat V. Combs tops if off however, by voicing disappointment and 'dismay' at the piece. I am copying the email I received below.

What's most telling about the NAR leadership at this point is how little NAR cares about its own code of ethics. NAR seems to forget that companies like Redfin or Bravo (which by the way is offering a much better value preposition than Redfin), are REALTORS®, TOO!

The code of ethics would dictate that one REALTOR® should not make negative comments about others. Yet, in a recent REALTOR® Magazine, an article about how to justify your commission asserted that basically companies who discount commissions are crummy, substandard outfits who provide lousy service, and that only those 'traditional' REALTORS® who charge 6% are providing great service.

Well, they got called on it by a reader letter in the following (the last) issue and NAR has yet to respond. How can NAR justifying attacking and badmouthing other REALTORS® just because they are running a more efficient business model and chose not to rip off consumers?!? Don't those REALTOR® members with more innovative business models deserve the same level of representation and protection? Well, aparently not.

With the current, anti-consumer and anti-competitive attitude of NAR (and let's remember that the NAR solely exists at this point to protect the status quo for the majority of its members. You don't really think for a minute that NAR would advocate a more efficient business model that saves the consumer $$$ and requires maybe 1/10th of the number of REALTORS®. Of course not!) it will only be a matter of time until NAR's worst nightmares come to pass: A world where we do not need 1.5 Million REALTOR® agents charging outrageous fees just so they can survive and maintain the status quo.

I invite you to join us in doing our part to reform this industry.

At Your Service!

Thomas Heimann, President & CEO
Bravo Brokers, Inc.
www.BravoBrokers.com

Here is the email I received just a few minutes ago from NAR's President:

"Dear Fellow REALTOR®:
I am disappointed and dismayed at the biased story that 60 Minutes aired on Sunday evening. I want to let you know that we've been working to stay on top of this story.
One of the most difficult challenges we face is educating the news media about today's real estate industry. There's no better example than this 60 Minutes show. For more than a year, NAR worked with the producers who put the segment together and offered several spokespersons to be interviewed for the show, including myself. Yet, NAR's voice was strangely and noticeably absent from the segment though CBS gave time to two critics who disagree with our policies on the display of listings on the Internet.
At times, NAR and REALTORS® have often been the subject of less than accurate news coverage. Your association and its professional staff is making every effort to get the REALTOR® message out to the news media. The result is that only a fraction-less than five percent-of the vast news media we receive is negative.
We encourage all of you to contact CBS to voice your concerns -- maybe have some of your satisified customers do the same.
Thank you for your support.
Pat V. Combs
President"

NAR gets nervous about "60 Minutes"

CBS announced today that it will air a long awaited segment of 60 minutes that deals with the real estate industry, and the shift towards new, consumer-centric business models.

We tried to get interviewed after learning about this segment but unfortunately we found out about it too late. One of our key competitors - Redfin (www.redfin.com) is featured prominently in this special report and I am looking forward to seeing this - hopefully - open and frank expose.

The NAR and local boards are getting nervous. The email below which I just received speaks for itself and I will quote it as it was sent to me.

Comments are welcome as always....

Thomas Heimann, President & CEO
Bravo Brokers, Inc.
www.BravoBrokers.com

Email which I received:

"
Be prepared for '60 Minutes' report on real estate this Sunday
May 10, 2007
Dear Thomas,
This weekend, the long-awaited '60 Minutes' segment on real estate will air on CBS, on Sunday, May 13th at 7 p.m. Eastern and Pacific Times. After dealing with the '60 Minutes' investigative reporters for more than a year, NAR expects the report will focus on the impact of the Internet on the brokerage business and focus on the emergence of "Internet" business models and contrast them with the "traditional" full-service model.
NAR does not expect that the segment will make Realtors® happy, but it could have been much, much worse if CBS had decided to go forward with an original plan to delve into highly critical areas. Be glad that it's Mother's Day and the show will probably draw fewer than its average 14 million viewers.How to Respond to '60 Minutes'
Here are some talking points should you get calls from the local media:
- NAR and many brokerages worked for the past 12 months with '60 Minutes' producers to educate them about the industry and to correct misconceptions created by the Justice Department and our critics.
- SAR supports all business models and favors none. Our membership includes Realtors® who work on a full service basis as well as those who consider themselves to be limited service, fee-for-service, minimum service or discount brokers.- Real estate is a highly competitive business. About one in every 86 adults is a Realtor®. During this market slowdown, it has become even more competitive.- The real estate industry has harnessed technology for the benefit of consumers, and will continue to do so. Real estate is both high tech and high touch.- There is no such thing as a "standard commission." Commissions are negotiable and prices vary. The fact is that commission rates have decreased 16% from 1991 to 2004 (source: Real Trends).
Sarasota Association of Realtors "

