States protect real estate brokers' commissions
Thursday April 6, 2006
by Holden Lewis
Aaron Farmer wishes he could still charge $495 to help his clients sell their houses. But he can't anymore, because the Texas Association of Realtors persuaded the Legislature to tell him how to do his job.

"Essentially, it's more work for us," says Farmer, owner of Austin-based Texas Discount Realty, a limited-service brokerage. "If we have to do more work, it causes us to spend more time with clients, so we have to charge them more."

Farmer's most popular package of services now costs four times as much as it used to: $1,995.

Texas is among 10 states that have imposed minimum-service requirements on real estate brokers since 2004. The new rules compel brokers to serve as middlemen, even if their clients want to eliminate the middleman.

The other states are Alabama, Florida, Illinois, Indiana, Iowa, Missouri, New Mexico, Oklahoma, and Utah.

"The way they're going about limiting consumers' ability to get reduced fees on real estate transactions is to go state by state to get the regulations changed," says Colby Sambrotto, chief operating officer of

It's all about money, agrees Manuel Iraola, president of, a Miami-based brokerage: "They are trying to force the people to do something under the banner that they're protecting the interests of the consumers where, in reality, what they're really protecting is the 6 percent commission."

It's unusual for an industry to lobby for stricter regulations on itself. Realtors say they're seeking government intervention to protect consumers.

"We're not saying you have to charge 6 percent," says Stacey Lawson, spokeswoman for the Texas Association of Realtors. "We don't even talk about money. All we're saying is these are minimum services you have to provide."

The new measures require real estate brokers to receive and present offers and counteroffers, offer negotiation advice, complete forms, and answer questions. This often means a buyer's agent can't even send a fax or make a phone call directly to a seller.

Tasks such as these are skilled work that "should not be done by a novice," wrote RE/MAX's chief legal officer, Geoff Lewis, in a letter last year to the Justice Department and Federal Trade Commission. "While some consumers may be sophisticated enough to represent themselves in some or all of the steps of a transaction, most are not."

The Justice Department's antitrust division remains unconvinced, insisting that consumers benefit by having a wide range of choices in the real estate services they get. The division asked six states not to pass minimum-service bills, calling the measures anti-competitive. Five of those six states adopted the rules anyway.

The new limited-service rules run counter to the do-it-yourself culture exemplified by "for sale by owner" transactions. Brokers such as Texas Discount Realty identified and served a new breed of customer: those who don't want to sell their homes all by themselves, but who don't want to pay for a full suite of services, either.

Before the law went into effect in September 2005, Farmer's Texas Discount Realty would charge $495 to add a house to the Multiple Listing Service and provide a lockbox and a yard sign. Sellers had to buy their own newspaper advertisements and hold their own open houses. They had to conduct their own negotiations and deal with title agencies on their own, or hire attorneys to help. Most sellers offered 3 percent commissions to buyer's agents.

Then the Legislature imposed minimum service requirements, and limited-service brokers raised their prices. Lawson says the Texas Association of Realtors lobbied for the law to prevent poor service, eliminate conflicts of interest and conform with Texas' legal definition of an agent.

Another reason for the law: Full-service agents complain that limited-service agents create more work for them. "One agent agrees to work for half the commission assuming the other side will do their job," RE/MAX's Lewis told the Justice Department and FTC. "If the other side does not do its job, the first agent should not have to perform increased work without being paid more."

Sambrotto says the overwork issue "is not a complaint that we hear very often. But I think if that's the case, don't show that home. Three percent is still quite a bit of money, frankly."

Farmer has little sympathy for buyer's agents. If a seller asks a question that the buyer's agent doesn't want to answer, "All you have to do is say, 'Hey, I can't help you with that. You need to contact your broker or contact your attorney.' "

Farmer pays his dues to the National Association of Realtors, "and they're using that money against me. It's something that has bothered me." He plans to start a group that will lobby the Texas Legislature on behalf of homeowners.

Related links:

States with minimum-service requirements:

Letter from RE/MAX's Geoff Lewis to Justice Department:

The benchmark 30-year fixed-rate mortgage rose 7 basis points to 6.51 percent, according to the national survey of large lenders. A basis point is one-hundredth of 1 percentage point.

The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index was 6.02 percent; four weeks ago, it was 6.45 percent.

The benchmark 15-year fixed-rate mortgage rose 5 basis points to 6.17 percent. The benchmark 5/1 adjustable-rate mortgage rose 4 basis points to 6.17 percent.

(Distributed by Scripps Howard News Service. E-mail Holden Lewis at