The debate over rebates on real estate commissions took a wrong turn Friday when the NAR published a curiously inept article misleadingly entitled “Crackdown on Buyer, Seller Rebates“.  While the article is devoid of any evidence of any such “crackdown”, it strongly suggests:  1) that on the whole, ”full-service” agents do not participate in rebate programs, and 2) those that do might not serve their clients well.

The first proposition - that establishment or full service agents don’t do rebates - is not true. And the NAR knows that it is not true.

The truth is that the largest real estate franchises in the country provide rebates to affinity groups.  For example, take a look at Coldwell Bankers programs for Harvard professors and the Emergency Nurses Association.  They market this rebate program to businesses and organizations and collect referral fees from their own agents to pay the rebates.  Take a look, too, at Prudential’s marketing pitch for its “Smartmove” and “Home Advantage Real Estate Assistance Program” (HAREAP?)  Not to mention that Cartus, the largest relocation company in the country, previously boasted on its website that it has paid over $100 million in cash rebates to highly paid executives.

As to the second proposition in the article - that agents who participate in rebates somehow won’t do a good job for their clients - that is absurd.

Are we to assume that the Coldwell Banker or other large real estate company agents who provide services to folks like Harvard professors and emergency nurses are “[reducing] the level of service they provide” as the NAR quotes Blanche Evans as saying?

And then there are the rebates to relocating corporate executives from relocation divisions of some real estate giants. Realogy’s Cartus claims “the nation’s leading real estate referral network” through which it provides relocating company executives with “[r]ebates ranging from .35 to .36 percent on real estate commissions in most states.”  Relocation divisions compete for corporate business by offering rebates through referrals. 

Are we to assume that the executives served by these relocation divisions receive bad service because, as Blanche is quoted as saying, the brokers to whom they are referred “[have] to cut back on something to stay profitable, and that is usually labor”? Maybe we should call some of these agents and see if they agree with Blanche.

And then there is that little problem called the Code of Ethics. What Blanche is suggesting is that all of the above agents have broken that first rule of the NAR’s own Code of Ethics wherein they “pledge themselves to protect and promote the interests of their client”. 

The full-service agents and brokers who accept referrals provide their referred clients with the best service they can provide.  Just as they are obliged by law (fiduciary relationship) and by the Code of Ethics to do.  They have the choice not to accept the business if they cannot make money on it.

The NAR article is a fascinating study in misinformation. The purpose is to use any means necessary to cast doubt and fear among consumers about rebates.

The Boston Globe should be upset, too. The NAR article conflates the Globe’s described “rift” between “establishment” brokers and “Internet insurgents” into a “Crackdown” on rebates. (”Crackdown” being a disingenuous term associated with law enforcement actions against criminal enterprises.)

I am sure that Blanche Evans knows the difference between the two types of rebates that are offered to consumers. The first type, offered by companies like Redfin and Zip Realty, offer rebates directly from commissions. This has been a huge problem for a lot of mainstream agents who say that these companies provide less than full service and still walk away with a big check. Some agents are blackballing these companies.

The second type of rebate is a rebate from a referral fee. All of the top full-service companies - “establishment” companies - offer rebates on referral fees as an incentive over the Internet to attract buyers and sellers. Prudential, Coldwell Banker, GMAC, Century 21 etc. are all doing this daily. The Employee Relocation Council boasts of having 140,000 agents who are involved in relocation referrals which often include rebates. We are not talking about Redfin or Zip Realty here. This type of rebate is very much an established practice among full service brokers.

What Blanche is afraid of - and what the big real estate companies she is protecting fear most - is that consumers might start to figure this out. They might ask the question: Why can a Harvard professor or an IBM executive get a rebate from Coldwell Banker but not the rest of us?

There is a lot at stake here. At $61 billion in annual commissions, imagine what would happen to the bottom line of the big real estate companies if rebates on referral fees went mainstream, not just to highly paid executives but also to first-time buyers and everyone else?

This is the big real estate company nightmare.  By my math, it could mean some $15 billion back to consumers and out of the pockets of the big real estate companies. Now, that is a story!

Is last month’s Tennessee legislative strike against consumer-friendly rebates on commissions an aberration or the harbinger of a trend? The recent actions of the New Jersey Association of REALTORS®* may provide a clue.

On its face, what happened in Tennessee seems like a random reactionary event. But perhaps not when you look at what is now going on in New Jersey.

