Minimum service requirements in real estate refer to specific tasks that a broker must perform under state law regardless of the commission rate being charged.
Minimum service requirements vary by state, and the vast majority of states including New York and Florida do not have any minimum service requirements for real estate agents.
States with minimum service requirements include Alabama, Colorado, Idaho, Illinois, Indiana, Iowa, Texas and Utah. Minimum service requirements are often referred to as Uniform Duties.
Minimum service requirements harm consumers and contribute to high commission rates because these laws often prohibit brokers from offering reduced commission services, such as a Flat Fee MLS Listing for sellers or buyer agent commission rebates for buyers.
When a state has statutory minimum service requirements for agents, a seller may not waive these services even if they’re comfortable doing so. This means that agents must provide and charge for minimum services, even if a seller doesn’t want or need them.
Minimum service requirements effectively dictate the brokerage services that a consumer must purchase when hiring an agent. In essence, minimum service laws obligate consumers to purchase a bundle of brokerage services instead of choosing brokerage services a-la-carte.
The result is that sellers may have to pay more commission than they otherwise would have in the absence of minimum service laws.
While minimum service requirements do not explicitly set or regulate commission rates, they effectively set a floor on commissions by obligating consumers to pay for a minimum set of services regardless of what the consumer actually wants or needs.
Minimum Service Requirements FAQ:
This means that a broker in Colorado is not allowed to list a property in MLS without providing guidance and support to the seller throughout the transaction.
Obviously it’s not economical for a broker to charge a flat fee of a few hundred dollars in exchange for essentially providing unlimited advice over the course of a multi-month transaction.
As a result, Flat Fee listings in Colorado are much more expensive since they’re effectively full-service listings. A Flat Fee listing in Colorado may cost several thousand dollars compared to just a few hundred dollars in a state which does not have minimum service requirements.
Some Flat Fee listing companies in Colorado may also tack on a percentage commission at closing or capture a portion of the buyer agent commission, in addition to the flat fee.
How do minimum service requirements harm consumers?
Minimum service requirements harm consumers because they often prohibit agents from offering a-la-carte services such as a Flat Fee MLS listing.
Under minimum service laws, agents who offer a-la-carte brokerage services below the statutory minimums are required to offer additional packaged services. This forces agents to increase commission rates since they obviously won’t do extra work for free.
The result is that consumers in states with minimum service requirements have to pay higher closing costs.
Ultimately, minimum services requirements inhibit free market competition in the residential real estate brokerage industry and keep commissions elevated to the detriment of consumers.
The United States Department of Justice states that “No evidence has been presented to the Antitrust Division indicating that consumers are better off with minimum-service laws.”
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Why have some states adopted minimum service requirements?
States which have adopted minimum service requirements have used several arguments to justify these harmful laws:
Argument One: Consumers are essentially incapable of handling a real estate transaction on their own, and minimum service requirements provide consumers with essential assistance they don’t think they need.
To put it plainly, any state which uses this argument is insinuating that taxpayers are stupid. The reality is quite the opposite. Hands-on sellers who purchase a-la-carte brokerage services such as a Flat Fee MLS listing typically do extensive research on how the sale process works and are more informed than sellers who work with full-service agents.
Argument Two: Consumers who purchase a-la-carte services still expect brokers to provide minimum services. Again, this argument is predicated on state legislators essentially thinking that taxpayers are stupid.
The truth is that consumers who seek out a-la-carte brokerage services are usually the most informed when it comes to knowing what services they actually need and are willing to pay for. By actively seeking out a-la-carte services, these consumers are inherently aware of the wide range of brokerage services available.
Argument Three: A-la-carte brokerage services confuse consumers. Continuing with our theme from the prior two arguments, this justification also presumes that taxpayers are stupid.
However, “The (US DOJ) Antitrust Division has found no evidence that fee-for-service brokerage models confuse customers about the services offered.”
Argument Four: Proponents of minimum service laws claim that sellers who purchase a-la-carte brokerage services often abdicate their responsibilities and pass off the extra work to the buyer’s agent. If a buyer’s agent is forced to help the seller, the argument goes that the buyer’s agent risks becoming an undisclosed dual agent.
Moreover, sellers who use a Flat Fee MLS listing are more likely to loop-out the buyer’s agent and do a deal directly with the purchaser since the seller isn’t subject to licensing laws as is the case with a traditional listing agent.
It appears that limited evidence exists to support these arguments.
What states have minimum service requirements for agents?
States with minimum service requirements include Alabama, Colorado, Idaho, Illinois, Indiana, Iowa, Texas and Utah.
In one way or another, consumers in these states are forced to purchase brokerage services they may not want or need. The result is higher commissions and a less efficient market for everyone.
Example of minimum service requirements in real estate
Minimum service requirements vary by state. Here is what minimum service laws look like in Colorado for a real estate broker acting in the capacity of a transaction broker are set forth in §12-10-407, C.R.S.:
As you can see per the above, agents in Colorado are required to “advise parties regarding the transaction.” This open ended and effectively unlimited obligation to provide continuing advice throughout a transaction makes it very difficult for brokers to offer low cost, a-la-carte services such as an entry-only (Flat Fee MLS) listing.
