Bankers vs. Realtors

It's Goliath vs. Goliath

a battle royale!

Brokers defend their turf

Is market up for grabs?

May 05, 2002|By Dail Willis | Dail Willis,SPECIAL TO THE SUN

They're powerful, they're political and they both want to sell you a house.

Just call it Goliath vs. Goliath.

The National Association of Realtors and the American Bankers Association are battling each other over a proposed Federal Reserve rule that would allow banks to sell residential and commercial real estate.

Depending on whom you ask -- bankers or real estate agents -- the rule is either a natural extension of the financial services reform brought about by the 1999 Gramm-Leach-Bliley Act or an encroachment by banks in the wake of that reform.

The two camps have equally opposing views of how consumers would fare if they could buy houses at the same place that provides their mortgage loans, checking accounts and other financial services.

"What will happen in real estate is pretty much the same thing that's happened in banking: tremendous consolidation, reduced competition, reduced consumer choice and increased prices for real estate services," said Steve Cook of the National Association of Realtors. "We're concerned about a reduction of the quality of service if banks take over the real estate business."

The bankers group scoffs at such a notion.

"Under current law, banks are allowed to engage in real estate brokerage -- it's savings institutions, credit unions, state-chartered banks in 25 states including the District of Columbia. So this isn't a new concept," countered Catherine Pulley of the American Bankers Association. Allowing all banks to sell real estate will benefit the consumer, she said.

"They're going to have more choice, that is what it comes down to," Pulley said.

The dispute, however, won't be resolved for at least a year. The Treasury Department, which oversees the Federal Reserve, said April 23 that it would defer any decision until next year because of the intense political battle and lobbying between the two groups.

NAR was able to get legislation -- the Community Choice in Real Estate Act -- introduced in both houses of Congress that would bar banks from selling real estate. The house bill has 220 sponsors and the Senate bill has 10.

So for now, the home-buying consumer will see no change. But the delay will allow the debate to continue and perhaps escalate.

In the past few months, NAR has launched an intense advertising campaign -- which featured ads in The Sun as well as other targeted papers and a series of radio spots -- advocating its position and warning consumers of what would happen if banks were allowed to become real estate brokers. That led the banking industry to respond in kind.

The delay also will give consumers more time to weigh the matter. Underlying the dispute is a fundamental change in the way homes are being bought and sold.

As large, regional residential real estate brokerages -- such as Coldwell Banker Residential Brokerage and Long & Foster Real Estate Inc. -- offer mortgage and title services, the consumer today has come to expect more point-of-sale services.

That shift has been taking place for some time, said Laurie Moore-Moore of Real Trends, a research and communications company serving the real estate industry.

"The consumer is beginning to demand one-stop shopping," Moore-Moore said. "The consumer is pulling into the marketplace the services being bundled together because it's more convenient and in some cases might even save them money."

That consumer pressure has converged with the new economic realities of real estate sales, she said.

"Profitability is literally a crisis issue for residential brokers today," she said. According to Moore-Moore, the average broker profit nationally has declined to an average of $59 per residential transaction.

Faced with the choice of cutting agents' commissions or finding new places to make money in the transaction, she said, brokerages have begun offering related services so they can boost profits. Simply, if they can't make enough money selling houses, they make it up by offering ancillary services.

Last year, Long & Foster, the nation's fourth-largest real estate company, reported that sales reached a company record of $25.2 billion, compared with $19.4 billion in 2000. The real estate aspect of Long & Foster accounted for $18.5 billion, but its Prosperity Mortgage unit reported $2.1 billion in revenue, its title company $2.4 billion and its insurance outfit added another $2.2 billion.

"You have consumers pushing us toward what we call the homeownership area, where the boundary of the business suddenly expands to include mortgage and title and homeownership insurance and home warranties and some other products and services that relate to the home," Moore-Moore said.

NAR and ABA have done consumer surveys that, unsurprisingly, support their viewpoints. But an independent review of those surveys by polling group Harris Interactive and Murray Consulting Inc. found consumers expressing a preference for one-stop shopping and greater choice.

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