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Can A City Council Regulate What Real Estate Agents Are Paid?

by Richard Surek / Wednesday, 20 February 2019 / Published in US Lending News

In short, if we as citizens of New York City permit this imposition of arbitrary limits on our professional relationships with our clients, next it will show up in Houston, or Chicago, or Los Angeles.Getty

The New York City Council proposal, introduced last week by Council members Keith Powers and Carlina Rivera, intends to cap real estate agent commissions for rental properties at one month’s rent. We, in the New York brokerage community, object strongly to this proposal as should agents throughout the country. Here are a few reasons why:

Arbitrary cuts. Where does the government get the right to arbitrarily place a cap on what real estate agents can earn? In this era of the Internet, any home seeker can find the vast majority of rental inventory online. They need not retain an agent if they prefer to conduct the search themselves. But if they choose to retain an agent, should the government intervene in limiting the amount that we as agents can charge? Commissions are by definition negotiable by each individual. But by a government body? Consumers can always vote for or against our services with their feet, walking away if they feel they are being overcharged. The fact that, for most agents, their business is built on referrals from past clients serves as proof that more often than not, the opposite holds true. Home seekers feel gratitude and appreciation for what we do, which they express by passing our names along to others.

Outdated regulations. Since the introduction of antitrust legislation during the first half of the 20thcentury, we have been a country acutely sensitive to the issue of price fixing. Consumers should not, the reasoning goes, be subject to the vicissitudes of predatory capitalism as imposed by monopolistic or colluding entities which have the power to fix prices without being subject to the give and take of competition and the marketplace. Isn’t what the City Council persons Powers and Rivera propose merely an inversion of the same issue? Is price fixing somehow different if the government does it? If the desire to protect one group (tenants) then clearly infringes on the rights of another group (agents) then to whom does the second group turn for redress?

Focus on only one profession. Somehow real estate brokerage has been cast in the public eye as a predatory practice. Nothing could be further from the truth. The role of agents, to advise consumers and facilitate transactions, remains a critical part of the house hunting process for the vast majority of home seekers. Real estate agents, like other independent contractor professionals across the spectrum of areas of employment, experience great variation from agent to agent and year to year in earnings. Nonetheless, studies conducted by the National Association of Realtors indicate that the average real estate professional in 2018 earned less than $50,000 per year. Like other working people, we work to support our families. Many agents either lack health insurance or must pay for it, at very high rates since they do not get the discounts provided to large companies. This group of hardworking professionals doesn’t ask for special protections. But why should they be subject to government price fixing; will the same be done to other professionals? Do Mr. Powers and Ms. Rivera propose to impose the same parameters on doctors and lawyers?

In short, if we as citizens of New York City permit this imposition of arbitrary limits on our professional relationships with our clients, next it will show up in Houston, or Chicago, or Los Angeles. Regulation of sales commissions will not be far behind. Consumers always have the right NOT to hire us if they believe our fees are too high. Unless they make that decision, we in the industry would prefer that the government stay out of it!

Tagged under: home-purchase, madison, Real Estate, us-lending

About Richard Surek

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