Fighting Illini (Anti-Rebate Bill "Crushed")

A bill introduced by the Illinois legislature to outlaw refunding real estate commissions to consumers, which we complained about last month, finally died today. An obscure group called the Homeowners Club of America had supported the bill as a response to “West Coast brokers attempting to change Illinois commission structures.” Since the bill came just as Redfin was planning to enter the Illinois market, we wondered if we were the primary target.

The U.S. Department of Justice applied behind-the-scenes pressure, and the Illinois Association of Realtors, which we had earlier assumed would support the bill, openly lobbied against it. Several delays, and eleventh-hour modifications (some made as recently as last night) to require only that brokers show a property before claiming a commission on behalf of a client, were not enough to save the bill. In the words of one Redfin correspondent, “the bill was crushed” in the Illinois legislature’s Judiciary Committee. It didn’t even get a motion.

Hooray! And thanks to the Illinois Association of Realtors, and to Redfin reader Mark Reitman for taking the fight to Springfield. Illinois, here we come!

Bonus link, from our devblog: why Redfin chose Bricolage.

Discussion

  • Fred

    Why even have real estate agents anymore? You’ve reduced all barriers to entry for your industry so that the slime of the earth can hop in and make a quick buck. Heck you can’t even pass a law mandating a minimum level of service be providing to unsuspecting consumers in the midst of the worst market downturn this country has ever seen.

    Anybody who is breathing can get a license, and in the name of the competitive marketplace and alternative models, all laws upholding any sort of protection for the consumer are squelched.

    Glenn you forget yourself in those whole frenzy, agents should be fighting for what is best for the consumers not their own personal business models. No sir, this is a sad day for your industry. You had an opportunity to finally pass some legislation that would protect the general public and you pushed it aside so that you could continue to make money.

  • Mark Reitman

    Fred, there are, in fact, already minimum service laws in Illinois, not only for the purpose of protecting the consumer, but also to protect the ‘other’ licensee in any transaction. The sole purpose of the anti-rebate bill was to protect “full” commissions by limiting the choices of consumers, which clearly is not in their best interests. So, in this case especially, the interests of any alternative business model and consumers are in line.

    Glenn, thanks for the props. I’m sure you’ll take Chicago by storm!

  • Fred

    Mark,

    Why not have one that stops kickbacks which artificially inflate mortgages? It seems reasonable to me that banks should be given some protection since they are carrying a fairly large load in this recent mark downturn.

    Concept: Mortgage are to finance houses, not kickbacks to buyers. If you want to give the buyer something back, reduce your commission at the time of offer and rather than offer the buyer a kickback, negotiate a lower sales price based on the reduction of your commission. This way banks aren’t left holding the bag when the mortgage forecloses and the kickback was spent on a week in Maui and a new car (which the bank doesn’t get in the foreclosure, but had to finance anyway)

  • http://www.HomePerks.com Brian

    Fred:

    I don’t really think you have an axe to grind here. The existing paradigm of real estate commissions do not effect market valuation and have in no way caused the current mortgage crisis. Brokerages that offer rebates/discount in no way contribute to the problems you allude to in your last post. If anything, these companies are part of the solution and not the problem. This bill was introduced to prevent changes in the existing commission paradigm and in effect keep seller costs 2-6% higher. Companies that try to change the six-percent rule are working to create a paradigm shift to help an imperfect situation. Your angst is a little misdirected because the defeat of this bill is clearly pro-consumer.

  • http://www.HomePerks.com Brian

    BTW – I think Illinois Association of Realtors rocks for having stood up to a state bill that won’t in any way help the woes of our industry. This would have hurt agents/consumers regardless of the name on the for sale sign. Truth be told, I’m looking forward to seeing some cool Redfin signs in Chicago.

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  • Jeff Carter

    “…This bill was introduced to prevent changes in the existing commission paradigm and in effect keep seller costs 2-6% higher….”

    Brian,

    I can see why you are a supporter here. Your company directly benefits from the failure of this bill. It isn’t a stretch for me to understand why you would be against such legislation since it would directly effect your bottom line.

    Speaking of keeping commission rates artificially high. What valuable service has homeperks provided to the real estate transaction? If an agent wanted to discount their commission they can’t now because companies like your put up a website, capture their friends, family, and past clients and then turn around and sell them to the highest bidder. Frankly my friend, part of the real estate commission “problem” is websites like HomePerks.

    I have no problem paying for a legitimate service, but when all you have done is thrown out a net, (website) caught a few names, (unsuspecting consumers) and then sold them to the highest bidders (Rookie agents who have no other source of income), you have done nothing but inflate the cost of doing business, not helped shift the paradigm.

  • http://www.HomePerks.com Brian

    Jeff:

    I’m against the bill for several reasons:

    1) The State of Illinois should have no say in determining the level of real estate commissions, commission rebates or discounts.

    2) Bills such as this are anti-competitive and in light of the market, just plain dumb.

    3) There are plenty of other reforms that would be beneficial to the consumer and professional. As an IL state taxpayer, I’d like Springfield to work on more important issues…our defunct budget would be my first choice.

    As for HomePerks, we help professionals build loyalty with their existing consumers using a rewards model similar to those found in the airline, hotel and retail industries. For more than 25 years, loyalty programs have helped companies reduce their marketing costs, increase revenues and create brand loyalty. We are NOT part of the transaction, but rather a new form of marketing and social media. We are no more a “problem” than Newspaper, Signage or closing gifts. We do not sell relationships (leads), but help professionals nurture them beyond the closing table for repeat business and referrals.

