Is it my imagination or did I hear someone complain about real estate commissions?

Anyone complaining about real estate commissions now won’t be thrilled if banks get their way and are allowed to sell real estate, something the American Bankers Association (ABA) has tried to do by pushing, lobbying Congress and paying. . million dollars in the process in the form of special contributions over the past seven years. And it doesn’t matter if banks can’t share commissions. All banks have to do, once they are allowed into real estate, is buy brokerage firms and they can share all the commissions in the world without ever breaking the law. They don’t even need real estate licenses.

In fact, since we’re on the issue of commission sharing, let’s take a look at the numbers a bit to discover the “fees” that banks charge consumers today. They don’t call them ‘commissions’, they call them ‘interest charges’, but the fact is that a fee calculated on a percentage basis in the payment of a service it’s a commission. Therefore, the user fee charged by a bank to a borrower in percentage for the use of a certain sum of capital is nothing other than … A commission.

Banks base mortgage rates on a variety of indices. Among the most common indices are one-, three-, or five-year Treasury rates. Another common index is the national or regional average cost of funds for savings and loan associations. Some lenders use their own cost of funds as an index, which gives them more control than using other indexes. To determine the interest rate on a mortgage, bankers add a few percentage points to the index rate, which is cumulatively called the “margin.” The amount of the margin may differ from one lender to another, but is generally constant over the life of the loan. Therefore, the formula is: Index Rate + Margin = Mortgage Interest Rate. Most banks use a minimum margin of 2 percent. When they offer “special packages” to consumers, they typically apply a 3 percent markup and then offer a “special” discount or rebate of 1 percent.

But let’s take the typical 2 percent margin. For all those readers who think that 2 percent sounds better than the 6 percent commission commonly charged by real estate brokerage firms, let me point out that the 2 percent margin charged by banks is by year! So if it is true that the average consumer keeps their property for seven years, the ‘commission’ charged by banks is really 14 percent. The only difference is that the margin is applied to the principal of the mortgage, that is, to the amount loaned against the real estate brokerage commission, which is applied to the total sale price. But this is of little comfort when you consider that nearly fifty percent of all mortgage transactions involve 95 percent financing.

Banks have realized that the US real estate brokerage market stands at about $ 61 billion, a sum that, if attached to a single company, would rank 19th on the Fortune 500 list, ahead of Boeing, Microsoft, Morgan Stanley and JPMorgan Chase. . Paraphrasing Scarlet O’Hara in gone With the Wind, this is a market ‘worth fighting for and worth dying for’. Without a doubt, the tactic adopted by ABA is indifference. ABA is trying to convince Congress that banks are not really interested in pursuing this line of business even if they could do it legally, but that they would like to be able to do it … just in case.

The truth, of course, is very different and is deeply ingrained in the real estate economy. Brokerage firms collect commissions from Sellers, the recipients of money from a real estate transaction, and only when Sellers have received that income. Banks, by contrast, charge interest rates to buyers. What ABA is aiming for and trying to do now is load both of them Buyers and Sellers. It’s like eating two dishes at the same time, so to speak. Give the money to the Buyer to complete the transaction and charge the Seller for completing it.

So again, how much is the real estate commission ABA would like its members to charge, if they were allowed to enter the real estate market? Let’s see: there is 14 percent of the Buyer for seven years, there is 6 percent of the Seller at closing, and then of course there are ‘lower’ fees like appraisal fees, setup fees, administration fees, Loan startup fees, loan cancellation fees, upfront fees, and then of course there’s the loan insurance.

Wow, that’s a lot of commissions!

It’s no wonder that Consumers Union (http://www.consumersunion.org/), publisher of Consumer Reports, the independent, non-profit testing and information organization that serves only consumers, is lobbying Congress hard to do more research on this topic.

But in addition to the added cost to consumers, allowing banks to enter real estate would not only be bad for the industry and for consumers, it would be bad for the economy as a whole. In fact, the notion of a ‘free market’ where all economic decisions regarding transfers of money, goods and services are made on a voluntary basis, free from coercive influences, is commonly regarded as an essential characteristic of capitalism. But in the event that banks dominate the real estate industry, how free would consumers really be to choose, for example, how to sell their homes, negotiate a commission, counter a purchase offer, or change agents if they wish? You don’t like one, or even try to sell their properties themselves?

Has anyone ever tried to negotiate something, something at all, with a bank? I have done it several times. And I have personally witnessed and can report first-hand a variety of bankers’ responses, ranging from the friendly “no … no … no,” to the tap on the shoulder and nod, to the sarcastic smile, all the way to the icy gaze and silence beyond the grave. However, I still cannot report a single “Yes” from a bank, after nine years in business. Banks understand negotiation not as a two-way give-and-take process, but rather as a one-way street: go your way, that is, just your way. And this is today, when consumers still have the option to walk away. What will happen to consumers when that option is taken away from them?

Are banks getting into real estate? Don’t let that happen to you.

Luigi frascati