Property Grunt

Saturday, October 29, 2005

Are you going to San Francisco?:NAR convention

Right now there is a mass convergence of realtors in San Francisco known as the NAR convention. Unfortuantely the Grunt is unable to make his presence known due to Halloween. However I am there in spirit and below is an entry I did for the Real Estate Blog Squad.

Greetings from the Property Grunt. This weekend the NAR convention is kicking into full swing unfortunately I will be not be present at this shindig. I have a Halloween party coming up and I need to prepare my Donnie Darko Costume.

I would like to take this opportunity to discuss the current minimum service law movement that has taken hold of America. Inman news is full of articles of states passing minimum service laws that would require real estate brokers to provide a set of services.

According to Glenn Roberts

Despite objections by the U.S. Department of Justice and Federal Trade Commission to identical language in an earlier proposed bill, the state House voted 94-1 on July 26 to approve the real estate law, Senate Bill 17. The federal agencies had stated that the earlier proposal would likely "decrease competition among real estate professionals and result in Alabama home buyers and sellers paying higher real estate commissions."

Federal-agency representatives also have written to legislators, regulators and governors in other states, encouraging them to reject similar legislative and regulatory proposals to establish minimum-service requirements for real estate professionals.

Realtor trade associations have backed the new measures, claiming that they would protect consumers by ensuring that they receive adequate services from real estate professionals in all transactions, while the federal agencies and other opponents have said that consumers should be allowed to decide which services they receive in a real estate transaction.

These laws can effectively ban real estate companies that perform less than the required
range of services, such as companies that offer to list properties in a multiple-listing service for a fee while performing no other services for their clients.

It is obvious that NAR is spending sleepless night trying to figure out how to protect its market share in the real estate industry. As advances in technology provides more options for consumers, realtors are on the defensive to justify their existence. There is no doubt that the powers that be of NAR realize that eventually their current business model may prove to be irrelevant.

Since they can’t control the market perhaps they can throw a few monkey wrenches in the competitor’s works.

According to Glenn Roberts of Inman News
Laurie Janik, general counsel for the National Association of Realtors, issued an April 22 memorandum to all state Realtor association executives advising that the Justice Department and FTC cannot successfully challenge such minimum-service laws once they are enacted, and that "efforts by Realtors to lobby the state legislature or the state real estate commission for legislative or regulatory action are protected by the First Amendment as long as they are undertaken in good faith."

NAR is rallying their troops having them carpet bomb legislators with letters, emails and phone calls in their “mission to protect the consumers”. In actuality NAR is thumbing their noses at the DOJ despite the fact that the DOJ has made it quite clear that these minimum service laws are anti competitive and do not protect consumers but prevent competition.

I have come to the conclusion that NAR is going win the battle but not the war. Despite the objections of the Department of Justice, more and more states will pass minimum service laws that will prevent discount brokers from doing business. NAR has deeper pockets and has the local connections to get these laws passed. But despite NAR’s success I predict they may have walked into an ambush of their own making.

What I have noticed from these articles and other news regarding minimum service laws is that that other than the DOJ, no one else has voiced their objections to the minimum service laws. There have been some rumblings in the media but there has no been direct backlash from the consumer. It seems NAR has been victorious.

But NAR should not count their chickens before they hatch. Already the founders of Expedia are in the final stages of implementing Zillow, which is a real estate E-commerce solution, which will allow consumer to buy and sell their homes online. Ebay is also another faction that has already made the foray into real estate. Their business model is quite different from the current model used by realtors. If these parties are prevented from competing, I can guarantee you that the DOJ will be the least of NAR’s worries.

The brain trusts behind Ebay and Zillow are some of the best and brightest in the e-commerce industry and they have the bankroll to prove it. One of the precepts that guide these ventures is a free market that thrives on competition. It is a cornerstone of their success. If they are prevented from doing business they are not going to just simply lie down. They will call upon their network of contacts and most importantly the consumer to get these laws thrown off the books.

I strongly suspect there is a group of antitrust lawyers who are watching closely and keeping score of this situation. It is in my opinion they will be taking a page out of the anti tobacco lawsuits playbook and will most likely wait till as many states if not all pass minimum service laws then pile a massive class action lawsuit against NAR and the states. The more states that have minimum service laws the bigger the payoff the antitrust lawyers are bound to get. It is possible to see Ebay and Zillow call upon them their services

The resolution of a lawsuit of this magnitude will be a long time coming and will most likely end up in front of the Supreme Court. It is highly unlikely that the Supreme Court would rule in favor of NAR. The evidence is quite clear that NAR has been issuing every anti competitive tactic known to man. Whether the resolution takes 5-10 years, the bottom line is that NAR and the factions that supported the minimum service movement will be eviscerated.

This is where NAR will lose the war and the irony is that all this time and money used to pass minimum service laws could have been prevented if NAR has simply just made the effort to reexamine their business model and figure out a way to adapt to the discount broker model.

As a real estate sales agent what I am saying is sacrilegious and many would claim I am trying to destroy the realtor profession. That could be farther from the truth. I am just trying to do my part to alert my colleagues that the discount broker trend is inevitable and that there is a better way to resolve this situation. By engaging in these ant-competitive practices we are adhering to the rules of a free market and more importantly we are aggravating the consumer. We need to allow consumers to decide what is best for them no matter how painful it is. If it means our own destruction, so be it. Who are we to stand in the path of progress?