Monday, June 19, 2006

Cartel

According to this article posted over at the New Jersey Real Estate Bubble blog, the real estate industry has officially been accused of being a cartel. It's about friggin' time.
A leading consumer rights group, the Consumer Federation of America (CFA), on Monday issued a report charging that real estate industry members act as a cartel to stifle competition, resulting in higher prices and poorer service for homebuyers.

"Many traditional real estate brokerage firms, and their organizations, function as a cartel that tries to set prices and restrict service options," said Stephen Brobeck, CFA's executive director at a press conference in Washington D.C.

The CFA charges that consumers are harmed in three main ways:

* Traditional brokers charge high, uniform prices regardless of the quality of the broker involved. Even a newly licensed, inexperienced agent receives the same commission no matter what the level of service offered.

* Traditional brokers who work with both seller and buyer in a home sale almost always function as facilitators. Brokers try to make sure a sale is completed (and they get paid), rather than as fiduciary agents acting in the best interests of their clients, as the brokers claim to do.

* Brokers "double-dip," promoting their own listings or the listings of their firm over properties better suited for their clients.

Home sellers' 6-percent commissions are split between their broker (the listing agent) and the buyer's agent. That creates reluctance among sellers and their brokers to lower commissions: They depend on their homes being seen by potential buyers, and buyers agents will be more likely to show homes with full commissions than discounted ones.

Brokers will sometimes offer rebates to buyers or sellers - cash back at closing - to attract their patronage. But many state commissions have banned rebates, prohibitions that the Department of Justice has gotten overturned in some cases.

The CFA says traditional brokers dominate the unregulated multiple listing services and restrict full access to broker clients, hide commission splits from consumers, and restrict non-traditional brokers from access or full information.

Many real estate brokers also sit on state real estate commissions; they make up the majority of all state boards, according to the CFA. They regulate themselves and make rules that disadvantage competing business models.
And don't miss this attack on realtors from the New Your Times.

And you have to love it when realtors argue amongst themselves regarding the utility of their own profession.

2 Comments:

Blogger moonvalley said...

Great piece!

Jun 19, 2006, 11:38:00 PM  
Blogger cajun100 said...

The cartel aspect is strongly reinforced when you add to it collusion (commonplace) between realtors (both sides of the deal), mortgage brokers/lenders, and appraisers and other service providers who are bought or pressured to be compliant to facilitate a sale or refi.

Blaming it all on appraisers, home inspectors and escrow companies is an easy way for brokers and financiers to shift the spotlight to others.

Jun 22, 2006, 9:07:00 AM  

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