New Jersey is currently one of the eleven states that prohibit rebates.  In October 2006, NJ Assemblyman Patrick Diegnan introduced A3567, a bill carefully crafted to permit rebates to consumers while addressing legitimate concerns about how that should work.

But the New Jersey Association of Realtors® is opposing it. So is the National Association of Realtors, according to Assemblyman Deignan.

The NAR claims that the “industry” doesn’t lobby for anti-rebate laws. So have Tennessee and New Jersey associations been acting on their own?

In its May 14th publication of “NAR Responds to 60 Minutes’ May 13, 2007 Segment - CBS News Magazine Show Misses the Mark“, NAR cited the following among “errors and misrepresentations” made in the broadcast:

Error: The brokerage industry has a powerful lobby. Eleven states flatly prohibit rebates.
Fact: The intent of anti-rebate laws is to prevent kickbacks in real estate transactions, not to limit brokers’ incentives to attract customers. The brokerage industry does not lobby for anti-rebate laws.

(My emphasis.) 

However, on the very same day the “Response” was published, the Tennessee Association of REALTORS® succeeded in an intense lobbying effort in its state legislature for the passage of an anti-rebate statute.  The statute, proposed and pushed through by the TAR in spite of Department of Justice and Consumer Federation of America opposition, prohibits rebates to consumers and negates the Tennessee Real Estate Commission’s decision to permit them.

On May 24, 2007, Inman News reported that J.A. Bucy, TAR’s Director of Governmental Affairs (lobbyist),

“said that the Tennessee Realtor group and the National Association of Realtors ’simply disagrees with the federal government position and actually believes that this particular piece of legislation and this rule that (was) in effect since 1987 has protected both consumers and licensees.’ “ 

(”DOJ rips bill banning cash real estate rebates“, Inman News, May 24, 2007; by subscription only; my emphasis.)

Confused by the apparent contradiction, I called J.A. Bucy.  He pleasantly discussed TAR’s sponsorship of the legislation.  J.A.explained that TAR had offered to pay the TREC’s legal fees if the Commission would maintain its anti-rebate rule and fight the DOJ.  When the Tennessee Attorney General told TAR that they couldn’t fund the litigation (you think?), the group turned to the legislature (and Tennessee’s REALTOR® Lieutenant Governor and Speaker of the Senate).

I asked Bucy about his comment on the NAR’s position on anti-rebate laws.  Mr. Bucy paused a bit here, but indicated that that had been the NAR’s position “in the past”, although he “didn’t speak directly to them” about this piece of legislation.

What’s going on?  Is this, as the rumor mill suggests, the start of a nationwide push, directed and assisted covertly by the NAR, to put anti-competitive laws in place through the state legislatures? 

  
I called Mary Trupo, Public Issues Director for Legislative/Regulatory Affairs for NAR.  When she promptly called me back, I asked Ms. Trupo what NAR’s position is on state anti-rebate laws.  She answered: “We don’t have one.”  Mary said that NAR does not take positions on state matters.  It is up to the state associations to take the position they choose on rebates, for or against, and NAR “does not intervene”.  NAR involvement, she said, is limited to issues on the national level.

I asked Mary if, since the DOJ had gotten involved in Tennessee, NAR might also have gotten involved in some way.   She answered that she didn’t know; that the NAR might have offered “education and guidance” through their legal team, but not a policy position. 

Back to New Jersey. The new law in New Jersey would provide that:

a real estate licensee may provide a seller or purchaser a rebate of a portion of the commission paid to the licensee in a transaction, so long as: the licensee and the seller or purchaser contract for such a rebate in advance; and the licensee complies with any State or federal requirements with respect to the disclosure of the payment of the rebate. The rebate paid to the seller or  purchaser may be in the form of cash or other thing of value, including, but not limited to, a gift certificate, and may be made at or after the closing;…

When I spoke to Assemblyman Deignan, he told me that the bill has had widespread support on both sides of the aisle, but that  NJAR and, he believes, NAR are working against it.  Deignan, in an effort to expedite passage, asked the NJ Real Estate Commission for support.

On April 24, 2007, the NJ Real Estate Commission held a hearing on A3567.  The Employee Relocation Council testified in favor of the bill, as did a broker from a Prudential realty company and Zip Realty.  But NJAR testified in opposition.  Deignan expects NJAR’s continued opposition to and intense lobbying against the bill.

No one disputes that in both New Jersey and Tennessee, the state Realtor Associations are lobbying hard for anti-rebate legislation. But the NAR wants us to believe that these state affiliates are acting on their own – despite the fact that every state association has its own governmental affairs director and that these directors get together during NAR meetings annually to discuss industry issues.

