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Why I'm not afraid of the DOJ...

By
Real Estate Agent with Tomson Burnham, llc Licensed in the State of Oregon

I just finished ready Steves' article on the DOJ vs. NAR.  There are many things I like about NAR, but I agree with Steve that their "perpetually sunny outlook" does not make Realtors® look very professional.  Despite the fact that NAR is part of their lawsuit, the fact is that some states, including my own of Oregon, have some business practices that are anti-competitive, and not all agents are Realtors® and don't subscribe to the COE.

If agents are really honest with themselves, as a group, the DOJ lawsuit has some legitimate points. 

The fact is that some agents behave unethically by not disclosing to their clients their business practices such as not showing lower co-op properties, not working with certain companies due to business practices, etc.  I think a business has a right to practice these ideas, AS LONG AS they disclose them to a potential or existing client.  I do think the DOJ lawsuit has brought some industry practices by SOME agents to the press, which is a good thing for consumers.

I had a house that I sold this summer at a slightly lower co-op for various reasons, and a potential buyer working with another agent, was really upset that her agent had not showed her the house.  The house had been on the market for two weeks and we had an offer, when she found out about the house.  Her first question to me was, "What commission did you offer to the buyer agent on this house?"  It was exactly what she was looking for.  We can't bury our head in the sand and pretend that agents aren't being upfront with their clients.  This buyer was not even given the chance to pay the difference herself.  She was just aced out.

Oregon is one of the few states that does not allow rebating.  I do agree with the DOJ that it is anti-competitive. While I don't see myself using it, I think a business has a right to do those if they want.  I also think the MLS's gave up the right to claim to be "only an agreement for co-operation" when they starting contracting to put MLS data all over the internet. 

While the DOJ is biased, what they have on there is not untrue.  The real estate industry has some issues that need to get ironed out, and I, for one, don't think that is a bad thing.  I strongly believe that a capitalist system has room for all business models, and they all have pros and cons.  Lexus still exists despite that Ford Escorts are cheaper.  Consumers are capable of making a choice that best meets their needs.  I don't think it's the government's job to regulate models, just make sure whatever model it is, ethical business practices are followed and appropriate disclosures are made.

I for one, am not afraid of the changes that the DOJ wants.  I think if you have confidence in yourself as an agent, it does not matter what the other business models are that are out there.  You will do just fine.  The only agents that can't show the value of their services, are those agents that don't know the value of their services.  People will pay more for expertise, competence, and professionalism any day.  I just don't see alternative business models as a threat to anyone, unless you are incompetent.  Then you shouldn't be doing this anyway.

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Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Bryant:  I agree that rebates are a lending issue, but we are always talking about doing things above board.  I am not sure how other states work the rules.  Since Oregon does not allow rebates, some agents have gotten creative.  What agents do here is agree to "waive" a portion of their commission if the seller agrees to alter the listing agreement with the agent, and then pass along the "savings" to the buyer.  The buyer ends up with the credit, just as if the agent had given the rebate to the buyer directly. 

Patrick:  I agree that scenario would be ideal, and I think real estate is headed in that direction.  I think that is the best way to keep government out of it. 

Eric: I don't think it gives "discounters" a larger advantage.  MOST people want good service.  Rebating exists in neighboring WA state and "traditional" brokerages seem to be doing just fine.  You will always get those consumers who will go with the agent  who will give them the best deal rather than quality, but that has always been and will always be the case.  Lenn Harley, a respected AR'r, does not discount or rebate, but sells her value as an agent.  I have no doubt her business is doing just fine. 

Oct 14, 2007 10:37 AM
Laurie Mindnich
Centennial, CO
Melina, with respect to rebates, I had a NY lawyer tell me that they were "illegal" here- they are NOT.  The reason that they are now permitted, per the attorney at the local LIBOR, is because agents will "find a way to accomplish it anyway, so it's now legal."  That no one knows about rebates here is a compelling argument to have the DOJ site available to consumers- they need to be AWARE of options, whether or not they choose to exercise them.  Great post- thank you!
Oct 14, 2007 10:55 AM
Jessica Horton Jessica Horton Realty
Jessica Horton - Jessica Horton & Associates - Griffin, GA
Jessica Horton: I'm not #1... You Are!
"I for one, am not afraid of the changes that the DOJ wants.  I think if you have confidence in yourself as an agent, it does not matter what the other business models are that are out there.  You will do just fine.  The only agents that can't show the value of their services, are those agents that don't know the value of their services.  People will pay more for expertise, competence, and professionalism any day.  I just don't see alternative business models as a threat to anyone, unless you are incompetent.  Then you shouldn't be doing this anyway."

