The Essential Guide to Competition in the Real Estate Industry

There’s nothing like good ol’ fashioned competition, especially in the marketplace. Shoppers get higher quality, more choices, and products that come at a lower price. Competition forces whole industries to become more innovative and find new ways to serve the average consumer even better.

Competition also provides insights into what works and doesn’t work in real estate. For Sale By Owner, or FSBO, has actually become the preferred choice of consumers simply because more options exist. Think about it, vendors are actually fighting over you!

Here’s what you need to know so you can profit from this competition.

Full-Service Brokers (and Their Alternatives)

Full-service real estate brokers offer virtually everything needed to help a consumer buy or sell a home. They help with marketing, contract review, negotiation, and more. These full-service brokers also charge a hefty commission of your property’s selling price, costing you way more than what they should. This is why they’re becoming less and less relevant in today’s market.

Access to online resources has completely rewired the residential real estate industry. FSBO is much more common because consumers can use free or inexpensive online tools to help them buy and sell a property. In fact, the internet is far more effective in reaching an audience than a “For Sale” sign ever has. It’s clear that non-traditional is the way to go. What was once considered exclusive to these full-service brokers is now accessible to the public.

An alternative to full-service is to do much of the work yourself and choose “fee-for-service” brokers when needed. They charge hourly or à la carte, helping you save money in the long run. Basically, when these types of brokers fight for our business, we win.

Minimum Service Laws

So what’s getting in the way of this competition? To start, eight different states have something called minimum service laws. These laws basically force consumers to buy more than what they need. It’s as if you’re purchasing a bundle, and there’s no option to waive anything that’s “extra”. This is bad for you, because anything that places a limit on competition causes some big consequences, and you’re the one left paying the bill.

Minimum service laws hurt consumers because they’re written to protect and encourage full-service real estate brokers. Minimum service brokers, or pay-per-service brokers, miss out on offering a better deal in FSBO situations. While there are consumers who would prefer the whole bundle, there’s no option for you to save money. This is bad for FSBO properties.

Cash Rebate Bans

Some brokers want to give extra incentives for clients to choose them over others. This is why they offer cash rebates after a sale is finalized. These are calculated as a fraction of the real estate broker’s overall commission. Let’s say a rebate is one percent of the sale price, which is a common practice. This could reduce the price of a home by $1,843! Most importantly, rebates go directly to buyers and sellers!

Unfortunately, some states have rebate bans, and these prevent brokers from competing by giving out these refunds. Rebate bans take away incentives from consumers to purchase the houses they want. Not only that, bans inflate the cost of buying and selling. As of 2017, ten states have a ban on commission rebates, including Alabama, Kansas, Mississippi, Oregon, and Tennessee.

Increasing Closing Costs

Closing costs are the fees associated with finalizing the sale of a property, and they can get fairly expensive, ranging from 2% to 5% of the sale of a home. Services include title searches, appraisals, inspection fees, and credit checks. These can run the average consumer thousands of dollars.

FSBO transactions can save on these costs when you pick and choose which providers you want to use. In most states, lawyers and non-lawyers alike compete in the market for certain FSBO services. However, some states are passing laws that any non-lawyer closing on a house is considered an “unlicensed practice of law”. By limiting these choices, the pricing on closing goes up.

How Does the Government Fit Into All This?

The Department of Justice and the Federal Trade Commission (FTC) are the main entities we’ll discuss here. Their decisions affect real estate broker competition and the opportunities for FSBO transactions.

First, you should know that the mission of the Department of Justice’s Antitrust Division is to promote economic competition. The FTC’s Bureau of Competition is in charge of enforcing federal antitrust laws.

Antitrust laws apply to all industries across the U.S. In real estate, antitrust laws prohibit practices such as price fixing, group boycotts, and corporate mergers that increase monopolies and reduce competition. Both the Department of Justice and the FTC work together on policies that ultimately benefit the public. If you’re the reading type, you can even view the FTC’s reports and public statements about broker competition. They discuss research that describes the increasing trend of consumers who want to choose from a “menu” of services rather than a bundle.

How Do I Fit Into All This?

Those pursuing a FSBO sale of their property should take action so you can save as much money as possible. Luckily, beycome has a short checklist of options to make the most out of real estate competition in your area:

  1. Learn about the real estate laws in your state. This allows you to know whether or not you’re entitled to more choices of brokerage services.
  2. Save some cash by seeing if your state offers the rebates mentioned above! It’s definitely worth looking into.
  3. If you believe a broker is mishandling your case, or if you believe there is an antitrust violation happening in your area, you can report it to the Department of Justice.

Remember, vendors want your business, so there’s no reason not to be confident when searching for what’s right for you. When you get exactly what you need and utilize the right resources, you stand to save quite a lot!