Home Sales and Realtors and Real Estate & Retail

New law provides Realtors an edge

July 10, 2006

A new state law backed by Realtors that critics say stifles cut-rate competition already has prompted a discount brokerage, California-based HomeYeah!, to shutter its operations here.

The law, which went into effect July 1, spells out minimum services all licensed residential real estate brokers must offer, regardless of whether customers want to pay for the services.

Realtors, who are members of the National Association of Realtors, say the law helps ensure brokers provide clients the help they need to navigate the complex home-buying process. But critics say Realtors are trying to suppress competition to protect the 7-percent commission they typically collect on home sales.

HomeYeah! and other low-cost brokers list homes on their Web sites and on the local multiple-listing service, or MLS, for a flat fee, generally about $500. MLS listings, which are managed by local boards of Realtors, also are posted on national site Realtor.com.

But effective July 1, all brokers had to be available to handle offers and counter-offers, to assist with paperwork, and to answer questions.

That put HomeYeah's $499 option, which provided sellers a six-month listing on its Web site and the local MLS, outside the law's boundaries. Another Home-Yeah! option--putting home listings on the company Web site but not the MLS--also didn't comply.

"The company didn't want to participate in Indiana since the law destroyed two of its models," said John Slimak, former president of HomeYeah!'s Midwest division, which was based in Indianapolis.

HomeYeah!, which was launched in Indiana in 1999, typically carried 60 to 90 listings at a time.

Realtors say the new law is aimed at boosting industry standards, not undermining competitors.

"If a broker is not willing to answer questions or handle offers and counter-offers, they're not providing much of a service," said Karl Berron, lobbyist for the Indiana Association of Realtors.

The measure passed the General Assembly in April with little rancor. It cleared the House 56-38, and the Senate 49-0.

The bill's author, Rep. Tim Harris, R-Marion, said that, in addition to protecting consumers, the law protects brokers who represent buyers. Such brokers are susceptible to getting drawn into disputes when for-sale-by-owner transactions go awry.

"The logical answer for a seller who has no agent to fall back on is to go to the buyer's Realtor," Harris said. "But that Realtor is taking on more than they bargained for, and it opens them up to liability."

The law includes language protecting buyers' agents from being held liable for information or help they give the other side.

"What we're not trying to do is put anyone out of business," said Harris, who has been in the real estate business 12 years and works as a title insurance agent in Grant County.

The state is just the latest battleground in the national fight between Realtors and low-cost rivals. At stake is $60 billion in real estate commissions doled out in the United States annually.

Indiana and nine other states have adopted minimum-service laws in the past two years. That's despite accusations by the U.S. Justice Department that the laws are anti-competitive.

The agency asked six states not to pass minimum-service bills, but five adopted them, anyway. Indiana's law was not targeted by the agency, which has not formally challenged any of the states' laws.

The Consumer Federation of America last month released a report that blasts the industry, saying it's acting as a "cartel to stifle competition."

Tara Sears, who had her Butler-Tarkington home listed on HomeYeah! until the site shut down June 30, agrees.

"We wanted to spend our own time and effort to market our house," she said. "We've sold three homes. We didn't need any help."

Sears and her husband had bought HomeYeah!'s $499 package. It included title work and a HomeYeah! broker at the closing table. Under the agreement, they would have had to pay the commission for the buyer's agent--typically 3.5 percent--if there was one.

The couple now will list their home with a traditional Realtor.

HomeYeah! had 42 Indiana homes listed on its site when it shut down. Slimek has managed to transition 30 of those customers to a new company he formed, Indianapolis-based HomeChoice.com.

For a flat fee of $1,300, its customers can have their homes listed on the new site and in the MLS, plus receive the minimum services spelled out in the new law if they want them. But some don't.

"Now we must pay $1,300 for additional services we didn't want," said Shannon Riegle, a HomeYeah! customer who opted to go with Slimak's new company to sell her Heartland Crossing home.

"It's frustrating. Why can't we just choose what we want ourselves? Competition is supposed to be there for a reason."

But competition remains, said Berron, the Indiana Association of Realtors lobbyist. He said he's surprised by what he considers the unwarranted negative reaction to the law here and elsewhere.

"It's a licensing issue, not a marketing issue," he said. "It's just patently not true that this business model or that model is being eliminated. There will still be a wide range of services around."

Not all discount brokers are having to reassess their business plans.

Reno-based Assist2Sell, which has nine offices in Indiana, advertises that it will "do everything" Hoosier homeowners need to sell their house for $2,995.

"The law won't have an impact on our day-to-day operations," said Barry Wardell, director of franchise relations. "We're already providing those services."

Likewise, Ken Fisher, of Indianapolis-based Ken R. Fisher & Associates Inc.--another reduced-fee service provider--said the seven packages he offers comply with the new law.

Still, he doesn't like the measure. He noted that real estate commissions have remained as high as 7 percent for years, despite increases in home prices and advancements in technology that reduce the expenses associated with buying and selling a home.

"Perhaps the non-discount broker is nothing more than an overpriced broker," Fisher said.

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