Don't you realize that the DOJ doesn't really care about the discounters?  It isn't about the discounters at all.  It is about Federal control over what should be a state regulated industry.  It is about getting rid one of the largest lobbying forces in America.  The homeowner is going to be left unprotected as they applaud the Government for taking the very actions that will end up costing them more than a full service commission in the long run.

It isn't about you and protecting your money.  It is about protecting them.
Oct 14, 2007 12:24 PM
John MacArthur
Century 21 Redwood - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Melina - Rebates only need to appear on the HUD-1 it the rebate is being used to reduce the out of pocket expense of the buyer at closing. If the rebate is outside of closing, after the transaction is completed, it does not need to appear on the HUD-1. Lenders can only dictate the amount of assistance a buyer receives that is directly related to the loan. If the buyer qualifies without the rebate, it is of no consequence to the lender. Money rebated after closing is no different than a Home Depot gift card or basket of fruit.

If the money is needed to complete the transaction, it must be within the lenders guidelines and it must appear on the HUD-1.

The NAR's failure to make sure that everyone within the organization was operating on a level playing field has resulted in the DOJ lawsuit. They have continued to offer public statements regarding the market that are surreal at best rather than focusing on presenting an honest picture of the housing market. They have failed to enforce their limp ethical standards and they have allowed rougue member associations to operate outside fair marketing practices. Even if they have not endorsed this behavior, their silence has left most with the impression that they are in acquiescence.

Oct 14, 2007 12:32 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

As I commented on the earlier blog on this topic, I just don't "get" the DOJ hysteria over non-competition in our industry.  Are they kidding?  No consumer is required to hire a licensee or Realtor to sell, and if they do choose to hire professional help, they have hundreds, if not thousands, of people to choose from. 

Oct 14, 2007 01:23 PM
Natalie Langford
Realty Negotiations - Winchester, VA
Winchester, VA Real Estate

Why would a lender need to know if a Realtor is rebating a portion of their commission?  The house is $200,000 and there is a commission, lets say, of 3% or $6,000 paid to the buyers agent.

So Jane down at Big Brokerage would keep her full 3%, unlike Jone at Boutique Brokerage, who rebates a portion of that same 3% commission.  The house is still appraised at the same number and the lender doesn't have a right, claim or otherwise to the fact that Bobby's getting a little rebate check from Jone.  In fact, if you think about it, their reserves will soon increase and perhaps this is a better borrower at the end of the day.  Food for thought...

To the number of lenders out there I keep hearing whine that this info needs to be on the HUD 1 OR ELSE- PLEASE stop mixing apples and oranges. The HUD has nothing to do with this.  It's a business model the Real Estate Agent/Realtor has come to work by.  It's a cost of doing business.  It's not used to reduce out of pocket expense at closing.

I'm now climbing down from my box...this quiet gal just couldn't stand it any more!

 

Oct 14, 2007 01:23 PM
Brett Noel
Keller Williams - Paso Robles, CA
good article thx for sharing
Oct 14, 2007 01:24 PM
Leigh Brown
Leigh Brown & Associates, RE/MAX Executive - Charlotte, NC
CEO, Dream Maker - Charlotte, NC
Read Jessica's comment carefully.   She's dead on target.  The feds want to take over state regulation of real estate for one very simple reason.  $$$$$$.
Oct 14, 2007 02:07 PM
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Jessica:  I agree that the DOJ could care less about the discounters.  If we want to have states regulating the industry, then the NAR should have not come up with it's VOW policies for the internet.  I agree that NAR is a valuable organization for it's lobbying potential, but if you don't want to take things to the national level, then they should not create national marketing policies like VOW.  Once you make those kinds of policies you are entering DOJ territory for anti-trust.  That is what started down this path. 

From that stemmed the issue of rebating and minimum service requirements. 

Oct 14, 2007 02:22 PM
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Natalie,

Thanks for coming off your soapbox. I was wondering if rebates were a closing or after closing kind of deal. 

Oct 14, 2007 02:23 PM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent
I am just curious where the DOJ has been for the last 50 years of real estate. Discounters have been around for years. It seems that they didn't jump into this lawsuit until real estate went through the roof and there was tons of money to cash in on. Anytime the government starts stepping in and regulating the private sector, that private industry suffers and thus, so does the consumer.
Oct 14, 2007 02:33 PM
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Jennifer,

There was no internet 50 years ago.  Remember NAR came out with its VOW policy which the DOJ expressed anti-trust concerns over, and then they (NAR) rescinded that policy.  Lawsuit went forward anyway, AND they starting looking at other aspects of the industry for anti-trust.

