Are regulatory changes a bigger threat than technological advances?

by Steve Murray, publisher

Most say technological change is the greatest threat to brokerage. Perhaps. What we see as possibly the greatest challenge may be in the regulatory arena. While the Consumer Finance Protection Bureau (CFPB) certainly has our industry’s attention, and while many believe that the mortgage interest deduction may be amended in ways not favorable to our business, it is the myriad of state lawmakers and regulators that may also affect the ability to do business. This also does not take into account recent actions by the National Labor Relations Board (NRLB) which may raise the costs of doing business for tens of thousands of brokerage firms, nor does it consider the Federal government’s research into healthy homes.


If history is any indicator, it appears that every time government and regulators get involved with more regulation of an industry, that industry consolidates faster than it may have otherwise.

Look at the market-share increases of the large banks since Doff-Frank was introduced. Also, look what is happening with the CRPB’s recent attempts to regulate the payday lending industry so much that they may cease to exist. Also, we can refer to the shrinking numbers of hospitals and health insurance firms since ObamaCare was implemented.


In brokerage, something happened in 2015 that we have not seen before. The REAL Trends 500 firms have historically lost market share in strong markets and gained it back in down markets. But, in 2015, these largest of brokerage firms gained nearly 5 percent share against the rest of the market. Might it have to do with the CFPB chasing thousands of small- to medium-sized brokerages to abandon their mortgage MSAs, removing a source of profit and reducing their ability to compete with larger brokerage firms? Only the largest brokerage firms can now add profit and revenue from mortgage. Are they using this to compete more effectively with medium and smaller firms that lack this source of profit?


A client of ours was investigated by their state’s department of corporations. The regulator had no complaints, no reason to believe anything was wrong with the brokerage. Nonetheless, this brokerage firm spent hundreds of thousands of dollars on legal and compliance fees to make the corrections demanded by the regulators. This is not an isolated incident. Several other states are in the process of examining how to increase brokerage supervision, or how to further regulate agent teams – the list is extensive.

So, while many think it’s technology that will fundamentally change out industry and the way we do business, it may be that it is government and regulators who will do more to change the environment in which we do business.^

This article originally appeared in the July 2016 issue of the REAL Trends Newsletter is reprinted with permission of REAL Trends, Inc. Copyright 2016.

The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.



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