RECALL: Real Estate Consumer Alliance

Research finds agents act as "Dealtors"

"Rogue economist" Steven Levitt, author of Freakonomics, appeared on NPR's On Point Radio in Boston this evening and briefly discussed his research on the performance of real estate agents.  Levitt's analysis of 100,000 transactions in the Chicago area revealed that agent properties sold for 3 to 4 percent more than similar client properties, and that agents kept their own homes on the market for 10 percent longer than client properties to get the highest price. 

The findings document what industry critics have claimed for some time, namely that some listing agents put their own financial interest ahead of clients because they are more interested in closing the deals quickly than holding out for the highest price for their seller clients (see excerpt from Chapter 2).  Levitt blames the industry's traditional two-sided commission structure for failing to properly motivate listing agents, who typically receive just 1.5% of the total sales price after a four way commission split.

If listing agents are more motivated to make the deal work than getting the highest price for their seller clients, should they be called "Dealtors" instead of Realtors?  Or should the industry's commission be reformed or abandoned all together?  What's your take?  If you are selling your own home this Spring, will Levitt's research influence whether you will (1) list your property with a traditional full fee, full service listing broker; (2) sell on your own, or (3) purchase services "a la carte" through a new breed of real estate consultants like The Real Estate Cafe?

Finally, will the debate about real estate bubble influence your decision?  We've asked Levitt the same question by email, and will let you know if he writes back or posts an answer to his blog.

The Oversupply / Under Enforcement Dilemma

According to the state's web site, the Board of Registration of Real Estate Brokers and Salespersons licenses approximately 74,433 real estate brokers and salespersons in the Commonwealth.  That's about one agent for each of the 81,000 existing homes sold statewide in 2004 via MLSPin.com.  Further, my guess is that there are at least that many agents with inactive licenses, that can be easily renewed with a weekend course and a modest fee to the state.  So with 75,000 to 150,000 active and inactive licensees in state, not to mention the fact that any attorney in the state can apply for and immediately be granted a Broker license without an exam, the industry is flooded with real estate professionals, a problem a National Association of Realtor's report once called "The Oversupply Dilemma."

Against the backdrop of the oversupply dilemma is more troublesome consumer issue:  the compliance under staffing dilemma.  In fiscal year 2003, the last year reported, the state's web site states:

"[The Real Esate] Board investigators inspected 10 real estate offices, checking 153 licenses. The Board received 359 new complaints and resolved 434 from this and previous fiscal years. The Board held one investigative conference and nine formal hearings, entered into 16 consent agreements, revoked 25 licenses, suspended 58 licenses and issued three stayed suspensions and one reprimand. The Board facilitated the refund of $26,845 in total."

That's less than the combined rebates The Real Estate Cafe gave to just two of our clients that year.  While I don't know how many investigators are assigned to this multi-billion dollar industry in Massachusetts, one can infer from the lack of investigations and enforcement penalties that the Real Estate Board will lack the resources to monitor how well 75,000 licensees understand and are complying with the new agency disclosure regulations.

If there is good news here, it is that some states are tightening up real estate licensing and education requirements.  Let's hope Massachusetts takes a similarly enlightened path to protecting consumers as the new disclosure agency regulations go into effect.