Oct 14, 2007 02:44 PM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent
Melina - my point is that I believe the goverment is going after more than what they are stating. They want control over the real estate industry so they can have a piece of the pie. If the DOJ can take down NAR, then they can take control of real estate and take over what is now in the states control. It's all about $$$.
Oct 14, 2007 02:59 PM
Natalie Langford
Realty Negotiations - Winchester, VA
Winchester, VA Real Estate

RE Jennifer's comment, here I go again...trust me, the DOJ is all about a free, unrestricted, capitalistic market in order to protect the consumer and believe it or not, National security. 

RE discounters, They are merely capitalistic Real Estate Agents, mainly Realtors, and the way the word drips off peoples tongues like they're the plague - IS WHY THE DOJ IS ACTIVELY PURSUING CHANGE!  The DOJ doesn't want to seize the NAR (they couldn't anyway, aren't we the 2nd largest work related political action group behind beer bottling cos or something?  Not sure, heard something like that at a recent Assoc Realtors mtg). 

Remember that fees are always negotiable & to live by the Code of Ethics (even if you're just a real estate agent) and the DOJ will probably leave you alone.  May your business flourish!  Warmly, Natalie

Oct 14, 2007 03:38 PM
. .
San Diego, CA

Melina, this is one of the most intelligent posts I have read on AR.

John MacArthur - regarding NAR's failure - dead on!

Natalie - well said. 

Oct 14, 2007 04:07 PM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Good post Melina, Laurie Mindnich also makes a good point. I've been taught rebates were illegal in NY state until I went on the DOJ website yesterday.  Maybe it's semantics but I was always taught rebates are "kickbacks and illegal. However a buyer can get a credit, but only licensed brokers are allowed to receive compensation.

I still believe the states are capable of making their own laws regarding real estate since it is a local business and practices vary from state to state. 

Every new condo and coop building or buildings converting to condo or coop in NY must have the offering plan and ammendments (prices increases etc.) approved by the state attorney general before they can be sold to the public.

In NY attorney's are required by both buyer and seller. The DOJ is saying it would be cheaper and there would be more competition without lawyers. The lawyers are supposed to protect consumers from "unscrupulous builders, sellers and brokers.

The DOJ is correct it would be cheaper and more competitive if bus drivers and janitors were allowed to give legal advise. 

Oct 15, 2007 01:15 AM
New Jersey Real Estate James Boyer Morris, Essex & Union County NJ Realtor
RE/MAX Properties Unlimited, Real Estate - Morristown, NJ

I think you have some good points though in this day and tech level most buyers can find any home that is on the market and listed in the MLS.  commission does not matter.  I setup searches for buyers and commission rate is not one of the things that you can filter for.

The problem with homes listed at lower commissions is that usually there is a certain type of person who pushes to do this.  This type of person is also the type of person who tries to short cut things and do as little work as possible, so generally these houses don't show that well.  Knowing all that, what is my motivation level to take clients with limited time to a house that is likely not going to show well.

Oct 15, 2007 01:22 AM
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Jennifer: Maybe you could blog about the "bigger picture" of the DOJ wanting a piece of the pie.  I would have to google it, but I can't remember any historical examples of the government "taking down" a privately funded trade organization.  NAR doesn't control real estate now. They just lobby for it.

Mitchell:  I am aware that the DOJ is going after attorneys as well.  I have mixed feelings on that issue, because I do see their point that the consumer should choose to have one involved and not have it "forced" upon them. Having said that though...I know in NY where real estate is much more complicated due to co-ops, rent controls, etc, I can't imagine NOT having one involved.  I just involved my company attorney in an addendum for a buyer this past week, and we are not an attorney state.  I imagine there are transactions in those states where attorneys really don't need to be involved.  I guess the question is, are real estate agents capable of helping consumers know when to pay the added cost of an attorney. I think we are!

James: I agree that, generally speaking, people that offer lower buyer co-op commissions don't tend to be as skilled agents.  I do tell my buyer clients that if they want to see a low co-op home, or a limited rep that the transaction may not be as smooth.  I don't take their choice away from them, just inform them to the best of my knowledge.

Oct 15, 2007 05:55 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Melina - you hit it on the head by saying they lobby for it. If you can take out the biggest lobby group (NAR) for property rights, homeowners, and the real estate industry, you could take control of ALOT of things because your biggest obstacle would no longer be in the way. This is the main point people have about the DOJ going after NAR.

 

Oct 15, 2007 08:13 AM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

While I think that we agree on much, there is one point in your post that I have to strongly disagree with you. 

  • I also think the MLS's gave up the right to claim to be "only an agreement for co-operation" when they starting contracting to put MLS data all over the internet.

When I write a post, it is all over the internet, free for all to look at... even comment on.  But I own it.  The MLS is the same.  As a company, they own the intellectual property, and can control its dissemination.  And, actually, a case could be made that we own the intellectual property, and license it to the MLS.

Great post, though.   

 

Oct 15, 2007 03:27 PM