FTC: Brokers Limit Competition in the Real Estate Industry

The FTC - U.S. Federal Trade Commission and the U.S. Department of Justice released a report yesterday which concludes that real estate brokers and state regulators have (and continue to) impede competition within the real estate industry.

The report can be accessed here.

It has always been my position that the real estate industry (especially with a view towards residential real estate) is set up and structured in a way that is inherently anti-consumer and anti-competitive.

An interesting observation is that under the current structure not only does the consumer lose, but so does the individual agent.

From the consumer perspective, there is a tremendous disconnect between value received and fees paid. When looking at what it takes to take and market a listing or to assist a buyer in purchasing a home, compared to actual compensation paid out, there is simply no basis in reality.

From the agent perspective, given an industry that is structured and organized around an army of 1.3MM+ independent contractor agents each competiting with each other for business in a climate of rising costs, the actual 'take home pay' for the typical independent contractor agent has not changed much over the past, and is also in no relation to the time and money invested to attract the business. In essence what is happening is that agents are cannibalizing each other to get to the high-paying transactions. And as local markets heat up, more new agents line up to enter the business.

Point in case, there is simply no reason at all that there should be 5,000+ agents in our local market area, equalling barely 1 transaction per agent per YEAR.

Regardless of how competitive the real estate industry is, and how little agents are making after expenses (the average real estate agent makes about $35K a year, self employment income, before expenses), that is of course no excuse to charge the end consumer $300 - $1,000 per hour for actual work performed.

My hope and my prediction is that in the future the industry will be dominated by value and service oriented and driven companies who provide both outstanding service and exceptional value to the consumer (i.e. compensation that is adequate and in relation to actual work performed), while at the same time creating an opportunity for excellent compensation for real estate professionals.

The truth is that such companies (and Bravo Brokers is a leading next generation real estate firm headquartered right here in Sarasota) are already operating, and slowly we are shifting the old paradigm of 6% real estate commissions and consumers represented by independent real estate agents that took a 63 hour class and may or may not have any qualification for the job at hand.

The truth is also that the NAR's (National Association of Realtors) grip (or should I say strong hold) on this industry is finally, slowly but surely, being challenged; and the NAR is exposed as what it really is: A powerful lobbying organization that is exists solely to protect the 'status quo' and the interests of its independent Realtor(R) members, and not the interests of the consumer.

Consumers are being told that Realtor(R) agents are more qualified, etc. when the truth is that Realtor(R) agents are licensed agents who happen to have joined a local board, and defacto today any real estate agent who wants access to the MLS must join the board, i.e. become a Realtor(R). There is no additional qualification or training, beyond a short ethics training class that basically stresses the 'golden rule' but that provides no additional competency whatsoever.

Hat off to the FTC and DOJ!

It'll be interesting to see what the NAR's response will be. Without a doubt it will be the same old rhetoric of "the real estate industry is fiercely competitive", etc etc.

The NAR's true agenda is clear however, and it was self evident in an article just a couple of months ago in their Realtor magazine, where basically the mantra was that "we deserve our (outrageous) commissions, and 'discounters' provide inferior service", especially the suggestion that discount = inferior quality says it all. Frankly, our company provides far superior service and far superior EXPERTISE than most full service agents that charge as much as 20 times. Go figure. Thank god this industry is fiercely competitive and in the end consumers will make their decisisons and vote with their wallets.

And unless the old guard has more value to offer to justify their fees, their days will be numbered, just as the days of fee based, high commission stock brokers are long gone.

Any comments are welcome as always;

Thomas Heimann, President & CEO
Bravo Brokers, Inc.
www.BravoBrokers.com