Minimum Service Laws Can Hurt Consumers
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If you are truly interested in the minimum service legislation that is coming out of state legislatures across the country, you must read this article by Marcie Geffner of Inman News. She really nails the whole discussion of Minimum Service and the weaknesses of this legislation in the marketplace.
Minimum service does delineate between the roles of the different agents, but as the role of the buyers agent becomes a formal part of the process, maybe the way these transactions are paid should change. Instead of the present model, maybe the buyers should assume the cost of their representation and sellers the cost of their representation. If either party decided to save money and not use resources available to them, then they would be at the disadvantage.
Among the latest incarnations are new laws in Virginia and Tennessee. The Virginia version requires real estate licensees to provide certain services within an agency relationship or disclose which services won’t be provided within a limited-service representation. The Tennessee version requires real estate agents to provide certain services and, if the seller opts to “waive” any of those services, inform him or her that those services can’t be sought from any other agent in the transaction. A proposal on the table in Michigan also would require real estate agents and brokers to provide a specific set of services for their clients.
A number of these curious laws have attracted the attention of the U.S. Department of Justice, the U.S. Federal Trade Commission, state regulatory agencies and consumer advocate groups, all of which are concerned about the effect on competition and choice in the real estate brokerage sector. Those concerns are on the mark. Real estate brokerage is highly competitive among established companies, yet these same companies are quick to band together behind their powerful trade associations to protect themselves from new entrants who introduce innovative business models.
The latest laws in particular appear to accomplish little more than to add more disclosures — and presumably yet another sheet or two of paper — to an already overly complex transaction. Home sellers and buyers have a tough enough task to understand even the rudimentary aspects of agency relationships in real estate.
Even worse is Tennessee’s requirement that the real estate agent must enumerate services that he or she is not going to provide. Since no such duty is imposed on any other sort of business, such a warning seems almost perfectly designed to pressure home sellers into buying services they might not need or want. via Inman Real Estate News
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Comment by Jim Lee on 26 September 2006:
Interesting take on minimum service laws.
I’m willing to bet that Marcie Geffner of Inman News has maybe not a law, but a certain minimum level of service she has to provide to Inman News or start reading the “Help Wanted” ads.
Real estate seems to be the favorite ‘whipping boy’ for the media lately because I suppose, it’s seen as an easy target.
I live in Tennessee and have practiced real estate here since 1978. One of the rationales for our minimum services laws is brokers that simply put a listing into our MLS, collect a token fee, and then effectively go away.
In all real estate transactions there are lots of jobs that have to be done before and after a sales contract is accepted.
Let’s assume for a moment that a seller who has paid a Tennessee real estate licensee a couple of hundred bucks to put his house into the MLS lucks out and gets a buyer.
The broker that collected his token fee in advance is typically not to be found, in fact the vast majority of them are located in other cities and even other states.
Who do you think does the listing agent’s job; i.e. orders termite letter, coordinates inspections, negotiates repairs, often conracts for and oversees repair work, and the dozens of jobs that have to be done before buyer & seller go to the closing table???
That’s right, that typically falls onto the selling agent, the buyer’s representative.
How well do you think a seller is servced when the buyer’s representative is for example, contracting for and overseeing repair work arising from the home inspection. If it’s my buyer client I’m going to be looking for the best contractor in town and hang the cost. Does that serve a seller well.
Conversely if the seller take on this chore on his own and get “Handyman Fred” to slop up the repairs and half do them do you think I’m going to advice my buyer to accept it?? Not a chance.
Both sides of a real estate transaction need an advocate with some accountability; minimum services laws is one way to ensure that happens.
Comment by Jim Lee on 26 September 2006:
BTW, Peter Miller’s article in today’s Realty Times provides an intersting counter point to Ms Geffner’s article.
http://realtytimes.com/rtcpages/20060926_minimumstandards.htm
“Peter G. Miller, also known as OurBroker®, is the author of six real estate books — including The Common-Sense Mortgage — and is the original creator and host of America Online’s Real Estate Center.”
Comment by Jay Alberino on 26 October 2006:
Jim,
I am also a broker in Massachusetts and have been for only 2 years but am witnessing the changes in real estate brokerage first hand.
I disagree with you. As a seller’s agent, I have never overseen repair work from arising from a home inspection. While some of my clients request advice, I may give them an opinion, however this is not my job and I am not a hand holder. My clients are informed of laws and regulations regarding repair work arising from home inspections and understand the consequences of doing a poor job. If they need help in finding a repairman, I send them to the yellow pages, or better yet, to Google.
Another point that you have made is about the flat fee brokerages, “lucking out” in finding a buyer on MLS. I’m interested in finding out which innovative ways you have found to promote homes that these flat fee brokers aren’t using? MLS is a great place to advertise homes and if you have made any sales in Tennessee, then I’m sure you have been “lucky” enough to find buyers on MLS as well. Additionally there are newspaper advertisements, signs and other websites. I have seen flat fee brokerages that advertise in some or all of these places for more of a fee. Do you have a secret that they don’t have or are you afraid that comissions are being demolished?
I say enough with the hand holding. People are becoming more informed, and that is the sole reason for this threat to full service brokerages…They understand that we are a dying breed and are paying enoromous amounts of money for information that they could just as easily access through the internet.
Jim, you are not giving me viable reasons for discounters or flat fee brokers not to exist. If their customers are happy with the service that they are providing, they should be praised for their innovation.
As for me? I’m jumping ship. You will see me in the flat fee gang soon, it simply makes more sense. Wait until flat fee guys get smarter and start offering more of a full service package. Jim will soon jump on board I assure you.