Who Regulates Real Estate Agents?

The Photo above is a residential contract from 1953 that included a trade-in home. What NAR accomplished in 71 years morphed a simple transaction into a complicated turmoil.

Dear Monty: We have a significant problem with a real estate transaction. We ran across a state agency called a “real estate commission.” When we researched the commission, we discovered the commissioners are all real estate agents. We are reluctant to contact them. It seems like having a fox guarding a chicken coop. Do you have any information about real estate commissions? 

Monty’s Answer: Real estate agents are subject to three sets of rules. One set from the state’s real estate commission, where the state issues licenses to brokers and agents and enforces state real estate laws. The second set of rules is from the local Board of Realtors. The third set is from the local multiple listing service. Licensees who become Realtors must follow the local Board of Realtors rules. Home sellers and buyers who sell and buy directly, without a real estate agent, are not subject to any of the three rule-making bodies. 

The Commission Rules

A real estate commission’s purpose is to protect the consumer of real estate service from brokers and agents. The state legislature abdicates its authority to the real estate commission to make and enforce real estate licensing laws directed to real estate brokers and agents. The laws include:

  • Issuing and revoking licenses.
  • Setting rules for continuing education.
  • Suspending.
  • Monitor agents.
  • Leveling fines.
  • Revoking an offender’s license.

The Realtor Rules

Once receiving a state license, many real estate agents join their local Board of Realtors. One of the primary reasons many join is that the local Boards of Realtors have established a separate company that operates a multiple listing service (MLS). Realtor membership is required to access the broker members’ cooperative listing. When a licensee joins a real estate company that is a Realtor member, they are now subject to three different sets of rules: The Rules of the state, the rules of the Realtors Code of Ethics, and the rules of the MLS, which guide what the brokers and agents must adhere to when involved in a real estate transaction. The Board of Realtors has similar powers to the state rules, but only regarding the Code of Ethics; they cannot revoke a state license.

The Cause and Effect

Your observation is accurate. Decades ago, the National Association of Realtors (NAR) lobbied Congress to press states to adopt license laws. Only a handful had adopted state regulation during that period, and the early states all established commissions of real estate agents to oversee the adoption of the rules. States establishing real estate laws and commissions later followed the early states’ lead and appointed real estate agents. This new power allowed NAR to create legislation that tilted the playing field to NAR’s advantage in a variety of ways. The current real estate practice is one-hundred years old and obsolete. You are not the only person to notice this. Here is what the Consumer Federation of America (CFA) says: “Practicing real estate brokers should be prohibited from serving in any regulatory capacity. Instead, like state insurance and public utility commissioners, regulators should be appointed (or popularly elected) from a pool of non-industry candidates. They should be charged first and foremost with the protection of consumers, not brokers.” The CFA report goes on to say the newly appointed commissioners first job should be to correct the “tilt” to protect consumers. The CFA link above is to the full report.

To learn more about the history of real estate commissions in the United States, here is a link to the Association of Real Estate License Law Officials (ARELLO).

PropBox Rules

PropBox customers are peer-to-peer, which means they are selling and buying directly. A peer-to-peer transaction is not subject to the three rule-making bodies that real estate agents and brokers must follow. PropBox built rules into a seller’s advertising page. PropBox rules include:

  • The improved order of the transaction steps.
  • Each parties participation requirements.
  • The written communication process.
  • The documentation of their agreement to sell and buy.
  • The automated closing.

PropBox is fast, simple, transparent, safe, efficient, and economical. Most importantly, PropBox creates a trusting and fair environment. Customers have been rightly mistrustful as an industry trade group with an impenetrable system currently dominates the single-family resale market. The system forces home buyers to contact a real estate agent or work with an independent for-sale-by-owner. A home buying customer is at financial risk with either option. PropBox provides a superior alternative. To learn more, The Danger Report, commissioned by the National Association of Realtors in 2015, demonstrates the weakness of the current system.

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