The Gods Must Be Crazy

The Illinois General Assembly is now considering HB4313, a bill that would make it illegal for any licensed real estate agents to “give or pay cash rebates, cash gifts or cash prizes to an unlicensed person who is a party to a contract to buy or sell real estate.” This would make it illegal for Redfin or any other broker to refund a commission to a buyer, even though the buyer is the ultimate source of the money from which commissions are paid.

Eleven other states support similar laws, which explains why Redfin hasn’t responded to our many requests to expand to the Portland, Oregon real estate market. The Illinois bill is worrisome to us because of our plans to open a Chicago real estate office this spring (already delayed slightly by a merger of two Illinois listing services).The Coming Storm

In most political disputes, it is at least possible to imagine the rationale of either side. But we have never been able to concoct a plausible reason anti-rebate laws are conceivably in the public interest; perhaps our commenters can help? Recent legislative battles in New Jersey and Tennessee put the lie to my original assumption that the current laws must have been an artifact of an earlier, corrupt age. And every progressive Realtor opposes the laws. After grousing about 60 Minutes’s description of its lobbying efforts, even the National Association of Realtors has been at pains to distance itself from the ardent efforts of its state organizations to lobby for anti-rebate laws.

But if it’s hard to imagine how these laws serve the public, it isn’t hard to imagine how they serve their sponsors. Representative Robert Molaro introduced the Illinois bill on January 9, with support Tuesday from Representative Franco Coladipietro and today from Representative Angelo Saviano. In his 2006 campaign, Representative Molaro received four donations from the Illinois Realtors Association; for the same campaign, Representative Saviano received seven donations from the Illinois Realtors Association.

If you live in Illinois, let your representative know how you feel about these laws! Representative Saviano already offers his email address to the public: skip@skipsaviano.com.

(Photo credit to Jeff Holmes (no longer active on Flickr). We included it just because it looks cool.)

Discussion

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  • http://www.phoenixrealestateguy.com Jay Thompson

    “But we have never been able to concoct a plausible reason anti-rebate laws are conceivably in the public interest”

    I’ve got no plausible reason for you.

    Probably because it’s difficult to wrap one’s arms around something so fundamentally stupid.

  • http://varbuzz.com Ben Martin, Va Assn of REALTORS

    Glenn, it’s inaccurate to paint all state REALTOR associations as being in favor of anti-rebate laws as you have in this post. In Virginia, VAR advocated for laws protecting consumer choice and permitting rebates. As a result, Virginia gets a clean bill of health from the DOJ for its consumer-friendly real estate laws. See: http://www.usdoj.gov/atr/public/real_estate/virginia.htm

  • http://mikecandoit.com Mike

    Rebates are fine in my opinion as many states have it and it seems to work. But what are some plausible reasons?

    Cosco’s real estate division is not in Oregon because of the rebate law. Which would do nothing to help the consumer.

    Many lead companies, who really produce nothing, would benefit.

    The real cure. Sellers pay for their agent and the buyers pay for theirs. But no one wants to talk about that.

    So until that happens we will be in the middle of these debates about a broken system.

  • Mark Reitman

    Glenn,
    I have telephone and/or email messages to all three sponsors, my own representative and the five members of the Rules Committee where the Bill now sits. It will be interesting to see if I get any responses, especially from the sponsors and, if so, what they propose as their rationale for a seemingly anti-consumer bill (none of the District office managers had any insight, although they were all very nice)

    I’ll keep everyone updated if/when I hear anything.

    Mark

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    Mark, thanks for the update. We really appreciate all of your efforts. Regards, Glenn

  • Mark

    This is a response to a colleague of mine; from the Assistant Director, Legislative and Political Affairs, for the IAR:

    “Thank you for your recent inquiry. At the Public Policy meetings held in Bloomington in late January, the IAR took official action to OPPOSE HB 4313. As you are well aware, the General Assembly has not been in session in recent weeks due to today’s Primary and so no action has occurred on this, or any other legislation. In fact, HB 4313 is still in the House Rules Committee. Under the rules of the House, the Rules Committee determines if the bill will advance at all in this legislative session. The Rules Committee can either hold the bill or assign it to a substantive Committee where it will require a hearing- I can assure you that the IAR will actively work against the bill. Also we will keep you apprised of any action on this or other bills of interest in the IAR legislative newsletter, Quorum Call – Week in Review, that is e-mailed each Friday that the General Assembly is in session.

    My colleague, Greg St. Aubin, has worked more extensively on the issue and should you have specific questions I would direct them to his attention (gstaubin@iar.org).

    Again, thank you for taking the time to express your concern with this important legislation.”

    While I have doubts about the veracity of the statement that the IAR opposes the bill, I’ll withold judgment until we get more information (although, wouldn’t that be a pleasant surprise?).

    More to come(?)…

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    It seems to me that we should take the statement at face-value. If the Illinois Realtors oppose the bill, it seems unlikely to pass. Thanks for the update Mark. This is great!

