Banks may soon enter real estate brokerage business

If a Federal Reserve proposal to allow banks to add real estate brokerage to their services is approved, a day may come when people who want to sell or buy homes will deal through their banks rather than Realtors.

Understandably, Realtors oppose the proposal.

The National Association of Realtors has objected strongly that the plan would "lead to less competition" in the marketplace and also perhaps compromise consumer privacy.

However, several Springfield area bank executives believe the move to be a logical step for the industry; however, and perhaps surprisingly, some are not elated at the prospect of entering the real estate business.

Mike Williamson, president of Empire Bank, does favor the move.

"Real estate transactions are financially oriented transactions," Williamson said.

"(The proposal) is consistent with financial modernization legislation that was passed. I believe it will offer the opportunity for the consumer to have an alternative way to obtain real estate services," he added

Joe Turner, president of Great Southern Bank, views the move as a logical extension of the broader powers banks have been given with the Gramm-Leach-Bliley Act to transact business.

However, he does not believe it will have a big effect on Great Southern's business.

Joe Gaunt, executive vice president of Citizens National Bank of Springfield, said, "It's just another step in consolidation in the industry. I think if there is an interest in adding brokerages that it will be in the big banks the holding company banks. It would present a bigger challenge for smaller banks. I wouldn't discount a bank our size from doing it, but that would be out there in the future."

Gaunt added, "For today, we don't have any interest in that we feel the banking business by itself presents plenty of challenges without branching into the brokerage business."

Bob Hammerschmidt, president of Commerce Bank, sees the proposal as another example of the walls between different industries falling down.

"Even though we're allowed to do it," he said, "I think there are a lot of businesses we won't get into. We don't offer property and casualty insurance, even though we can," he said.

Hammerschmidt added, "If you're helping someone buy or sell a piece of property and finance it, I think it's a good idea to maintain an arm's-length distance so you can have an objective view of what's in the best interest of everybody concerned."

He gave an example of what might go wrong: "Say I'm representing a seller of a piece of property. I have the listing and I also want to do some financing. What if it's not really a good deal overpriced or more than the borrower can afford? It would be hard to maintain an objective judgment if I am going to be foregoing a real estate commission."

Turner said he believes "there are advantages and disadvantages.

An advantage would be that it is a source of fee income for banks. On the other hand, as a bank, if you get involved in the real estate business, you're competing with your customers. That's not always what you want to do."

Hammerschmidt said there is an advantage to the "one-stop shopping concept, as long as you didn't run across conflicts of interest. If we had a real estate, financing, and insurance arm which was independent in thinking and always considering the best interest of the client, then the concept could work."

According to Williamson, "Usually the arguments against banks providing brokerage service are from people in the real estate business who want to keep other competitors out."

He added, "From the consumer's standpoint, having a wider range of services available provides advantages."

Privacy is another consideration.

The National Association of Realtors released a survey conducted by Yankelovich Partners that voiced the concerns of four out of five home buyers and sellers who fear banks will use consumers' confidential financial information to market them for real estate services.

How do bankers view this issue?

"Privacy is a hot button for consumer concern," Turner said.

"Banks, because we are given confidential information by our customers, have to be very diligent to protect that information and not misuse it in any way," he added. "At Great Southern, we would be and are careful to protect any information that our customers give us. I think, generally, most of the banks in this area are."

Gaunt observed that,"one thing that will protect the consumer is all the new privacy legislation. If their name is going to be used, they'll have to be told. But consumers will have to be aware of that and read what's sent to them about privacy."

Ultimately what it comes down to, according to Williamson, who has had a real estate license for 30 years, is that bank brokerages should meet all the laws, licensing requirements and regulations for selling real estate that real estate professionals are required to meet.

"Those who do a good job will be successful and those who don't won't be," he said.

The period for public comment on the proposal has been extended by the Federal Reserve Board of Governors until May 1.