BANKS MAY MOVE INTO REAL ESTATE BROKERAGE
March, 2001 by Jim Woodard Should local banks be allowed to become actively involved in the real estate brokerage and management business? That's currently a hot point of discussion among leaders in the real estate and banking industries. Proponents on both sides of the issue are speaking out, expressing strong opinions. To provide an unbiased and balanced view of the controversy, we'll first quote some key "status-quo" proponents, then address the opposing view with quotes from leaders in the banking industry. At issue is a proposal now under serious consideration by the Federal Reserve Board and Treasury Department that would allow federally chartered banks to engage in real estate brokerage and property management. Brokers' view "If this regulation is adopted, several large financial service holding companies will quickly dominate our (brokerage) industry by buying up brokerage firms or driving others out of business," said Richard Mendenhall, president of the National Association of Realtors. "In a short time, through sheer market power, a few huge banks could control a significant portion of the real estate brokerage, relocation and management businesses and change our industry for the worse," he said. "Bank-controlled real estate firms will become marketing arms of mortgage departments and other services bank sell. They will be more interested in making a loan or selling mortgage insurance than helping a buyer find the best deal." There's no need to introduce such a far-reaching change to the real estate brokerage industry, Mendenhall noted. "Our real estate industry is the envy of the world and has been a major contributor to our record national homeownership rate. Our brokerage field is highly competitive and efficiently structured to provide a high level of personal service to property buyers and sellers. "Should this regulation take effect, consumers would be the real losers. Real estate brokers' loyalty is to property buyers and sellers. Their success depends on the quality of service they provide their customers. On the other hand, a bank's expertise and vested interest lies in making loans, not providing real estate services." A recent survey of 800 adults, conducted by Public Opinion Strategies in early February, revealed that nearly two out of three consumers believe that in order to protect their interests, this regulation should not be approved. The survey found that 68 percent of consumers believe they would be hurt because bank-owned real estate brokerage operations would have access to all homebuyers' and sellers' bank accounts and personal financial information. About 58 percent of respondents said they believe banks are too powerful already and should not be allowed to own real estate brokerage operations. "When it comes to service for a family making its most expensive purchase, who is the better advocate - a salaried employee whose firm make more from selling a loan than selling a house, or an independent broker working on commission who won't get paid until the deed is finalized to the customer's satisfaction," NAR's Mendenhall said. Daryl Jesperson, president of Re/Max International, a real estate franchise group, expressed this view: "It's my firm belief that the banking industry does not have a full understanding of what's required to be successful in the real estate industry. The grass always looks greener on the other side of the fence. It's only after you're on the other side that you realize that the lawn needs mowing, trimming, watering, weeding and fertilizing. "I'm concerned that those favoring the proposed rule are focusing on the commission line of the real estate closing statement. That can be a very misleading number. A well-run brokerage firm averages about $150 per month pre-tax net income per agent. That commission structure leaves a very small amount to pay overhead and have something left for profit." Gary Thomas, president of the California Association of Realtors, emphasized the negative impact the regulation could have on consumers. "Consumers would be hurt by diminished choices when buying or selling a home. It would result in declining customer service and intrusions into personal information if financial institutions are allowed into a commercial activity like the real estate brokerage business," he said. Bankers' View It was a real challenge researching information for this side of the issue. A great volume of input was provided by the National Association of Realtors and other brokerage-related sources when writing about the negative side. But I found bankers to be generally reluctant to discuss the topic. One banking industry leader, who asked not to be identified, said bankers are fearful that NAR might take actions that would hurt their business if they are too vocal in endorsing the proposal. "NAR is attempting to undo the very pro-consumer, pro-marketplace competition that the 106th Congress worked so hard to bring about in the Gramm-Leach-Bliley Act," it was stated in a letter to Congress from the American Bankers Association and several other banking-related groups. "Congress was pushed by NAR to adopt a special carve-out (exception) for real estate brokerage. But Congress chose not to adopt such a carve-out." The letter includes the following points in support of the ruling:
- It would be in the consumer's interest by making the convenience of one-stop-shopping more available and simplifying the complexities of finding and purchasing a home - all at the consumer's choice.
- It would maintain consumer protection by assuring that all rules applicable to real estate brokers, including licensing, qualification and sales practice, apply equally to bank personnel and bank-affiliated Realtors. All persons engaged in real estate brokerage would have to comply with all rules and regulation of their state Department of Real Estate.
- It would advance competition. Diversified real estate service companies, such as GMAC Real Estate and Coldwell Banker, currently provide an array of services for consumers, including brokerage, mortgage lending, title insurance and property insurance. These and other real estate firms bring together the very types of synergies the opponents of this proposal are now protesting. In a special bulletin issued by the Financial Services Roundtable, it was noted that the proposed ruling would benefit consumers by producing reduced fees, more locations to shop, and one-stop-shopping opportunities. In one location, a homebuyer can get pre-approval for a mortgage loan, find and buy a house and get needed insurance for that home. The ruling would allow banks to have qualified persons on their staff handle brokerage services, or line up brokerage firm affiliates in their marketing area. Smaller real estate brokers have a lot to gain from partnering with banks, it was noted in a special report from the American Bankers Association. They will have a greater ability to provide customers with integrated real estate services. The playing field will be level for all sizes of real estate companies, the report stated. Rich Whiting, chief legal counsel for the Financial Services Roundtable, pointed out that state banks in 16 states already have the capability of establishing real estate services. And it's working fine in those areas. In a recent move, the deadline for comments on the issue was extended from March 2 to May 1. Those comments should be directed to the Federal Reserve Board or Treasury Dept. - or communicated through a local Congressman. | 