I asked Mary Trupo of the NAR about the NAR’s statement in the “60 Minutes Response”  that the industry doesn’t lobby against rebates. She said that meant that the NAR doesn’t lobby against rebates.

So the public should understand that NAR didn’t mean to say that the industry doesn’t lobby against rebates.  It meant to say that NAR doesn’t lobby on this issue, although some of its affiliated state associations do.

Economists are scratching their heads over an apparently unprecedented situation in the housing market:  a serious decline in the absence of other alarming recessionary characteristics in the broader economy.  While home prices drop and inventories climb, the national economy continues to perk along - more slowly, perhaps, but without grave disruption. This is not the S&L boondoggle and it is not the 1989 collapse.  But what is it?

I’m not an economist and I haven’t collected any statistically sound data, but I can tell you what is going on in what demographic analysts like to call my “cohort”*.  Here’s a common sense analysis.  Do with it as you will.

The Baby Boomers are retrenching. 

Baby Boomers - born to the Greatest Generation between 1946 and 1964 - number about 78 million and are now between 42 and 60 years of age.  According to the results of a survey of Baby Boomers conducted for the NAR and published last October, “[m]ost…were unsure of their financial future, with three-quarters saying they are not financially prepared for retirement and many expressing anxiety about their ability to retire.”  The AARP also reports that Boomers’ confidence in their retirement future is declining.

They got that right. 

The NAR study echoed other analyses that conclude that the Boomers will continue to work well beyond the earlier generation’s retirement age of 60-65.  True enough. However, then-NAR economist David Lereah also concluded that Boomers who “are more likely to stay in the workforce longer … will be less likely to downsize than previous generations”.  And there’s the rub - a dangerous fallacy supporting an unrealistic view of market demand.

Let’s review the Boomers’ situation.

According to the FDIC, among others, we haven’t saved enough for retirement even if we figure in Social Security.  And in case any analysts care, many to most of us don’t figure it into our retirement budgets.  We have absolutely no faith that our politicians have the courage to fix the Social Security system and we therefore cannot rely upon those benefits in planning our future.  Uncertainty.

We don’t know how long we’re going to live.  We do have faith that medical science will continue to increase our life expectancies and we don’t know how much.  Indeed, we have lived through so many quantum leaps in that field that we know that neither we nor the actuaries can accurately predict the impact on our lives of medical miracles to come.  Therefore, planning a savings account adequate to support us by drawing upon it for living expenses is out of the question.  More uncertainty.

We do not have the same sentimental attachment to our homes that our parents had.  Wives and moms have been working outside the home. We have not held the same jobs throughout our working lives and we have not held them in or near our home towns.  We have moved several times (once every seven years is the current average).  We view our homes more as investments than as Little Houses on the Prairie.

Our homes have gotten much larger, increasing from about 1,170 square feet on the average in 1955 to an estimated 2,500 today.  At the same time our families have gotten smaller, and now occupancy rates for those homes have declined from 2.9 people in 1975 to about 2.1 today.  When our parents stayed in their homes on retirement, they retired to much cozier abodes.  

Like our parents, we have wanted the best for our children.  So we bought homes and traded up until we located our flock in the nicest housing we could provide in the towns and suburbs with the best schools.  We have driven the real estate market accordingly:  up, up, up.  

And now fifty percent or more of our family net worth is the equity in houses larger than we will need.

So here we are:  trying to figure out how to plan sustainable lifestyles.  We will continue to work beyond Retirement Age because we are active and also because we cannot afford to retire.  But we will not necessarily work at the same jobs that have supported the big houses in the suburbs and we definitely will not be working so that we can keep those houses and heat and cool them.  We need to create accounts that will earn income for us over an indefinite period of time and the source for such accounts is in the equity in our homes. 

So what is happening to the housing market?  June Fletcher, in a June 19, 2006 article in The Wall Street Journal Online, anecdotally noted that in diverse markets across the country, sales of large homes had declined drastically or stagnated while sales of smaller homes were actually up.  I strongly suspect that this is a national pattern that is hidden by “overall” home sales statistics.  The Boomers are starting to cash in and cozy up.

Yes, Mr. Lereah, the Boomers are downsizing and this trend is just beginning.  

*  I decline to be precise about my age, but it is 50-something.

