New state licensing rules called anti-competitive
When the Michigan Legislature decided to revise licensing rules for real estate workers, they sought the input of the state group representing many real estate agents as well as the official licensing agency. But new mandates in the law are being accused of limiting competition and benefiting larger, old-school members of the real estate business.
In 2016, Michigan passed a bill that changed some requirements for real estate brokers and agents in the state. Senate Bill 26 made a variety of changes to the law. Some were minor, like allowing college degrees to count toward education requirements. But some have raised eyebrows, with opponents saying they limit competition and give advantages to some firms.
You may have seen them while driving around — signs for real estate agents that prominently display the person’s name and face. Sometimes, this business model works: An individual agent is the key to the advertisement. For others, the broker chooses a business model that advertises the institution, with little focus on the individual agent. So a name such as Re/Max, Century 21, or Coldwell Banker is more prominently displayed.
Many of the real estate signs that prominently feature agents will be illegal after this year. A key change to the law mandates that beginning on Jan. 1, 2018, the name of the employing broker has to be equal in size or larger than the name of the agent.
For people like Greg Carlson, this is a big problem. He owns Five Star Real Estate, a company in West Michigan that focuses on agents as individuals, rather than his company.
“[The law] appears to be an overreach, excessive regulation, and anti-competitive in nature,” said Carlson.
Whether a sign prominently highlights or brands the agent’s name and face is (or was) a choice for the broker to make. Five Star decided to emphasize agents by allowing them to prominently brand themselves, as long as they have the brokerage name present and visible somewhere on the sign.
Carlson said he has no problem with what other companies in his industry do. His company chooses to highlight the individual agents. But if a traditional broker wants to only be involved in institutional advertising, where no particular agent is highlighted, that is, he thinks, their choice.
But he doesn’t want the laws written in a way that favors one broker model over another. Carlson says it will cost him and his agents well over $300,000 to change all their signs, not to mention websites, social media pages, business cards, and other ways they are branded. Around the state, the cost to brokers that use a person-centered model will be even higher. More than 1,000 have signed a petition urging legislators to repeal this change to the law.
“I would never think of devising a plan to limit how my peers run their business,” Carlson adds. “Why is the state regulating business models?”
Advocates of the change say it will save the public from being deceived and protect the consumer.
Brian Westrin is the director of public policy and legal affairs for the Michigan Realtors, a trade group for some real estate professionals in the state. He said that while state law has always required the broker’s name be displayed, an objective standard was needed to determine how prominent the name should be.
“We took a look at the law of other states,” Westrin said. “For example, Minnesota says the broker's name must be ‘more prominent’; other states require that the broker's name be displayed in a ‘meaningful and prominent way’ or that it be ‘conspicuous and easily identifiable.’ Our task group and public policy committee decided that a definitive relative type size requirement would be preferable to these more subjective requirements.”
Another part of the law requires that any broker’s branch office more than 25 miles from another branch be “under the direct supervision of an associate broker, who must be physically present on a regular basis.” This would affect brokers who have offices with salespeople. The change in law means that more people need to go through the state’s licensing process, or else the company must shut down branches in which licensed brokers are not regularly present.
The law was written with input from Michigan’s Department of Licensing and Regulatory Affairs, Michigan Realtors, and the Michigan Board of Real Estate Brokers and Salespersons. Of the members on the nine-person board overseeing the state license, most are on the policy committee of the Michigan Realtors and work for large companies which may benefit from larger sign requirements.
Rasmussen doesn’t believe nonmembers of Michigan Realtors or the public were adequately informed about the changes. He sees the trade group having increasing power when regulations are drawn up, particularly when it comes to education requirements.
Carlson said this change or clarification is unnecessary and “flies directly in the face of practical realities.”
“Less agents go to the office daily than ever before [because], thanks to technology, it is no longer necessary,” Carlson said. “They meet clients everywhere but the office. With this in mind, brokers have been decreasing office sizes for the past 20 years. Some brokers have also centralized their support and supervision requirements. This archaic aspect of law pretends that there is no technology and the internet does not exist. Unless you force all agents to drive back to the office daily, who will this direct supervisor with physical presence supervise?”
Westrin said the 25-mile standard is not a new rule; it was simply not clear or being enforced.
“It has long been the case that offices located more than 25 miles away must be under the ‘personal, direct supervision of an associate broker’ who must be ‘reasonably available to supervise and to manage the business during normal business hours,’” he said. “The [state] department has long taken the position that this supervision could not be accomplished remotely.”
This dispute, as well as disputes over training and testing requirements, arises because Michigan law requires people in real estate to have a license. In order to legally work, they have to take a variety of courses, pass an exam, comply with continuing education requirements and pay fees.
The Institute for Justice, a national public interest law firm that studies licensing, says Michigan should reconsider whether the state licenses this occupation at all.
“Full occupational licensing should be reserved for a demonstrable threat to public health and safety, and the work of realtors simply does not rise to that level of regulatory need,” said Dick Carpenter, director of strategic research for IJ.
“Instead, third-party certification, or state certification, if government must be involved, can effectively satisfy the signal-sending purpose of regulation and allow real estate practitioners to differentiate themselves, all without imposing the costs that accompany licensure,” he added. “And compared to other third-party certification systems, the real estate industry has a particularly powerful tool by which it can police itself from noncertified providers — limiting access to the MLS listing to only those members who are certified.”
The Michigan Legislature is currently considering another bill on real estate licensing rules, though not directly related to these issues. Senate Bill 126 has been introduced by Sen. Mike Kowall, R-White Lake.