Consumer watchdog: the real estate industry regulates itself

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A report by the Consumer Federation of America found that the vast majority of state real estate commission seats are held by members of the industry, and none are held by a consumer or housing advocate.

The vast majority of state real estate regulators are dominated by members of the industry and fail to provide consumers with adequate information, enforcement and complaint resolution, according to a report by the Consumer Federation of America.

The consumer watchdog report, “State Real Estate Commissions: Do They Serve the Consumer Interest? Revealed that in 47 states and Washington DC, governments have given the power to regulate the real estate industry to real estate commissions, with 85% of the seats held by members of the industry or related groups such as bankers and real estate lawyers or are vacant. Of the total 378 seats, none are held by a leader of a nonprofit consumer or housing organization, according to the report.

Only one state commission is required to have a majority of non-industry members, the New York State Real Estate Board, according to the report. In California, Minnesota, and Illinois, state departments, not commissions, regulate the industry. Although Illinois has a real estate commission, it is advisory only.

“The real estate industry essentially regulates itself,” Stephen Brobeck, CFA senior researcher and author of the report, said in a statement.

The CFA report revealed that there are consequences for consumers of this industry dominance. The association found that only 11 state commission websites provide “adequate” information on consumers, while 21 “ignore home buyers and sellers.”

“These latter websites seemed to only consider the needs of the industry,” the report said. “The menu on the home page did not contain any mention of consumers and there was no separate consumer page. The report also concluded that no website could be rated as excellent as none included a description of important consumer protections, an adequate explanation of the sales process, and helpful advice to consumers on how to get good value for money. -pricing of agent services.

Earlier this year, the CFA released a more detailed report with these findings. The watchdog also found that state real estate commissions “are not making a sufficient effort to enforce agency disclosure laws,” exposing consumers to the potential for conflict of interest posed by working with an agency. agent who is not their trustee.

“A 2018 national survey commissioned by the CFA found that two-thirds of those surveyed mistakenly believed that real estate agents ‘always’ or ‘almost always’ should represent the interests of the home buyer or seller they are with. were working, ”the CFA mentioned.

“Yet many consumers end up working with a double agent, transaction broker, or fiduciary agent of the other party in the sale. The National Association of Realtors’ 2020 annual survey of home buyers and sellers found that only 26% of buyers surveyed said they received the disclosure during the first meeting with the agent. The timing of disclosure is particularly important for buyers, as their first contact with the agent is often a fiduciary agent of the seller.

The report found that only 14 real estate commissions make information about complaints and disciplinary measures publicly available. In those states, less than 10% of complaints result in disciplinary action and the majority of those actions were related to an agent’s criminal conviction or lack of a real estate license rather than a consumer complaint, said the CFA.

Stephane Brobeck

“State commissions add value to home buyers and sellers because their license and ability to penalize agents for a wide variety of offenses certainly deters officers from committing these offenses,” Brobeck said.

“However, it’s no surprise that many industry commissioners ignore consumers or fail to understand and appreciate the important role their commission plays in educating and protecting home buyers and sellers. “

The CFA report recommended that state governments transfer authority from real estate commissions to state officials and ensure that consumers are represented on the commissions themselves through consumer advocates or housing.

“While this major reform may take time, state governors should immediately appoint at least one consumer or housing advocate to sit as a member of the public on each committee,” the CFA said.

“Others who could productively serve as non-industry members include a representative of the state attorney general (required in Pennsylvania and Rhode Island) and unrelated law professors and economists. industry. Maryland has laudably appointed a retired member of the state’s ethics committee to its commission. “

Such a change would likely lead commissions to feel pressured to provide information to buyers and sellers on their websites, to do more to enforce agency disclosure laws “and to dismiss blatant consumer complaints. to the state attorney general or consumer protection agency. “said Brobeck.

The CFA noted that the real estate industry has recently come under scrutiny for allegedly anti-competitive practices, including the sharing of commissions between the buyer and listing brokers. Commission decoupling is “a CFA reform priority,” the association said, “to allow buyers to negotiate lower rates, to curb the direction of buyers to ads carrying the highest commissions and to free up discounted listing brokers from having to charge high fees.

The CFA has said real estate commissions “have stood on the sidelines of these controversies,” but in the past they have supported allegedly anti-competitive practices such as bans on buyers’ discounts and minimum service requirements.

“State real estate commissions should not escape the scrutiny to which the industry has been subjected,” said Brobeck. “The lack of independent and effective regulation has contributed to the anti-competitive practices that are the subject of private and government antitrust litigation.”

Send an email to Andrea V. Brambila.

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