By a vote of 28 to 0 in the Senate yesterday (2 not voting) and 55 to 4 (one not voting) in the House today, the Arizona legislature has passed the Conference Committee’s version of SB 1291 (originally, the Get Zillow Bill).  And they did everything right.

The Conference version of the bill differs markedly from the amended version that the House returned to the Senate.  A committee comprised of three members of the House and three members of the Senate rewrote the legislation to deal with more than the Zillow issue.

First, they eliminated the original bill’s amendment to the definition of appraisal.  Thus, that definition remains as it was:  clearly descriptive of a real appraisal, rather than the proposed broader definition that would have encompassed any estimate of value by any person using any means.

The Committee also adopted the Reagan amendment to the Bill that rejected an effort to change the composition of the Appraisal Board by creating an absolute majority of appraiser members.

Most importantly, perhaps, the Committee broadened the Reagan “exception” to appraisal-activity-for-which-a-license-is-required.  The new language reads that the law shall not apply to:

A PERSON WHO PRODUCES A STATEMENT THAT IS PROVIDED TO ANY OTHER PERSON CONCERNING THE ESTIMATED VALUE OF REAL PROPERTY THROUGH AN INTERNET WEBSITE, AUTOMATED VALUATION OR OTHER SOFTWARE PROGRAM OR OTHER MEANS OF COMPARATIVE MARKET ANALYSIS AND WHO DISCLOSES THAT THE ESTIMATE IS NOT AN APPRAISAL.

The exception applies, therefor, not only to Internet sites providing free AVM’s, but also to real estate licensees performing comparative market analyses and broker price opinions. 

Why is this important?  On the eve of its anticipated victory in getting the original SB1291 passed before anyone understood what was in it, the Arizona Appraisal Board sent at least one shot across the bow of the Real Estate Commission signalling that it intended to go after real estate agents who were preparing BPO’s (probably for lenders).  The amended definition of appraisal (that could have been read to encompass BPO’s) would have given them the ammunition for a sustained volley.

Why is the ability of real estate licensees to provide estimates of value (with the appropriate disclosures) to consumers and to banks important to the people of Arizona?   Because CMA’s and BPO’s provide more cost effective alternatives to appraisals that are more than adequate for many uses.  Where, after all, do many appraisers go to get market comps and local market information?  Real estate agents.

Not to mention that a Federal banking law specifically permits banks to use “evaluations” (such as BPO’s) in lieue of appraisals in many real estate related loan transactions.  Other state appraisal boards have sought state legislation or made their own rules in defiance of this Federal mandate - and ultimately failed because the Federal law in this area expressly overrules state regulation to the contrary.  But it can result in costly, taxpayer-funded litigation to get to the inevitable result.

We applaud the Arizona legislature for taking a careful look at the Bill that almost got by them, giving it due consideration and then acting in the interests of its many consumers rather than its few appraisers. 

Do any of you have friends in Tennessee?

In a dramatic display of the power of interest group money in politics at its worst, the Tennessee legislature has passed SB1160 as amended on to Governor Phil Bredesen of Tennessee either for veto or for active or passive approval.  The Governor must now decide whether to act on behalf of the Tennessee Association of Realtors and its PAC money or to do the right thing for the people of Tennessee.

Also at stake:  the integrity of the democratic process in Tennessee.  The cynical machinations employed by the bill’s sponsors to hide the real intent of the legislation from public view until its blatantly anti-competitive effects could become a fait accompli is the most disturbing part of this story.

SB1160 (and its House companion, HB2095), a Tennessee Association of Realtors initiative, prohibits Tennessee real estate agents from rebating portions of their commissions to their clients - home buyers and sellers, the consumers of their services. 

The bill is notable in the first instance as a reactionary move against the national trend toward opening up the real estate industry to competition.  But the process - or lack of process - used to get this piece of anti-consumer legislation passed in order to pay back the TAR for its campaign contributions is absolutely shocking.

TAR proudly announces on its Web site that:

“In the 2006 election cycle, RPAC disbursed over $216,000 in direct contributions to state candidates, making RPAC the number one trade association PAC in Tennessee.  ….

RPAC helped to elect seven REALTORS® to the 105th General Assembly.  They [include] Lt. Governor and Speaker of the Senate Ron Ramsey (R-Blountville), ….”

(Emphases mine.)

Now for the quid pro quo.

On February 8th and 15th of 2007 bills bearing the numbers 1160 and 2095 (the “Bills”) were introduced into the Senate and House respectively.  The bills as filed read:

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:      

SECTION 1.  Tennessee Code Annotated, Title 62, Chapter 13, Part 2, is amended by deleting s. 62-13-204 in its entirety and by substituting instead the following:                              

Section 62-13-204.  Nothing herein shall permit the commission to set fees or commissions for real estate contracts or transactions.

