Imagine if the law required every restaurant to serve its customers a four-course meal. Cafeterias and fast-food chains would be out of business. Eating out would become more expensive. There would be fewer restaurants to choose from, and a lot of people might just stay home for dinner. The only people who would benefit from such a law are the owners of upscale restaurants. They’d make out like bandits as the law put their competition out of business.
It sounds crazy, but last year the Missouri legislature imposed an analogous requirement on real estate brokers. The law requires brokers to provide a variety of services, and it doesn’t allow homeowners to purchase the services individually. The result is decreased competition—and hardship for homeowners who can’t afford the real estate equivalent of a four-course meal.
Relocating can be time-consuming and expensive even for the wealthiest homeowners. But for people who don’t have a lot of equity in their homes, it’s especially tough. After paying off what they owe on their old homes and making down payments on new ones, they have to come up with enough money to pay their real estate brokers a six or seven percent commission.
In most states, homeowners facing this problem are able to save money by purchasing only those real estate services they need. Rather than paying a percentage of the sale price, homeowners can agree to pay set fees for a broker to list a house or negotiate the price. But Missouri homeowners don’t have the option of hiring a broker just to list their house—they have to hire a broker to accept offers, negotiate deals, and answer questions too. Homeowners who would like to handle those aspects of the sale themselves are stuck paying the same price as people who want their brokers to do more of the work.
The law applies only to exclusive brokerage agreements, so in theory homeowners could hire a broker to list a home through a different agreement. However, most multiple listing services require exclusive brokerage agreements. In effect, the law limits competition by keeping one business model out of the market. Missouri’s law doesn’t protect homeowners; it protects real estate brokers from competition.
Larry Keating, president of the Missouri Association of Realtors, calls the law a “homeowner’s bill of rights.” But the law seems designed to help realtors more than homeowners. That’s why the Justice Department and the Federal Trade Commission both argue that requiring homeowners to purchase real estate services in bundles is a bad idea. In a joint letter to Governor Blunt before the law was enacted in 2005, the Justice Department and the FTC wrote: “The proposed legislation… is likely to reduce competition and harm Missouri consumers.”
Missouri’s law restricting competition between real estate brokers should be repealed. The way to guarantee homeowners get the best real estate service is to let brokers compete with each other, offering whatever combination of services their customers demand. Real estate brokers will be free to provide what homeowners want, and Missouri consumers will get a better deal.
Sarah Brodsky is a research assistant at the Show-Me Institute.
