The Changing Real Estate Market - Oxley Holds Hearings
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Remember our old friend Michael G. Oxley?
The Republican Congressman from Ohio is chairman of the House Committee on
Financial Services and has been, along with ranking Democratic member Barney
Franks of Massachusetts, investigating allegations of restraint of trade and
unfair competitive practices (the labels are ours but are reflective and fair)
in the real estate industry for the past two years.
Recently the House Subcommittee on Housing and Community Opportunity held hearings
entitled "The Changing Real Estate Market." We will try our
best to report on this hearing in a fair and balanced way. Well, actually we
will try but may not totally succeed.
Like Blanch Evans of Realty Times, a major on-line real estate publication,
after reading the testimony we can only consider that this what used to be called
a "neck-tie party" in the old west. Ms. Evans has been on a bit of a rant about
these hearings for the last week, and while we find room for disagreement, she
certainly has more than a few valid points. And, if her account is correct,
the hearings did not exactly turn out the way Oxley (who has announced his retirement
at the end of the current term) anticipated. We will reference Ms. Evans more
extensively later in this series.
But let us work through the process.
Rep. Oxley began the hearings that convened on July 25 by stating that "An
increasing number of observers - from the government to consumer groups to academics
- are asking ...why, in an industry with more than 1.3 million
competitors, with home prices that vary widely - that brokers...so uniformly
charge a six percent commission? Moreover, why has the six
percent fee remained the same as home prices have soared, and with new technologies
that make brokerage more efficient? Wouldn't real competition produce varying
services and varying prices?"
Rep. Oxley referenced a letter (or letters) he and Frank sent to the Government
Accountability Office in 2005, (extensively reported here-see the list at the
end of the article) and the resulting report from GAO that apparently stated
that "Real estate brokerage is self-regulated. Licensing rules are entirely
set by the brokers themselves and exchange rules are entirely set by the brokers
themselves. The exchanges have become institutions to protect the interests
of brokers, not consumers."
Oxley said, "We let the stock exchanges in this country set their own rules,
but only with the SEC (Securities and Exchange Commission) reviewing and approving
those rules. For residential real estate markets, there is no government
regulator to protect the public interest. There is only regulation
of the brokers, by the brokers, for the brokers."
Rep Oxley referenced a recent Federal Trade Commission enforcement action against
the Austin, Texas Board of Realtors for "establishing rules that essentially
froze properties out of the market if the seller used a service that traditional
brokers didn't like" i.e. homes where the seller used a broker who
performed very limited services could not be listed in the areas Multiple Listing
Service (MLS).
Oxley cited other occasions for concern:
- Local initiatives promoting state regulations to outlaw "minimum
service" brokerage (also known as "unbundled services") where
brokers charge lower fees in return for less than traditional full service.
- Brokers who complain of discrimination in the markets such as brokers
who will not show buyers the homes listed by minimum service agents or agents
who charge less than the prevailing local rate.
These examples, Oxley explained, show organized real estate brokers setting
or using the rules to protect higher fees or stifle competition
"to the detriment of consumers and to the detriment of new brokerage models."
Oxley then identified the elephant in the room: "We on this Committee know
only too well that the NAR wants to keep national banks from
providing real estate services."
"What do all these examples have in common?" Oxley asked. "They
show organized real estate brokers setting or using the rules to protect higher
fees or stifle competition to the detriment of consumers and to the detriment
of new brokerage models."
Those invited to provide testimony before the subcommittee included:
- A Deputy Assistant Attorney General (the Department of Justice has multiple
lawsuits pending against the National Association of Realtors®)
- The Director of Policy Planning, Federal Trade Commission
- The Director of Financial Markets and Community Investment, Government Accountability
Office.
- The Executive Director, Consumer Federation of America
- A Texas based discount realty broker from Austin Texas
- The senior vice president of Real Estate Networks, LendingTree, LLC
- The President of Internet based real estate firm Redfin
- The Senior Vice President and Legal Officer, RE/MAX International, Inc.
- The President-Elect of the National Association of Realtors.
Count the participants and consider their individual agendas and determine
for yourself where this hearing was going.
We will summarize the testimony of the various participants over the next few
columns and invite your comments. We promise to be fair in publishing them.
Our own remarks may not be so even-handed.
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