"Realtor Racket": Are Commission Rebates Legal?

Political Muscle... "State legislatures and real estate commissions ... are enacting laws that make price competition illegal and thus treat Realtors as if they are members of a closed shop union."

That's the tough editorial opinion of the Wall Street Journal blasting full-service residential brokers for pushing laws designed to weaken their discount competitors. ("The Realtor Racket," Friday, August 12, 2005.)

"They [state legislatures] make it illegal for brokers to provide rebates on their commissions, which is an overt impediment to price competition." (WSJ)

Twelve states now prohibit such commission rebates ( Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, New York, Oklahoma, Rhode Island, South Carolina and West Virginia).

So I'm wondering, Do these laws apply to commercial transactions? Can brokers not pay "finder's" fees? Can brokers not rebate part of their commissions to their clients?

Let's say that you're providing tenant representation services. You agree to work for x dollars per square foot and to rebate to your client any real estate commissions over x dollars per square foot. Would this contract be legal in the above states?

The Wall Street Journal also blasts related state legislation mandating "minimum service requirements," designed to prevent residential discount brokers from offering reduced services at lower costs. Six states have adopted such laws -- Alabama, Florida, Illinois, Iowa, Missouri, Oklahoma, Texas and Utah.

"These requirements are analogous to telling McDonald's that it can sell french fries only if the customer also buys a hamburger and Coke."

Wow, that's harsh. What do you think?

-- Peter Pike