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Realtors to Bankers:
Stay Out!
The nation’s banks and real estate brokers are crossing swords in
Washington, and the outcome of their duel could change the way real
estate services are delivered to consumers.
The focus of the battle is a proposal by the Federal Reserve Board (Fed)
that would allow bank holding companies for the first time to own real
estate brokerage firms. Bankers say this is a logical extension of the
financial powers they already have – powers that were expanded
significantly by a 1999 law (the Gramm-Leach-Bliley Act) that eliminated
many of the traditional barriers that prevented banks from engaging in
“commercial” activities.
“Real estate brokerage is a natural financial complement to a bank’s
current business lines,” the American Bankers Association (ABA) contends
in one of many statements supporting the Fed proposal.
A Bad Idea
Real estate brokers are less enamored of the idea, to say the least.
“Bad for the economy, bad for business, and bad for consumers,” is how
the National Association of Realtors (NAR) views the entry of banks into
the brokerage business. Pulling no punches, the industry trade group has
issued grave warnings about the dire consequences for real estate
professionals and consumers if bankers are allowed to offer brokerage
services. “Like a voracious octopus, the banking industry, already
bloated with recently acquired rights to deal in securities and
insurance, has seen something else it wants — the highly successful real
estate brokerage. The octopus is now making a big grab for Realtors’
business.”
In a similar vein, a group of nine realty trade organizations, including
the NAR, submitted a comment letter warning that opening real estate
doors to the
 bankers will “accelerate the consolidation of market power
by a few large companies at the expense of smaller banking and financial
firms. This consolidation could result in limited consumer choice and
higher prices for home  buyers and rental tenants,” the letter asserted.
Bankers have fired back with equally heated letters and public
statements of their own, accusing the Realtors of trying to defend their
own turf at the expense of consumers, who, the bankers contend, would be
well served by bringing banks into the real estate arena. Given that
many real estate firms themselves have mortgage brokerage subsidiaries,
the bank trade groups note in one of their comment letters, it is a bit
“disingenuous” for the Realtors to complain about banks offering
brokerage services.
“Integrated real estate and financial services already exist and real
estate companies market the benefits of one-stop shopping to their
customers,” the bank trade groups argue in one of their comment letters.
“As financial service providers banks should be able to compete. NAR
members want to stop competition, while engaging in lending and
brokerage themselves,” the bankers complain.
Consumer Interests
In their rhetorical battle, both the brokers and the bankers maintain
that they have the consumers’ interests at heart. The brokers cite not
only the danger of bank domination of brokerage services but also
consumer privacy concerns. The NAR recently announced the results of a
survey the association sponsored, in which 89 percent of the buyers and
sellers polled said they feared their privacy would be threatened if
banks were allowed to share confidential financial information with a
realty subsidiary.
“This study reveals the deep concerns consumers have about the lack of
privacy protection provided by banks and banking laws,” NAR President
Richard Mendenhall proclaimed. “Extending real estate brokerage powers
to banks,” he said, “will only make the situation worse.”
Responding in kind, the bankers say they are subject to far more
stringent privacy rules than brokers. In fact, they contend, one reason
the Realtors oppose the Fed’s proposed rule is because it would subject
real estate brokers to the same privacy rules that now apply to banks.
Realtors also want to avoid the competition banks would create, James
McLaughlin, director of regulatory affairs for the American Bankers
Association, contended in a recent press report. “The fact is,” he said,
“real estate brokers have enjoyed a monopoly in real estate transactions
for decades, and they are using propaganda to ward off competition.”
Notable by their absence from this ongoing debate have been the
consumers that the two sides claim will be beneficiaries or victims of the
bankers’ proposal. Consumer advocates don’t seem much inclined to
support either position. The U.S. Public Interest Research Group, which
has criticized the real estate industry’s commission structure in the
past, would like to see a more competitive market. “The real estate
cartel with its long-standing 6 percent commission, would benefit from
competition,” Ed Mierzwinski, consumer program director for the group,
told the Boston Globe recently. “I’m not sure banks will necessarily
give consumers a better deal,” he added, “but any competition is
probably healthy.”
What this means
When industry titans clash, the noise level can
be deafening and the contest always is worth watching. But the outcome
of this bank-broker battle probably will have far more impact on which
industry earns how much from real estate brokerage activities than on
how much consumers have to pay for those services.
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