SECTION 2.  This act shall take effect July 1, 2007, the public welfare requiring it.   

The Bill as filed would have amended the Tennessee statute (Section 62-13-204) that prohibits the real estate commission from price-fixing.  As stated in the legislative description posted on the official Tennessee legislative Web site, Commissioners violating this law would no longer have their licenses to practice real estate brokerage taken away:           

*SB1160 by *Black, *Kyle, *Finney L. (HB2095 by *Maddox, *Casada, *Sargent, *Coleman, *Briley, *Litz.) 

Real Estate Agents and Brokers - Eliminates loss of license as punishment for real estate commissioners setting fees for contracts or transactions. - Amends TCA Title 62, Chapter 13. 

While the Bill as filed is not exactly in the public interest, there is nothing in it that would seriously alarm consumers or consumer groups or alert reporters that a more serious issue of public interest had been raised.  And so it remained for almost three months as the Bill behaved normally to all appearances. 

On May 1, 2007, SB1160 went to the Senate Committee on Commerce, Labor and Agriculture.  On that day the CC,L&A “amended” the bill and recommended it for passage.   The “amendment” was in fact an entirely new piece of legislation.  It deleted the substance of the original SB1160 in its entirety and substituted a new act directed at amending a completely different section of the real estate licensing law:

Amendment No. 1 to SB1160         Southerland, Sponsor           AMEND  Senate Bill No. 1160                                      House Bill No. 2095 by deleting all of the language after the enacting clause and by substituting instead the following:        
SECTION 1.  Tennessee Code Annotated, Section 62-13-302, is amended by designating the existing language as subsection (a) and by adding a new subsection thereto, as follows:              

(b)  A real estate licensee shall not give or pay cash rebates, cash gifts or cash prizes in conjunction with any real estate transaction. …. 

(My emphasis.)
 
Eight of the nine members of the Senate Committee that replaced the Bill (that had been publicly pending for three months) with this new legislation had received TAR PAC contributions in the last two election cycles.   

Six days later, on May 7th, with no further consideration on record, the Senate adopted the “amendment” and unanimously passed the Bill. Twenty-six of the 31 senators voting (that’s about 84%) had received TAR PAC money, directly or through PAC-to-PAC contributions, in the last two election cycles. 

The following day, May 8th, the House Commerce Committee considered the Bill for the first time and recommended passage if amended as in the Senate.  All 27 of the 27 members of the House Committee (that would be 100%) had received TAR PAC money as had their Senate counterparts in the last two election cycles.
 
On May 12th, the United States Department of Justice sent a letter to the Tennessee House Speaker Naifeh strongly urging the Tennessee House to reject the legislation because it will “cause serious harm to the competitive process and home buyers and sellers in Tennessee.”  

Nonetheless, when the new legislation was presented to the House for a vote on May 14th, it was passed after a “swift…debate.” 

Four members were concerned enough to abstain, with Representative Lynn expressing concern over the DOJ’s letter.  Of the remaining 94 who voted in favor of prohibiting rebates to consumers, 89 had received TAR PAC or PAC-derived contributions in the last two election cycles (95%).

The now-anti-rebate law returned to the Senate where, on May 16th, Lt. Governor and Senate Speaker Ron Ramsey, a REALTOR® and TAR candidate, promptly signed it.

A total of 14 days from May 1st to May 14th for passage.  It was not the Bill that was publicly filed.

Why this strategy of deliberately sneaking legislation through, of misleading the public as to the content of legislation?  To avoid public scrutiny and debate; to avoid reasoned deliberation by fellow lawmakers who are not knowledgable about the industry seeking protection; to cheat the consumer.

Why avoid scrutiny and public debate?  Because the reasons put forth by the TAR in support of the measure cannot withstand any amount of responsible investigation and consideration. 

Governor Bredesen:  veto this bill and send it back to the House and Senate for an open and public debate.  Let the people of Tennessee - the consumers who stand to lose and have not been paid by the TAR PAC in compensation - to be heard. 

(Hat tip:  Nick Davis)

Redfin announced its arrival in Boston Thursday after a trip to the Hub (of the Universe, that is) to touch base with some of the natives.  Glenn Kelman, Cynthia Pang (Redfin’s Senior Communications Manager) and I met for coffee on Tuesday during their visit.

