KENNETH HARNEY: Many real estate regulators have conflicts

Detroit Free Press
www.freep.com

This is a republished article submitted by Ralph Marcus (Mark) Maupin, Jr.

July 23, 2006

When it comes to protecting consumers in the real estate market, are the wolves guarding the henhouse?

That's the conclusion of provocative new research by the Consumer Federation of America into the relatively obscure state regulatory commissions that oversee residential real estate. Whereas other key industries regulated at the state level -- utility and insurance commissions, for example -- typically are run by professionals independent of the industries they oversee, real estate commissions are dominated and essentially run by active real estate agents and brokers.

That, in turn, according to the CFA, makes them slow to act on consumer complaints, slow to introduce needed consumer protections and prejudices them against nontraditional approaches such as limited-service, limited-cost options that can save consumers money. Sometimes the industry-dominated commissions are the primary authors of state regulations or legislation that directly harm home sellers and buyers, including statewide bans against realty fee rebates to customers.

The CFA examined the structures and membership of regulatory commissions in 47 states. As of April of this year, 79% of all real estate commissioners were either real estate agents, brokers or licensees, or individuals who otherwise earn a living through real estate transactions, such as closing attorneys or title agents.

Four states -- Idaho, Louisiana, Mississippi and Nevada -- require that all commissioners be real estate brokers or salespeople. Another 11 states -- Colorado, Kentucky, New Mexico, Ohio, Utah, West Virginia, Georgia, Indiana, Missouri, Oklahoma and Washington -- require at least four-fifths of commissioners to hold real estate licenses. Only two states -- Rhode Island and Pennsylvania -- prohibit licensed real estate agents from constituting a majority of commissioners.

Illinois, California and Minnesota are the only states that appoint "professional regulators who work full-time to oversee the real estate brokerage marketplace," the CFA says.

One out of four real estate commissioners nationwide, according to the CFA, works for one of the four largest national real estate firms -- Re/Max, Prudential, GMAC or one of NRT Inc.'s several networks (Coldwell Banker, Century 21, ERA and Sotheby's). Even when state law requires the appointment of public interest commissioners, one in four is either a real estate attorney or a title agent.

"Realtors basically have the regulatory function sewn up and controlled by themselves, and the inherent conflicts are endless, " said Stephen Brobeck, CFA executive director and coauthor of the research project. The heavy weighting of real estate commissions with industry members "stacks the deck" in the industry's favor, he said, while harming consumers whenever the traditional brokerage industry's interests diverge from those of the public.

Real estate commissions often do not widely publicize their complaint-handling services, and when they do get complaints, the resolution process can be glacial, according to the CFA. In Texas during 2005, for example, "more than a half-million homes were sold, yet the Real Estate Commission reported (receiving) only 86 complaints that year." Other states provide minimal resources to handle consumer complaints, leading to long waits such as California's backlog of 3,663 unresolved cases as of 2004.
Realtor-dominated state commissions have actively opposed the growth of money-saving nontraditional brokerage approaches, according to the CFA. In several states this year, realty commissions have sought to retain or enact bans against rebates to home buyers.

Last year, the Justice Department filed suit against the Kentucky Real Estate Commission for prohibiting all forms of rebates of agent commissions to consumers. The commission later rescinded its ban.

Not surprisingly, the real estate industry disputes the CFA's conclusions. Though he had not yet seen the study, Malcolm Young, CEO of the Louisiana Realtors Association, said the state Legislature -- not the industry -- mandated that all nine commissioners be realty brokers or agents "because more than anybody else," licensed agents understand the complex issues involved in real property transactions.

Having industry representatives on the commission, he said, is analogous to oversight in other fields such as "nursing, cosmetology, engineering, property inspections" and the like.

Thomas Stevens, president of the National Association of Realtors, praised the services rendered to the public by the dozens of active agents who serve on state-appointed regulatory commissions "just like doctors, lawyers and other professionals."

KENNETH HARNEY, based in Washington, writes on national housing issues. His e-mail address is kharney@winstarmail.com.