Even Reader's Digest Hates Realtors

The popular family magazine with a circulation of 10 million, better known for reader-submitted jokes and book excerpts, can now be added to the growing list of organizations and individuals where the real estate profession is despised.

According to this story in the February issue of Reader's Digest, it's because the system is rigged.

Real Estate Ripoff
by Michael Crowley

Last fall, Marjorie Deprez decided that she didn't need a traditional real estate broker to sell her Chappaqua, New York, home. After all, she had bought the house as an investment and wanted to maximize her profit any way possible. So she paid an online discount broker a flat fee of just under $1,000 to list her home on the Internet.

Deprez would handle everything else. She'd pay the buyer's agent a 2.5 percent commission but save on the usual seller's commission -- in this case, about $25,000.

Smart idea, except when she held an open house for brokers, only a few showed up. When Deprez joked with one of them that she'd been blacklisted, the agent replied, "Who told you?" To Deprez's amazement, she was then informed that a local real estate executive had been calling brokers and urging them not to show her house.

Sure enough, Deprez got very few nibbles, even though her house was priced to sell quickly. Frustrated, she finally took her home off the market.

"It was an organized boycott," says Deprez, who reported her experience to the New York Attorney General's office. Put another way, it was a case of insiders rigging the system to protect their sweet deal. In a traditional home sale, the brokers for the buyer and seller split a commission that usually amounts to around 5 to 6 percent of the sale price. This broker fee doesn't just hit the seller's wallet; the buyer pays more because the commission gets built into the price of the home.
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Nothing is more important to real estate cartels than controlling the Multiple Listing Services (MLS), the databases of homes for sale. Real estate websites often allow home-buyers to peruse local MLS listings on the Internet. Yet they sometimes censor or omit listings sponsored by a discount broker. And many established real estate agents won't allow their own listings to appear on a discount broker's site. That spiteful move led the U.S. Justice Department to sue the National Association of Realtors (NAR), the industry's ultra-powerful lobbying group, for allowing members to discriminate against Web-based brokers. (The Justice complaint is expected to take years to resolve.)
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The industry's muscle is no surprise when you consider that the NAR contributed more money to candidates in federal elections last year (almost evenly split between Democrats and Republicans) than any other donor, even ahead of the trial lawyers and teachers unions. In fact, the NAR has been the biggest donor to these campaigns every year since 1997. At the state level, the National Institute on Money in State Politics says the real estate industry contributed $43 million to campaigns in 2006.
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No one says that brokers can't make a buck like everyone else. But they shouldn't be allowed to rig the system at our expense.

If the nation's housing market wends its way to what many think will be a rather unpleasant conclusion in the next few years, don't be surprised to see Congress balk at taking contributions from the NAR and Gallup pollsters add a new category to their popular survey of honesty and ethics by profession.

The most recent poll provides no category for the real estate sales profession - realtors, with or without the capital "R" or the trademark, are noticeably absent. (Note that engineers rank just above priests, though it's not clear if that's a good thing or not, and, on second thought, no one should count on Senators or Congressmen refusing NAR contributions - these people can't be trusted either).

They'll probably want to add a new category for mortgage broker while they're at it. From the anecdotal reports heard over the last few years, both new categories should fall somewhere right in there with elected officials, between stockbrokers and car salesmen.

Well, maybe mortgage broker will be below car salesmen.