The N.C. Real Estate commission did itself and the state’s real estate agents no favors this week when it tabled a proposal that would require agents to provide potential homebuyers with a written disclosure of any bonuses or extra incentives the seller is offering to the agent.
Most agents have nothing to conceal, but the commission’s action now makes it appear as if they do. It also makes it appear as if the commission ó composed mainly of industry professionals ó is more interested in protecting its own turf than in making sure consumers get full disclosure of information to which they are already entitled. Under existing regulations, agents are supposed to disclose any incentives beyond their conventional commission before the potential purchaser makes an offer. However, the agents or Realtors aren’t required to do so in writing, which makes it difficult to gauge compliance with the rule, as well as to enforce it.
Is there widespread abuse of the existing regulation? Probably not, although the lack of documentation makes it difficult to determine. The proposed change came about after a Charlotte Observer investigative report found that homebuilders were paying millions of dollars in bonuses to a Charlotte-area company that didn’t disclose the bonuses as required, in violation of state and federal law. In a subsequent investigation, the Real Estate Commission turned up other real estate companies that also haven’t followed the disclosure rules. The abuses appear concentrated among large homebuilders and agents in urban areas, not among the typical resales that make up the bulk of many agents’ livelihoods. Yet, as is the case with dishonest cops ó or unethical journalists ó the abuses of a few can easily spread suspicion among many. The best way to allay those suspicions is to make the process as transparent as possible.
The real estate and mortgage industries are already among the most heavily regulated areas of commerce. Even so, the recent revelation of widespread abuses in the sub-prime mortgage market, including bogus credit reports and inflated home appraisals, shows that there’s room for improvement ó and for better consumer protection. Prospective homebuyers are already jittery enough about the purchase process, without having to wonder whether an agent has a hidden incentive to steer a buyer toward a particular house or neighborhood. Although the commission backed away from the proposal, it left open the possibility of revisiting the issue in the future. That’s what it should do. Documented disclosure doesn’t just help protect consumers; it’s also helps protect all those agents who already follow the regulations and have nothing to hide.