  • Mark Reitman

    For those interested, here’s an update on HB4313:

    It was assigned to Judiciary I Civil Law Committee, on Wednesday. There is a hearing scheduled for next Thursday, the 24th, on the Bill.

    Besides the IAR’s stated opposition, the Department of Justice has voiced its own strong opposition, as have multiple consumer groups, including the AHGA and CFA…

  • Mark Reitman

    Re: Above – Oops! The 21st. This spring fever must be getting to me. After all, it is up into the 20′s here.

  • Mark Reitman

    Glenn,
    I have a little more insight from the IAR’s weekly newsletter on government issues.

    With regard to the question of the rationale and how this anti-rebate legislation can conceivably be in the public’s best interest, it isn’t. In fact, neiher the initiators (the “Homeowners Club of America”), nor the sponsors, even pretend that the public’s interest would be served. The legislation, according to the HCA’s own written material, is aimed at “west coast brokers attempting to change Illinois commission structures”. This ‘rationale’ was repeated to me by Rep. Molaro’s office. One of the other sponsors gave me a different lame argument, while acknowledging that the consumers’ rights were akin to the “baby being thrown out with the bath water”. But tough, um, cookies, anyway. All in the name of Commission Protectionism.

    I do, though, find ironic humor in an initiative put forth by the “HOMEOWNERS” Club which is clearly AGAINST HOMEOWNERS (and potential homeowners), in favor of its member/agents (www.hca-il.com).

    On the bright side, the IAR has officially adopted a motion to oppose the Bill. Among the concerns it has expressed are:

    “1) The bill seeks to prohibit a legitimate marketing tool that REALTORS may wish to use as part of their business plan;
    2) The bill places REALTORS at a competitive disadvantage versus other marketers of homes who would be able to offer cash rebates or incentives, such as homebuilders;
    3) The bill gives the appearance that this is an attempt to stifle competition in the marketplace, to the detriment of the consumer;
    4) The bill will invite claims by the U.S. Department of Justice and others that Illinois is attempting to fix the cooperating broker’s commission and to create a non-competitive environment.”

    So, they do seem to get it. Hopefully, by Thursday, most of the House will…

  • http://www.flexcom.ca dave davidson

    Could it be that when rebates are given to consumers that the state governement is not getting paid their tax portion of the rebates. I assume that if one gives a rebate to a buyer that the buyer must declare income at tax time.

  • http://www.capgem.com Eric Cunliffe

    Heaven save us from legislators that have no clue about issues that they attempt to pass laws about. In a real estate market that needs all the help it can get how on earth can these people justify such anti-consumer attitudes. I’d like to think that it is just plain stupidity and that it is not a reflection of the States desire to join such other uneducated anti-consumer states such as New jersey where rebates are banned in the name of consumer protection. Give me a break – these are participants in the transaction that are directly or indirectly paying our fees anyway.
    In repsonse to Dave, the Realtors(R) are in fact paying taxes on their entire commission and the consumers are not receiving income but merely a reduction in the cost of their fees regardless of whether they are buyers or sellers so the State should have no beef with that.

  • http://www.HomePerks.com Brian

    This appears to be rescheduled:
    Civil Law Committee Hearing Mar 5 2008

  • Mark Reitman

    The Bill was not called for its hearing today. Next week is the deadline. If they don’t call it then, it’s dead (according to the IAR). The IAR believes that the main sponsor, well aware of its and the DOJ’s opposition, is trying to amend the bill to make it more “passable”. However, the IAR does not believe any amendment would remove its opposition.

    Looks like, sometimes, even the Gods must answer to a Higher Power.

  • Fred

    I’ll just throw this out there and see what kind of reaction comes from it.

    Possibel Rationale: The essence of mortgage fraud is that the transaction is in some way altered in a way that is disadvantagous to the lender(s). Now I know that everyone hates lenders because they try to attain that dirty “profit” word, but is it fair to ask a lender to bear the burden of kickbacks in a transaction. The idea is this: rather than writing the buyer a check, reduce the financed portion of the loan. I know that would mean that the buyer can’t run out and buy that new TV (or car depending on the size of the sale), but when things come crashing down in a foreclosure the bank is left holding the bag on that new TV. The consumer gets to keep the “kick-back” money and the lender is left with an over inflated loan on a property. Mortgages are meant for and should only be used to finance houses, not kick-backs. For those that care, that is what the proposed law is about, albeit an overreaction to the situation.

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  • Atlanta

    The only part of Fred’s statement I agree with, is this that HB 4313 is an over-reaction, an in my opinion, mostly from Real Estate Licensees who want to keep the status quoe.

    Just for clarification, in most cases, those of us who offer rebates, negotiate just as hard as any other REALTOR to assure the client gets the best price and terms.

    There is no need to inflate the price. We do more deals, and work more sophisticated clients.