Alan Murray wrote a thoughtful article, Brokers Fiddle as Real Estate Burns in the Wall Street Journal, wondering why technology improvements in the real estate industry haven’t reduced brokers’ commissions. Here’s the text of the email I sent him, pointing out that in New York, brokers’ fees are propped up by the New York Department of State’s application of antiquated regulations such as the Apartment Information Vendor law.

Dear Mr. Murray:

Your article, “Brokers Fiddle as Real Estate Burns�? (September 28, 2005), offers valuable insights into what’s wrong with the real estate industry. However, fixing the industry will require not just tinkering with the existing model but developing an altogether new model that uses technology to give consumers more choices and better value.

The broker who sold your Washington house helped you “price it, prepare it, show it and negotiate multiple offers.�? But what, exactly, did the buyer’s agent in Connecticut do for you, besides giving you access to online listings? If you had access to the multiple listing service from some other source, couldn’t you have dealt directly with the seller’s agent, and bought the house for less? Perhaps, since you were moving to a new area, the buyer’s agent provided you with information about neighborhoods and schools—but wouldn’t that information have been more trustworthy if it had come from someone who didn’t have an interest in your buying the most expensive house?

My point is that using a real estate agent is a choice best left to the homebuyer. Some buyers want agents; others want information and advice at a fixed fee from a disinterested party; others want no help at all. But when listing data isn’t publicly available, every buyer must employ an agent simply to see the listings.

Why aren’t listings available except through brokers? I can tell you why this is the case in Manhattan. Over ten years ago, my company, MLX, then a licensed real estate brokerage, created a searching/listing service that allowed buyers, sellers, renters, landlords, and brokers to find each other. This was essentially the first multiple listing service in Manhattan and it became the first comprehensive online service. Consumers had the same access to listings that brokers had, and could choose whether to use a broker or not.

The efficiencies created by our advanced, feature-rich technology translated into significant cost savings for all parties, and the service became very popular with both consumers and smaller brokers. We had no consumer complaints.

However, after the New York Department of State lodged a complaint against me for operating an unlicensed Apartment Information Vendor (AIV), MLX was forced to discontinue its original model. We can provide listings to brokers—and still do, through our BrokersNYC service—but providing services to consumers that include access to those same listings is prohibited, in the name of protecting consumers.

The AIV law, enacted decades before online services became a reality, essentially outlaws every feature that a consumer might want in an online real estate service, including the advertising of specific properties. (The law applies only to rental listings, but in Manhattan, where apartment rentals account for two-thirds of listings, and where tenants pay real estate brokers’ fees averaging about $3,000, the apartment rental market is similar to the home-sales market in the rest of the country.)

The New York Department of State admitted in 1995 that the AIV law was onerous and should be amended, and this year it issued a proposed rule making calling the law “obsolete.�? Yet it continues to apply the law to prevent companies like MLX from giving consumers more choice, transparency, and service—and from saving consumers thousands of dollars per transaction.

You say, “It’s remarkable that in today’s economy, this classic middleman business model survives.�? At least in New York, this antiquated model isn’t surviving without help. New York State’s intrepid regulators are doing their share to keep commissions high, established brokers protected, and innovative businesses from succeeding.

LaLa Wang
President, MLX
New York, NY

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