Consumer Group Blasts State Real Estate Commissions by Kenneth R. Harney
The Consumer Federation of America -- which labeled the traditional real estate industry a "cartel" four weeks ago -- is now directing its fire at the state regulatory bodies that oversee brokerage transactions. In a research report scheduled for release last Friday, the CFA said that more than four-fifths of all members of state real estate commissioners nationwide currently "earn a living through real estate transactions," either as brokers, agents or in affiliated activities such as title agents or real estate closing attorneys. That built-in conflict of interest, in turn, "harms consumers both through omission -- what (the regulators) fail to do -- and commission -- their initiatives that harm consumers." Unlike other key segments of the economy, where members of state regulatory bodies tend to be independent of the industries they oversee, real estate commissions "are dominated" by Realtors and allied professionals, according to CFA. "It makes no sense at all for practicing real estate brokers to serve as regulators with authority over services purchased by consumers from licensed brokers and salespeople," said CFA's report. "In consumer markets in free market economies, regulators are supposed to address the consumer interest by ensuring that consumers have an adequate choice of services and that consumers have adequate information about these services and are protected against related seller abuses. That is why, for example, state insurance commissions or public utility commissions are independent regulators appointed by governors. It would be a scandal worthy of front page treatment in newspapers for an active insurance or utility executive to, at the same time, serve as a regulator of his or her industry." Yet in the real estate field, said Stephen Brobeck, CFA executive director and co-author of the study, "It's somehow considered acceptable to have active industry members sit as commissioners" on state regulatory boards. Realtors contacted for comment sharply disagreed with CFA's conclusions. Though he had not yet received a copy of the report, Malcolm Young, CEO of the Louisiana Association of Realtors, said his state's real estate commission consists of nine members -- all realty professionals -- because the state legislature created the commission with that specific, mandatory composition. Moreover, Young said, active brokers and agents "understand the complex issues" involved in realty transactions better than people without formal real estate training or professional experience. Young likened the realty commission structure to those followed by other professions, "including nursing, cosmetology, engineering and property inspections." Thomas Stevens, president of the National Association of Realtors and a senior executive of NRT, Inc. issued this statement in anticipation of the release of the CFA study: "Real estate brokers serve at the invitation of state governors (and) contribute to the community, just like doctors lawyers and other professionals." The CFA study targeted a variety of state realty commission actions as anti-consumer, including efforts to enact "minimum service" rules for licensing that CFA believes stifles competition from limited-service, limited-cost realty firms, as well as rules prohibiting the payment of rebates of any kind from transaction commissions to home buyers or sellers. The study focused on Kentucky as one example of the negative effects of industry domination of regulatory commissions. In March 2005, the U.S. Department of Justice sued the Kentucky real estate commission over its move to ban rebates. The department argued that the commission's action had the effect of choking off competition from Internet-based and other "nontraditional" brokerage firms, and thus violated anti-trust rules. The commission, which consists of four real estate licensees and one non-real estate member according to CFA, later agreed to rescind its ban. The CFA also charged that the Kentucky commission ran radio advertisements "suggesting that using non-full service brokers would (lower) the sales prices" that sellers could get for their houses. CFA's research found that four states -- Idaho, Louisiana, Mississippi and Nevada -- require that all commissioners be real estate brokers or salespeople. Another 11 states require that at least 80 percent of commissioners hold real estate licenses. Three states -- California, Illinois and Minnesota -- have full-time professional regulatory boards, rather than commissioners with industry connections. Brobeck said the industry domination on commissions "stacks the deck" and leads to slow services for consumers and "inherent" conflicts of interest that are "endless." | 
