Aggressive efforts to keep banks out of real estate brokerage and property management are drawing mixed reactions from Bay State Realtors.

While the Massachusetts Association of Realtors staunchly supports the National Association of Realtors’ multimillion-dollar campaign against banks in real estate, some local Realtors are saying the campaign is hypocritical and may be inviting trouble.

“For years, we’ve been talking about the benefits to consumers of one-stop shopping and the ability to offer customers those services [mortgage and insurance] under one roof,” said Paul J. Harrington, president of Lexington-based The DeWolfe Cos. “We think it would be hypocritical of us to say we should be allowed to provide all these services … and then take a position that banks can’t be allowed to provide real estate brokerage.”

The DeWolfe Cos. is a member of The Realty Alliance, a Dallas-based nonprofit group representing some of the country’s largest independent real estate firms that has taken a public stance against NAR’s tactics.

Members of The Realty Alliance argue it would be hypocritical to prohibit banks from real estate brokerage activity when real estate firms operate mortgage banking, homeowners insurance and title insurance businesses. They also fear that the powerful banking industry will retaliate with its own bills to prevent real estate companies from participating in other businesses.

“It may create a battle between two giant lobbying groups,” said Harrington.

Banks are seeking permission to sell and manage real estate through a proposed regulation before the Federal Reserve Board and the U.S. Treasury Department. NAR was recently successful in convincing legislators to file bills in the House and Senate – referred to as the Community Choice in Real Estate Act – to keep banks out of the business.

Last month, NAR started placing newspaper advertisements in major newspapers across the country urging voters to contact their legislators to vote for the bills.

According to NAR, if big banking conglomerates are allowed to enter the business, they would trample locally owned and operated real estate companies, and it would violate the intent of financial reform outlined in the Gramm-Leach-Bliley Act, passed in 1999. The act lowered longstanding firewalls between various financial services providers.

Realtors also contend that banks, because of their regulatory structure, have access to funds at discounted or lower rates and federally insured deposits, all of which gives them an unfair advantage.

“This would create unfair competition” between banks, real estate companies and lending institutions, said MAR President David S. Drinkwater.

“Frankly, unfair competition is not good to anyone,” said Drinkwater.

Drinkwater said MAR supports NAR’s efforts to raise “public awareness” on the topic, and wants to educate its own members about the issue.

Educating Bay State Realtors and legislators about the issue will be a key goal of MAR’s government affairs committee this year, according to Drinkwater.

Competitive Spirit

David Wluka, vice president of government affairs for MAR, said the issue isn’t about not wanting competition from banks. It’s that the competition won’t be level or equal, he said.

“Any private company that wants to go into the [real estate] business and take the same risks that we do – that’s fine,” he said. “But when the government is going to actively assist them then there’s something wrong and unfair about that.”

While the banking industry may be portraying the Realtor community as “whiny” and unwilling to embrace competition, Wluka said that is not the case.

“They’re actually decreasing competition and giving consumers fewer choices than more,” he said, citing the advantages that banks have that other businesses don’t.

Unlike MAR, the Greater Boston Real Estate Board appears to be taking a more neutral stance on the issue.

“We don’t see that as an issue that commands our attention at this point in time,” said Edwin J. Shanahan, GBREB chief executive officer.

“We’ve looked into the issue, and frankly it’s not a significant issue to warrant our full attention,” said Shanahan, adding that GBREB has more pressing priorities.

NAR feels otherwise and has sent out a flurry of recent press releases, conducted surveys and spent millions to advertise in at least 30 newspapers. More than 165 members of the House have signed on to support the bill to prohibit banks from selling real estate and managing property, according to NAR.

And despite The Realty Alliance’s objections, there is overwhelming member support for the association’s position on the issue, according to a NAR survey.

However, one real estate leader said that in addition to The Realty Alliance, there are local groups and state associations that oppose the NAR campaign.

At DeWolfe, company officials have been telling office managers, agents and other employees to embrace competition and not fear banks entering the business. The company has also tried to explain its position and why it is not supporting NAR campaign.

The Realty Alliance appears to be the most vocal in its opposition. Realty Alliance Chairman Richard Christopher sent a letter to NAR President Martin Edwards Jr. in early February saying the alliance disagreed with the association.

Christopher, who is chief executive officer of Patterson-Schwartz Real Estate in Delaware, said that NAR issued a press release on Feb. 26 saying the letter was never received. Later, Christopher was contacted and told that the letter had been received. Last week, Christopher said he expected to talk with NAR members about the Realty Alliance’s concerns within the next few days.

“We’re not interested in more regulations and laws,” said Christopher, explaining the alliance’s opposition to the NAR bills. “We’re interested in free commerce.”

The industry has seen a variety of large companies that have been or are still in the real estate business, including GMAC, Prudential, Cendant, Sears and Merrill Lynch, said Christopher. With larger financial institutions entering the business, there would be more competition for the biggest players, according to a white paper by The Realty Alliance.

“In many cases, it’s made the industry stronger,” said Christopher. “I just feel that the open and competitive market gets the juices flowing.”

Twenty-four states, including Massachusetts, and the District of Columbia permit their state-chartered banks to engage in real estate brokerage either directly or through a subsidiary, according to a white paper.

According Christopher’s letter, the NAR bills are opposed by more than 80 percent of the group’s members.

Yet even Realty Alliance members are not united in their stance.

At least one member, J. Lennox Scott, president of John L. Scott in Seattle, has spoken out against The Realty Alliance’s position.

“I do not believe that banks should be allowed to operate in a commercial transaction-type industry, such as real estate, when they benefit from taxpayer-insured operations,” Scott wrote in a letter to Realtor magazine.

“It is like they have a federally chartered monopoly because they gain huge financial advantages through federal banking. Not only do they receive federal deposit insurance, they also have favorable tax treatment and privileged access to credit,” Scott wrote.

Issue Increasingly Divisive For Real Estate Community

by Banker & Tradesman time to read: 5 min