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Bad news for real estate innovation

The Tennessee Legislature has joined ten other states in passing a law that makes it illegal for real estate brokers to share their commissions with home buyers. That may not sound like a big deal, but it represents yet another sneak attack by traditional Realtors on innovative online discount brokers. Rebating part of their commission to a buyer is one way online brokers save their clients money and compete with traditional brokers on price.

You do the math. Three percent of a $750,000 purchase price comes to $22,500, and a one-third rebate comes to $7,500—enough to furnish an entire room of your new home.   But traditional Realtors stubbornly insist on keeping it all for themselves. And the Realtors are clearly not above playing politics in order to twist the law in their favor.

In the long run, however, fighting the future is usually a big mistake. The National Association of Realtors (NAR) is already facing antitrust charges, while our Justice Department (DOJ) and the Federal Trade (FTC) commission continue to criticize NAR’s anti-competitive practices.

We are quoted extensively in the joint FTC-DOJ report on "Competition in the Real Estate Brokerage Industry" that is critical of NAR, and we appeared in a recent CBS 60 Minutes story about the NAR’s efforts to squash online discount brokers.

Meanwhile, buyers and sellers alike are gravitating to online brokers, not just to save money, but also because searching the Internet is a lot more convenient than driving from house to house with a real estate agent. Realtors are fighting a losing battle if they insist on preventing technology innovation and the price competition that will naturally follow.  Instead, Realtors should embrace these trends, or they risk losing their lucrative business to the likes of Google and, outsiders who could rewrite the rules of real estate.