Real Estate: Anti-discounter law looms in Michigan
Would prevent discount real estate brokers from offering limited service for much less than the traditional 6% commission; state governor opposes the bill.
NEW YORK (Fortune) -- Michigan Gov. Jennifer Granholm has come out against a state bill that would make Michigan the tenth state to outlaw discounted, no-frills real estate brokerages, Fortune has learned.
The bill, which has already passed in the Michigan House, would impose so-called "minimum-service requirements" on all real estate agents in the state.
As with bills passed in nine other states including Texas and Illinois, the Michigan bill is being pushed by the state's powerful Realtor trade group and would effectively force all agents to provide full service. Some discounters would otherwise be willing to offer limited services and charge home sellers much less than the traditional 6-percent commission.
Elizabeth Boyd, an aide to Michigan Gov. Jennifer Granholm, wouldn't promise a veto - "we try to stay away from the 'V' word," she said. But Boyd did make her boss's position clear. "We do not believe the legislation is needed," she said. "It forces consumers to purchase services they neither want nor need."
Granholm, a Democrat facing a tough reelection campaign, is actually siding with the Bush Administration in opposing minimum-service requirements. The Federal Trade Commission and the U.S. Department of Justice have deemed the requirements anti-competitive. While the Feds can't stop state legislatures from passing minimum-service bills, they have been speaking out against the bills in their roles as public advocates.
On Tuesday, before a U.S. House of Representatives subcommittee, the head of Justice's Antitrust Division, J. Bruce McDonald, criticized minimum-service requirements, arguing they serve "not to protect consumers, but to interfere with their freedom to choose and pay for only the services they want."
And in a June letter to Michigan Senate President Patricia Birkholz and Lt. Gov. John D. Cherry Jr., the FTC and the Antitrust Division warned that the Michigan bill would increase the cost of selling a home: "With less competition, Michigan consumers will have fewer options for real estate services, likely causing some home sellers and buyers to pay thousands of dollars more in commissions."
Realtor associations in Michigan and elsewhere defend their lobbying efforts as pro-consumer. Bill Martin, head of the Michigan Association of Realtors, says his organization wants to assure consumers are getting what they pay for. "My bill is consumer protection for the unwitting consumer," adds Michigan Rep. Tonya Schuitmaker, who introduced the bill. She expects the Senate to vote on it by early fall.
However, not a single consumer complaint has been filed against limited-service real estate agents with Michigan's real estate licensing administrator. And consumer advocates like Bruce Hahn of the American Homeowners Grassroots Alliance, see Realtor associations' desire to pass minimum-service laws as a cynical attempt to prevent discounters from grabbing a larger share of the $65-billion-dollar-a-year home brokerage pie.
Full-service realtors promise sellers many services, including hosting open-houses and handling negotiations with potential buyers. One key service is posting the seller's home to the Multiple Listing Service, homes-for-sale databases run by local Realtor associations.
But some home sellers might just want an MLS listing, thinking they can handle the rest. Some deep-discount realty shops are willing to offer that service for a flat fee of just $400, greatly undercutting the 6-percent commission - $30,000 on a $500,000 house.
While the FTC can't control what legislatures do, it does have authority over Realtor boards that control local MLS's.
Earlier this month, the FTC brought and settled antitrust charges against the Austin, Texas MLS. Austin agreed to stop discriminating against customers of limited-service realty firms by blocking their homes-for-sale from appearing on public MLS Web sites like Realtor.com.
The FTC says it is now investigating other MLS's with similarly discriminatory policies. One of them might be Michigan's largest MLS, Realcomp. As was the case in Austin, Realcomp blocks listings entered by limited-service realty firms from appearing on public MLS Web sites.
Dale Smith, who heads one of the two regional Realtor boards that jointly operate Realcomp, acknowledges that the FTC has requested information from Realcomp, though he does not think charges are likely.