I thoroughly enjoyed our conversation.  Glenn is smart and forthright.  He looks you in the eye and listens.  These are  qualities that will stand Redfin in good stead here. 

Yankees are direct (Californians think we need therapy), independent and cheap (and, yes, proud).  These consumer qualities will also stand Redfin in good stead. 

We know that some agents and some of the large franchises are hostile to Redfin and its business model.  Some angry agents may be tempted to behave badly.  Please don’t.  Refusing to show houses to Redfin buyers or take your buyers to Redfin listings hurts your clients and violates your duty to them - never mind the legal issues.  And to what end?

Redfin represents change in the real estate industry.  Throughout history, those who attempt to suppress change driven by popular perception have been relegated to the past.  This is not a battle traditional agents can win by combative strategies.  Success in the 21st century will depend upon understanding and accepting consumer drivers and creating new approaches that respond to them.

In other words, compete, don’t wage war.

This is not about what agents think is “fair”; it’s about what the consumer thinks is fair.  The costs you bear, particularly if your commissions are paying the huge corporate debts of a major franchisor, are not a consumer concern.  You are still asking them to pay you 5-6% of their major asset - and keep in mind that this is a much larger percentage of their actual equity in their major asset.

Redfin uses new technology to provide a choice for certain consumers.  What’s wrong with this?  When you go to a car wash, you may choose to pay to have your interior cleaned, or you may wish to save the money and clean it yourself.  Do you worry about whether this is “fair” to the workers employed there?  Would you like to be told you must let them wash your interior if you want any services at all?  How about a state car wash board governed by owners of car washes passing regulations that require that for your own good, you must accept all services a car wash can provide or wash your car yourself?  How about the manufacturers of turtle wax agreeing that they will provide car cleaning supplies only to licensed car washes?

Can you view this like a consumer?  If you can’t, there is no hope for you.

We welcome Redfin because they represent an attempt to respond to consumers, to give consumers an option. We deplore any activities directed at depriving consumers of this choice. 

So, Redfin, welcome to Boston.  If you can learn to drive, you’ll probably do just fine.

ps- it’s the “T”, not the “subway”.

With any luck, the work done by Greg Swann in “hounding” the Arizona Republic about the imminent passage of S.B.1291 will at least give you pause that you might use for reflection.  Do you really want to pass a law that in all likelihood will cost Arizona’s taxpayers hundreds of thousands of dollars in legal fees?

There is a solution:  amend the bill.

The Appraisal Board’s representative apparently maintains that the legislation only “updates” the law.  Not exactly.  The existing definition matches that used by the Federal banking regulators.  It’s quite up to date.  However, the USPAP definition that S.B. 1291 would adopt permits appraisers to provide AVM’s as long as they comply with a de minimis set of USPAP guidelines. 

USPAP, however, leaves room for non-appraisers to provide “valuations” that are not “appraisals” and are not performed by appraisers.  By failing to “update” fully to incorporate the entire USPAP framework, S.B.1291 would permit evaluations (like Broker Price Opinions and AVM’s) but only if they are performed by appraisers.

Amendment #1:  add the USPAP definition of valuation services or leave current “valuation” definition in 32-3602. “Valuation Services” are defined as “services pertaining to aspects of property value”, and further defined by the Comment that: “Valuation services pertain to all aspects of property value and include services performed both by appraisers and by others.”  Or leave it as is.

Extraterritoriality.  This really passed your review for constitutionality?  Which Constitution was that?  No one who is not an Arizona licensed appraiser can estimate the value of Arizona property?

Amendment #2:  delete the additions of “real property in this state” from 32-3603.

And finally, do you really think it seemly or wise to reduce the number of non-appraiser board members while increasing the number of appraisers on the board to an absolute majority?

Amendment #3:  decline to adopt the proposed amendments to 32-3604.

Appraisal boards, indeed all interest groups, like to argue that protectionist legislation is in the interests of the public.  In this case, loan “fraud” has already been raised in defense of the legislation.  If it is not obvious to you that banks don’t use Zillow and similar AVM’s for loan underwriting, then you should consult the commentary to the FIRREA regulations.  Appraisers submitted thousands of comments to the banking regulators claiming that permitting evaluations in lieu of appraisals would lead to more mortgage fraud.  The Federal banking regulators, after reviewing extensive data from earlier debacles, rejected this argument without qualification.

Permit me to respectfully suggest that without a similar investigation and different results, you should reject this argument as well.