    Despite your impression, we work to deflate the cost of doing business for real estate professionals. I’ve been in the real estate business as an investor, academic, developer, brokerage owner and marketer for nearly 15 years. Over that time, I’ve seen consumers become more and more disenchanted with traditional brokerage models. We are working to help all professionals engage customers on another level to help grow their business; not get a piece of their bottom line. You should check us out. We’re launching a new site in a few weeks that can help even the best brokerages (even JLS) build loyalty and grow their business.

  • Fred

    Brian:

    1. Fact: the text of the bill did not say anything about commission. The bill would amend the current law to add the following. “No licensee shall 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.”

    2. Since when do we measure the competitive nature of the market by who is able to give the biggest gift. I would argue that allowing these practices to continue only harms the consumer. An unsuspecting consumer will now make their decision based on who gives the greatest rebate and not based the best service at the greatest value. We are in essence auctioning the real estate business to the largest companies that can afford the largest kickbacks. Business is now being bought by the highest bidder. How is that pro consumer?

    And if this is the model that will continue into the future how will we ever see a reduction in commission rates as a whole. If the pressure is on buying the largest portion of the business, how will consumers ever see a reduction in the rates paid if realtor have to keep increasing their costs in the transaction just to compete? I don’t see any downward pressure here, I only upward pressure.

    3. I can’t help but complete agree with you on point number three. There are more important things out there to work on. This bill however worked in the consumers and the mortgage industry’s best interest. It is a shame that it didn’t

  • http://www.HomePerks.com Brian

    Fred:

    I love to beat a dead horse, so I’ll make a few more comments on the issue:

    1) Commission rebates have long been a tool that agents use to regulate their commission. The bill was introduced to prevent this control and therefore affect the commission rate.

    2) I’ll pose a couple rhetorical questions to you:

    - Does an auto company that offers cash back rebates, 0% interest rates or “gifts” (Ford’s laptop, VW’s guitar, etc) rely solely on these tactics to sell cars? Does it de-value or overvalue their cars? Ofcourse not, but they are successful.

    - Does an airline, hotel, bank or grocery chain that offers rewards points rely soley on these tactics to drive their business. Do the points make the plane go faster, the bed any softer, the teller any friendlier or the fruit any fresher? The costs associated with these marketing programs are are usually less than other marketing efforts.

    - Why do mortgage lenders have differing loan rates for the same customer/credit score since the rates are a derivative of the Fed? Do you think we should kill competition here too make home loans them Prime + based upon credit score?

    This is about Marketing. It shouldn’t be mandatory nor outlawed.

    3) I’m glad we agree on something.

  • EastsideRE

    Having used both a full service/full commission buyers agent and Redfin to purchase homes, I couldn’t disagree with “Fred” and “Jeff” more. I don’t need you or the government to “protect” my interests or dictate where or how my money can be exchanged for services.

    My experience, and I imagine that of many others, is that buyers agents often steer consumers to their own listings. I also find that I end up doing more research on schools, homes values, market trends, etc. than the so-called expert representing me.

    If I am willing and able to do my own research and leg work why should I not be able to get a rebate or discount since the company I am using won’t have to provide that part of the service?

    There are many educated and informed buyers like me that want an honest party to represent them in a purchase with out all of product pushing.

    Why are agents so mad about Redfin coming to town? Seems to me they bring in more buyers at a time when many open houses look like ghost towns. My guess is that agents really haven’t had to work that hard for the 3% on the buyers side.

    I am sure that listing agent (and her managing broker) that sold the house I just bought didn’t mind getting her 3% on a quick transaction with a preapproved buyer that CLOSED around six weeks from the listing date. My advice to full service/full cost agents either offer better service that actually meets the needs of consumers or get out of the way of those that can. And don’t try to use unfair laws to protect your outdated business model.

  • GUESSE WHOO

    Personally, I can’t wait until REDFIN comes top Chicago, and CRUSHES the Realtors (a.k.a. CROOKS) here.

  • GUESSE WHOO

    “Agents USUALLY steer consumers to their own listings. I also find that I end up doing more research on schools, home values, market trends, etc. than the so-called expert representing me.”

    Around Lake County in Illinois, they have proven to be W O R T H L E S S C R O O K S.

  • GUESSE WHOO

    One more thing: it is MY house; I should be able to sell it any way I so choose….and that will NOT EVER be though a filthy-crook REALTOR.

  • GUESSE WHOO

    Hope REDFIN buries them ALL.

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  • http://www.cashbackrealty.com/ Cash Back Real Estate rebate

    Rebate bans are immoral, they restrict free trade, price competition and innovation. IL did the right thing by defeating the bill.

    David Gorman/Broker
    Cashback Realty.com

  • http://www.go-estates.com/ Dubai real estate portal

    Does anyone have an opinion on this issue – To view the Bill type into Google “HB4313″ -A special interest group called HCA started the bill – This bill is dead in its present form – The bill was going to remove buyers and sellers of a transaction from legally receive a Cash Rebates – Presently Illinois is a state the allows any kind of Rebates.

    The people that came up with this Bill (Real Estate firms like C21 and Remax) thought they could pull a fast one and get this bill snuck through quietly – To bad none of the local Chicago papers picked this new story up. I heard that the DOJ was looking into HB4313 because it reduces competition in the market place.

  • http://supercheaploans.co.uk Linn Alure

    This is the eoewr article I have read in a wijeoieuir