New Texas Law Targets Discount Real Estate Brokers

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A new law in Texas spells out what real estate brokers must do for all their clients — including taking their calls and informing them of counter-offers. The law comes in response to some consumer and broker complaints about discount or minimum-services brokers. Larry Schooler of member station KUT in Austin, Texas, reports.

ALEX CHADWICK, host:

This is DAY TO DAY. I'm Alex Chadwick.

Texas has a new law governing the behavior of real estate agents. It sets out basic tasks every agent must be willing to complete, including returning a client's phone calls and helping with counter offers on the home. That may not seem like that much but discount brokers, who offer limited services at low costs, say providing any extra service will cost extra money and make them less competitive. Larry Schooler of member station KUT reports from Austin.

LARRY SCHOOLER reporting:

More and more consumers have been coming to brokers like Aaron Farmer. Farmer owns Texas Discount Realty, one of about 50 such companies across the state. Farmer offers his customers a choice of services.

Mr. AARON FAMER (Owner, Texas Discount Realty): We have the limited service package, which we charge $495 to list your home on to the multiple listing service.

SCHOOLER: At that price, that's all you get. Farmer won't help you fill out paperwork or negotiate with buyers. But the multiple listing service, or MLS, is linked to numerous Web sites and guarantees a seller the most exposure for their house. The idea of a discount broker appealed to Gena Harwood when she put her suburban Austin house on the market.

Ms. GENA HARWOOD: Right up front, we gave them a thousand dollar to pay for the things that normally a Realtor would just pay for, you know, the pictures on Realtor.com and, you know, the video tours and that sort of thing. We paid for all that up front.

SCHOOLER: Harwood says her broker gave her very little help in selling her house. After a year, the house is still on the market.

Ms. HARWOOD: Discount Realtors would be OK if they tell you from the get-go, yes, they are different than a regular Realtor because, you know, they didn't say, `Here's our flat fee. We'll put you up on the Internet; the rest is up to you.' They said that there was not any difference between him and a regular traditional Realtor.

SCHOOLER: It's consumers like Harwood that the Texas Legislature is trying to protect. The new law outlines basic services all real estate agents must now provide, including receiving offers for their clients, helping with counteroffers and answering their clients' questions. Traditional full-service agents usually charge a 6-percent commission. Under the state's occupations code, those agents should only represent their own clients. When agents deal with house sellers represented by discount brokers, they often find themselves with a conflict of interest. That's because they end up dealing directly with the seller. Austin real estate agent Sacher Chapman Thomas(ph) says discount brokers have to be willing to represent their clients selling homes.

Ms. SACHER CHAPMAN THOMAS (Real Estate Agent): If you don't want to do that, that's fine. But I should not be enticed to break the law and talk directly to the seller as an agent who's representing someone else, because that makes me totally break the licensing act in the state of Texas, and I shouldn't have to do that.

SCHOOLER: Other states, including Oklahoma and Missouri, have passed laws or adopted Real Estate Commission rules similar to Texas'. That has the Federal Trade Commission concerned.

Ms. MAUREEN OHLHAUSEN (Director of Policy Planning, Federal Trade Commission): We didn't think that this restriction on competition was in consumers' best interest.

SCHOOLER: Maureen Ohlhausen is the FTC's director of policy planning. Her agency and the Justice Department have challenged the Texas law and others like it.

Ms. OHLHAUSEN: Because consumers benefit from being able to choose the different level of service that they wish to contract for in real estate closings, and we just didn't see evidence that consumers had been harmed by choosing a lower level of service for which they paid a lower fee.

SCHOOLER: And plenty of consumers are choosing discount brokers. Some say they've saved several thousand dollars they would've paid on commissions. Now Aaron Farmer of Texas Discount Reality and many of his competitors will have to change their businesses.

Mr. FARMER: This law is forcing me to provide these services for them whether the seller wants it or not. It's not forcing me to charge a particular rate, no, but simple economics says that if it's going to take me more time, then I have to charge more money.

SCHOOLER: Farmer says some of his fellow agents are considering challenging the new Texas law in court. For NPR News, I'm Larry Schooler in Austin.

CHADWICK: I'm Alex Chadwick. More DAY TO DAY just ahead.

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