Don’t ask your taxpayers to pay the tab to defend a losing battle to protect Arizona’s appraisers from change or from competition.

When the Arizona Republic reported last Friday the 13th that “an Arizona regulatory board has ordered Zillow.com to stop offering its online estimates of home values”, the chatter was intense but generally short-lived. How much can you say about such a bonehead move?

It was curious, however, that the Republic announced the Arizona Appraisal Board’s issuance of a July 2006 cease and desist letter and an October 2006 cease and desist letter to Zillow as though the actions were news (”[t]he Arizona Board of Appraisal has issued two cease and desist letters to the popular real estate Web site, claiming Zillow needs an appraiser license to offer its ‘zestimates’ in Arizona”).

Zillow had continued to Zestimate for nine months in open defiance after the order to stop went out and the Board remained mum. Why leak the enforcement action now and not then?

Well, aside from the more intriguing issues of Constitutional law that arise (and the clear distinction that the Appraisal Institute draws between AVM’s and appraisals in its Advisory Opinion 18), the Board’s position is unsupportable under its own state appraisal law. Doomed to humiliating failure - a good reason to keep quiet then.

What has changed? The Arizona state legislature is on the verge of passing S.B. 1291 to rescue the Board from its own capricious misapplication of the law it is charged with enforcing.

Like many states, Arizona’s existing appraisal law distinguishes between “appraisals” and “valuations”. An “appraisal”

means a statement independently and impartially prepared by an individual setting forth an opinion as to the market value of real property as of a specific date and supported by the presentation and analysis of relevant market information.

Is this what a Zestimate is or purports to be? No. Clearly, not.

A “valuation” under existing law, on the other hand, is “an estimate of the value of property.” Like a Zestimate or any of the hundreds of other automated valuation models available on the Internet. But not an appraisal.

Furthermore, existing Arizona law only prohibits unlicensed appraisals prepared in the state of Arizona:

All real estate appraisals and appraisal reviews performed in this state shall be performed only by individuals licensed or certified in accordance with the requirements of this chapter. [My emphasis.]

Therefore, under existing Arizona law, Zillow does not provide “appraisals” and even if they did, the Seattle company does not perform them in Arizona. Yet the Arizona Appraisal Board ordered Zillow to stop providing its estimates and referred the matter to the Arizona Attorney General for criminal prosecution on the grounds that Zillow was illegally providing appraisals.

Then somebody with a brain read the law.

S.B. 1291, introduced on January 24, 2007 and passed by the Senate on March 5th, attempts to provide a legal basis for the Board’s position. It would broaden the definition of “appraisal” and delete “valuations” (blue highlights denote added language):

1. ‘Appraisal’ or ‘real estate appraisal’ means a statement independently and impartially prepared by an individual setting forth an opinion as to the market value of real property as of a specific date and supported by the presentation and analysis of relevant market information any of the following:(a) the act or process of developing an opinion of value. (b) An opinion of value.(c) Pertaining to appraising and related functions such as appraisal practice or appraisal services.

….

22. ‘Valuation’ means an estimate of the value of property. 21. ‘Value’ means the monetary relationship between properties and those who buy, sell or use those properties.

And my favorite section: S.B.1291 would make it illegal for anyone (anywhere) to “appraise” (as defined by Arizona) an Arizona property without an Arizona appraiser’s license:

32-3603. License or certificate use; exception

A. All real estate appraisals and appraisal reviews performed on real property in this state shall be performed only by individuals licensed or certified in accordance with the requirements of this chapter.

If this bill passes, and if the Arizona Appraisal Board uses it to ban non-appraiser operated AVM’s (the Board gave a pass to ValueNet, but ValueNet employs appraisers), it will need to prohibit them all - not just the ones that threaten their members’ businesses.

The listings/MLS war has from the beginning amounted to nothing but a costly diversion.  It has further damaged the reputation of the real estate industry in the eyes of the public for no possible long-term benefit.  Why?  Because it’s not about a truly valuable proprietary commodity created by real estate agents; it’s about data in which real estate agents have no exclusive rights.

The news of Zillow’s new features has been the topic of the week.  Brian Brady and Greg Swann, among many others, have made inciteful analyses of what these features do and might mean for the real estate agent industry.  My simple observation is that Zillow has expanded its data collection capabilities to capture all information that listings contain and more.

So what?  Well, what’s in a ”Listing”? 

