Realtors use Regulation to Kill Competition


This is an excellent example of what public choice economics teaches you about government regulation; concentrated benefits and disperse costs means those who benefit will have legislation and regulation written to enhance their "professionalism", market power, political influence, and profit.

In this particular case, federalism has clear benefits. National Realtors have less influence on the central government, and the Bush administration is trying to use the DoJ to prevent Realtor-dominated state government agencies from stifling competition:

The Department of Justice has two blunt warnings for the American home real estate establishment:

� Do not block efforts to save consumers money through rebates of real estate commissions.

� Do not stand in the way of discount "fee-for-service" firms that will list sellers' properties for a fixed-dollar amount but not perform all the traditional brokerage services, such as holding open houses or advising on buyers' offers.

On April 8, the department sent a highly unusual message to the Oklahoma legislature urging it not to pass a state Realtor association-supported bill that effectively would squeeze low-cost, fee-for-service real estate brokers out of the state by redefining the service requirements for holding a brokerage license....

"The state association [of Realtors] came to us and said, 'We think you should do this,' " Thorburn said. Setting minimum standards for services -- including requiring brokers to assist clients with offers and negotiations -- would help ensure that home sellers would have competent representation during a sales transaction, Thorburn said. It would, for instance, eliminate the possibility that discount brokers could simply "charge $500 up front and tell [sellers] that 'I'll list your property, I'll put you on the MLS, I'll give you a sign for the front yard and then say, you're on your own, good luck.' " Some sellers might find themselves confronting a well-trained buyer's agent in negotiations, said Thorburn, and might not make smart decisions -- a result that would not be in the seller's best interest.

To Realtors out there: don't you dare defend the use of government regulation to exploit your customers on the grounds that they are fools and idiots. They are not fools for choosing to go their own way; Realtors who think so should have their licences revoked. If your customers are too stupid to wheel and deal with a buyer's agent, how are they competent enough to select you to represent them?

Real estate transactions costs are, in my opinion, extraordinarily and extravagantly high. Part of that is due to an unnecessary complexity in the transactions process; part of that is due to public ignorance of what is exactly entailed. In fact, I'd argue that "consumer" organizations should be on the front lines against these attacks on competition, and should be trying to minimize the costs in other ways.

For quite some time, government policy has been to increase the share of home ownership through the use of repurchasing secondary markets, interest deductions on income tax, and interest rate subsidies; policy has not been to increase understanding of complex transactions, or to reduce transactions cost.

Could it be that government homeownership policy has been effective because the government didn't try to lower the profits of Realtors?


...well, of course residential real-estate transaction are
a 'racket' --- soaking consumers.

But local & state governments are part of that lucrative racket....collecting huge fees & taxes on simple property
sales --- local & state politicians are not gonna rock-the-boat on 'their' good deal.

Excellent post. I too think that the 8 and 9 per cent they get is outrageous, in 1955 my parents gave a realtor 3% to sell their home. Realtors will tell you that because of inflation they need to get 8 or 9 now, LOL. If we consider inflation, they should be getting 1% now. Since the rise in price and cost of homes has exceeded inflation. Most of the agents I have dealt with put themselves above the buyer and the seller, regardless who is their customer. I have been dragged to the wrong houses by agents who told me they would help me when I was buying. Homes that clearly were not want I told him I was looking for. In such cases, it seems that the seller is also represented by the agent. He was doing neither of us any favors. Selling a home I have had agents give me ridiculously high and low estimates of what my property was worth. Out of 10 agents we interviewed only 2 gave a reasonable estimate. How did I know, well unknown to them I already had an estimate from a real estate appraiser to whom I paid a fixed fee. Same house I had buyers agents who tried to persuade me I wanted way too much. I offered it 5% above the appraisers estimate. We sold in 2 months within less than 1% of that estimate. We did retain one of the two agents, primarily just to get a listing on the MLS. All the agents we talked to indicated that 6% was acceptable to them. Acceptable it was generous. If I had heard of a fee for service agent I would have taken him up. Thanks.

I used a discount realtor to purchase my home. Given that we knew what we wanted, and minimized search, he still received at least $50 an hour for all his time involved. That was before real estate prices rose in DC. Now he would be getting $150 an hour for the same exact work...

This post reminded me I had to write a rant about government induced Home Owners Associations. For whatever reason TrackBaks aren't working right now, so go here ( ) to read the rant.


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This page contains a single entry by Kevin published on April 23, 2005 10:31 AM.

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