Distressed Property Blog

Have you heard about minimum service requirements for real estate brokers? If not, check this out (courtesy of the U.S. Department of Justice):

A number of states have enacted laws that require consumers to purchase brokerage services they may not want, with no option to waive the extra items. These so-called “minimum service” laws diminish consumer choice and raise the cost of selling a home.

When a distressed homeowner needs to sell their home and come out as good as they can, some states—backed by the National Association of Realtors (NAR)—require you to purchase services you simply don’t need! That’s the scenario for distressed sellers in nine states, and it further proves my point that, more often than not, Realtors are only out to protect themselves.

Homeowners—distressed or otherwise—should have options when selling, especially when they’re in trouble (and let me tell ya, plenty of homeowners are in trouble). According to the Greater Las Vegas Association of Realtors, foreclosure-related transactions accounted for 52% of all sales in the Las Vegas area last month, while for the third month in a row, U.S. foreclosure activity registered at more than 50% above the level it was at a year ago.

One tool to survive these trying times of ours is to use “fee-for-service” brokers who unbundle the entire set of real estate brokerage services and charge a fixed or hourly fee, providing only those services you need to complete the sale of your home and nothing more, unless by request.

Traditional brokers, however, have been forever bundling and selling to buyers and sellers everything from marketing the home through reviewing contracts, negotiating, locating properties to buy, arranging inspections, generating a list of comparables, shaking out financing options, drafting offer and acceptance terms, and helping with the close. This entire set includes many services wholly unneeded by the average distressed homeowner.

Say you’ve got to sell your house fast; do you want to pay for locating properties or discussing financing options if you’re going to rent until you are stable again? Heck no!

The following nine states mandate that you take the whole kit and ka-bundle, whether you want it or not: Alabama, Idaho, Illinois, Indiana, Iowa, Missouri, Texas, Utah and Washington. Another eight—Delaware, Florida, Nevada, New Mexico, Ohio, Pennsylvania, Tennessee, and Wisconsin—have minimum service requirements on the books but give homeowners the option to not use the extra services.

Are minimum service requirements making life better for distressed sellers? No, not even close. What improves is the number of unnecessary services brokers can shove down your throat that justify the 5% to 6% fees they charge.

Minimum service laws do not ensure quality. They merely require that real estate brokers provide—and consumers purchase—more services.

Learn more by reading Competition in the Real Estate Brokerage Industry: A Report by the Federal Trade Commission and U.S. Department of Justice.