Lew Sichelman
Did you know that homebuyers and sellers who have an issue with their agents can take their grievances to a state real estate commission?
If you didn’t, you’re not alone. According to the latest report from the Consumer Federation of America – a national organization of more than 250 state and local nonprofit consumer groups – 21 of 47 state commissions’ websites ignore consumers altogether. Only 11 provide what the CFA calls “adequate” consumer information.
However, it may be a good thing buyers and sellers are unaware they can call their state agencies for help. These agencies’ shared purpose may be to regulate agents, brokers and firms, and they may be mandated to receive, investigate and act on consumer complaints. But not one such institution has the authority to provide restitution to consumers who are found to have been treated unfairly or unlawfully.
Fines, Ethics Classes Typical
While most states maintain so-called recovery funds to allow aggrieved consumers to apply for redress, the CFA recently reported that complainants only qualify if they have a favorable decision from a court or mediator.
CFA senior fellow Stephen Brobeck found only a handful of states that publicly report information about complaints. Where information was available, less than 10 percent of the gripes resulted in a citation, fine, license suspension or revocation for the offender. And even then, a majority of the actions were not the result of a consumer complaint, but rather an agent’s criminal conviction or acting without a license.
Brobeck found disciplinary action against agents usually took the form of fines, and sometimes a requirement that the offender take a class, often in professional ethics. Rarely was a licensed revoked.
The CFA official also finds fault with the makeup of these commissions (called “boards” in some states). Just 15 percent of the seats on these boards are held by individuals from outside the real estate business, and none are held by consumer or housing advocates. Only in New York is the State Board of Real Estate required to have a majority of non-industry members.
And that’s not the extent of the industry’s dominance. Of the identifiable non-industry seats, the CFA report said that almost half are either vacant or held by people from allied business – or agents or brokers themselves.
In other words, in most places, the fox is guarding the henhouse.
“A commission dominated by industry members is predisposed to view issues through an industry lens, make decisions that favor the industry over consumers, and sometimes forget that its mandate is to serve consumers as well as the industry,” the report said.
Fox Guards the Henhouse
Governors typically appoint realty commission members, usually at the behest of the board and its administrator. But even then, a couple of questions arise: If they are selected by the industry, do they have consumer interests at heart? And do they have the will to challenge those who selected them in the first place?
These commissions have value in that they train and license agents and brokers, and can penalize them for a wide array of offenses. But for consumers, they leave much to be desired.
“Many commissioners from the industry ignore consumers or fail to understand and appreciate the important role in informing and protecting buyers and sellers,” Brobeck said.
State realty agencies would be far more likely to recognize and act on their obligations to buyers and sellers if there were strong public and nonprofit leaders who also held commission seats.
Brobeck would like to see more representation from consumer organizations and housing advocates – perhaps an attorney or even an economist with “no financial ties” to the business.
“Even a single consumer or housing advocate … would likely have a positive impact,” he said.
Connection to DOJ-NAR Tussle
This latest CFA report comes at a time when the practice of residential real estate – a $2 trillion-a-year business, resulting in $100 million in sales commissions – is coming under increased scrutiny. Several antitrust suits have been filed against the National Association of Realtors, for example. And the Justice Department has withdrawn a settlement that the previous administration made with NAR in order to more fully investigate the group’s rules and conduct.
In its latest court filing, DOJ said NAR’s rules “restrict how real estate agents can market properties, dictate how real estate commissions are set and impede commission negotiations.”
Brobeck believes his study fits right in with those examinations.
“State real estate commissions should not escape the scrutiny the industry has been under,” he said. “The lack of independent and effective regulation has contributed to the anti-competitive practices that are subject to private and government antitrust litigation.”
In a previous report, the CFA specifically faulted the absence of information that buyers and sellers need to make informed decisions on state realty commission websites. Only 11 such websites earned a “good” rating from the CFA, and not a single site was considered “excellent.” Those in 39 states and the District of Columbia were rated either “fair” or “poor.”
“The inadequate consumer information provided by most real estate commissions largely reflects the fact that they were created and are dominated by the industry,” Brobeck said at the time. “They clearly don’t recognize their responsibility to consumers at all. They need to take consumers more seriously.”
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
