Bizarro World: Deregulate Realty Process, Regulate Loan Brokers.(The Loan Closer)

Byline: John Mcdermott

Thanks to the federal government's massive effort to regulate loan brokers at every turn, consumers will have fewer choices when it comes to obtaining a mortgage. But when it comes to Realtors, it appears, the courts have decided that just about anyone can function as an agent for a home seller. Consider this: the U.S. Circuit Court of Appeals for the Sixth District recently upheld an FTC ruling that a Michigan MLS's practices were anti-competitive. The decision was handed down last month in Realcomp II Ltd. v. Federal Trade Commission.

In a press release, FTC chairman Jon Leibowitz stated that the decision, "affirming the...(FTC's) opinion ensures that home buyers will receive the benefits of competition in making one of the most financially significant decisions of their lives. Eliminating restrictions on discount listings published over the Internet will force real estate brokers to compete on the costs and quality of their services which is good competition policy and good for consumers."

Realcomp is an association of local real estate boards and associations located in southeast Michigan composed of mostly RE agents. Realcomp's primary service to members is its operation of the largest MLS in the state. The Realcomp MLS information is shared with member brokers and ultimately to the public through a handful of websites. Realcomp had a policy adopted in 2003 and eliminated in 2007 which essentially restricted access to discount Realtor's listings.

Generally, the Realtor's commission paid to sell one's home in Michigan is 6%. Many times, the commission is split between a listing and selling real estate broker. Discount brokers typically list a home for sale on an MLS for a flat fee and do little else. The consumer (the seller) then handles many of the traditional home selling tasks themselves. In theory this saves consumers, buyers and sellers alike, money.

Whether in practice consumers are saving any money is another matter. In a down market not much is selling no matter what the Realtor commission happens to be. Also, if I'm a seller I doubt I'll be in a hurry to lower my price 2.5% and share it with the buyer simply because I am not incurring the normal 6% Realtor commission.

When using a discount Realtor for a flat fee the seller ends up dealing either with a buyer directly or a selling Realtor who may actually be a buyer's broker and is going to beat up the seller on the price anyway. Also, the seller, if they deal with a buyer directly, will have to evaluate the buyer themselves. Good luck with that. I would guess that I'm not alone in longing for the good old days when you could sell your home on any given weekend-sometimes all by yourself, that is when property values were skyrocketing. It seems like so long ago in another galaxy, far, far away. When it comes to the "good old days" I also distinctly recall that in the strong marketplace where I once plied my trade (metro New York/Long Island) Realtor commissions were half of what they are today. Whatever the Realtor lost by discounting their commission was more than made up for in volume.

Although I'm a firm believer in you get what you pay for (and real estate pros indeed need to get paid for what they do) I wonder if lowering the traditional 6% Realtor commission across the board would stimulate the market? As for loan brokers, the battle isn't over. Maybe some smart attorney for NAMB or the NAIHP will take note of the courts here deregulating the realty process. Or maybe not. Like I said, it's bizarre what's going on in this country.

John McDermott is a real estate and elder care attorney who represents both businesses and consumers. He can be e-mailed at jamcd@comcast.net.