• public information (e.g., tax assessors and registry of deeds records)
• information provided by the owner
• information available by “walk-through” observation
• photographs
• cooperating broker “offer”
• days on market and price reductions* (sometimes) 

Zillow already has - or can get - the public information.   This fuels the Zestimate AVM.  It is the same information that the agent uses (or should be using) for the Listing.

Zillow has for some time enabled the owner to provide the same information that the owner would provide to the agent and the agent would put in the Listing.

As for information available from a walk-through, the owner may be the least reliable reporter but the agent is also unlikely to reveal the rat infestation, the mole devastation or the hot pink shag carpeting in the Listing.  But the neighbors?  Yes, they might literally rat.  They may also compliment. (Will this have the unintended consequence of promoting good neighbor behavior?) 

Photographs?  In there.

Zillow’s new features, particularly the Q&A, provide for collection and distribution of the fee offered to buyers’ agents and the days on market and price reductions.  Hold that thought for a minute.

Everything that’s in a Listing.  So if you didn’t get it before, are you getting it now?

It has annoyed me the consumer for years that agents say they “own” the Listings.  When “Listing” is used to mean a written agreement to sell, ok.  When it means the form that contains information obtained from the city offices and from me and access to my property, I object.  The agent may have copyright rights to his or her particular compilation, but not to the information upon which it is based.

And the laws that have been enacted, construed and/or enforced in an attempt to prevent me or anyone else I choose from publishing my information about my property and the fact that I want to sell it are a travesty.  I want my mother-in-law to tell her garden club that my house is for sale.  Does she really need a real estate license to do so if I have given her permission to distribute my data? “Assist to procure”, humbug.

So, you see, Zillow is effectively shaking the data free from the Listings war.  Brilliantly, I might add.  I think they obtained licenses in so many states not because they plan to operate as a brokerage, but so that they could avoid the endless delays and expense that could be expected as broker-controlled real estate commissions across the country tied them up in administrative and court proceedings over unlicensed ”brokerage activity”.  Not that they wouldn’t eventually win - just that their cost-benefit analysis tipped in favor of licenses.

Now those licenses serve as an umbrella to open the free exchange of real estate information.

Are you getting it? 

The future of the real estate industry is not in the exclusive control of information that doesn’t belong to it.  It’s in services. 

*Debate all you want about whether consumers “should” have this information.  As the buyer, my assessment of what information is material to my decision trumps yours.

If every new real estate business model and every new Internet-based real estate information distribution enterprise can be called “disintermediation”, then every pro-”establishment”, traditionalist complaint about them can be called antidisestablishmentarianism, right?

Why do so many yell ”disintermediation” at the new business models and information services that come down the real estate pike?  It’s a scarey word, if you know what it means.  And it’s not accurate.

“Disintermediation” means “cutting out the middleman.”  (See, Barron’s on answers.com.) Strictly speaking, applied to real estate agents in the real estate transaction, this would mean cutting agents out of it. 

Scarey.  Is that what Trulia and Google and Yahoo and Zillow are going to do?  Eliminate agents?

“Efficient“, on the other hand means “being effective without wasting time or effort or expense”. 

Is there wasted time, effort or expense in pursuing “traditional” real estate brokerage models given the technology now available?  Yes, there is.  Can Internet-based information distribution and new models make agents more efficient?  Yes, they can.

An example:  my own experience as a buyer six years ago.  I was transferred to California from Massachusetts.  Two California agents showed me 36 houses in four days.  If I had had access to those listings along with the tools now available on the Web, I would have looked at six.  If I’d had the addresses to do a drive-by first, I would have visited only four.  If I could have gone first to look at the houses alone, I’d have dragged my agent to only two.  I bought one of those.

The agents who escorted me added nothing to 34 of those 36 showings.  Once I was serious about two houses, and while buying one, my agent was invaluable.  (In fact, my agent was a lifesaver throughout my move.)

What should be considered wasted (read “inefficient”) given today’s tools? My agents’ time and effort for 34 showings; sellers’ agents’ time and effort and my time and effort for 32 showings.

Multiply that by multiple “me’s” and that’s a lot of wasted time for agents and a lot of wasted time for consumers - time that can be saved because of information available on the Internet.  It doesn’t take the agent out of the transaction at all. 

The new information technology and the new models can save agents time and effort because their customers and clients can use their services when - and only when - their skills matter.  For the industrious, time and effort mean money.  It can be spent on servicing more clients.

So be careful when you hear that something new, something different - change - is “disintermediating” you.  Don’t let the antidisestablishmentarians scare you.  Embrace new ways, use them and thrive.