Should the state regulate the brokerage profession?

Author: Iliyan Koychev

Real estate is a favorite investment asset of Bulgarians, and in the long term, a potential change in this attitude is unlikely. The real estate market is developing rapidly and in large Bulgarian cities such as Sofia, Plovdiv and Varna, offer prices (regardless of whether for purchase, sale or rental) are growing monthly and are already boldly heading towards the record levels from before the last crisis. One of the main reasons for this is the entry into the market of more and more foreigners, who with their higher solvency purchase/rent properties for their needs.

The specifics of the real estate market in Bulgaria

As in any other market, here too there is a problem with the lack of information about the parties involved. Thus, the role of the intermediary naturally arises, who performs a complex of professional services (pricing, marketing, consulting, negotiations, contract preparation, etc.) for a fee, through which the implementation of a relevant transaction is supported. The interests of the parties involved in the transaction can be protected by the same broker or each of them can have hired their own, and the payment of the intermediaries is usually a fixed percentage of the rental/sale price of the property in the transaction.

After the beginning of democratic changes and the emergence of the possibility of a real estate market in Bulgaria, the first real estate brokerage agencies were founded. The brokerage profession, which has a polished image in Western Europe and the USA, is gaining popularity here as well. Especially in periods of price growth, as is currently happening, more brokers appear on the real estate market, motivated by the potential high profit from commissions on transactions.

But with a motivation for quick profit and taking advantage of the lack of information of potential buyers and tenants, there are also agencies/brokers on the market, implementing so-called "incorrect practices", which consist of offering advertisements for non-existent properties, conducting fake inspections with imaginary "owners", hoarding an already sold/rented property or even a non-existent one, as well as various other methods of a criminal nature. It is in the fight against such types of intermediaries that the National Real Estate Association (NRIA) is also involved with its proposal for a Law on Real Estate Brokers - the goal is to create and implement regulations in the brokerage profession.

What kind of organization is the National Real Estate Association?

The National Real Estate Association (NRA) was established in 1992 by thirty real estate companies, who wanted to establish rules for ethical and legal business in the context of the real estate market through the creation of a branch organization. At present, according to the NRA website, 231 companies are members of the association, and they receive various privileges from this membership in the form of discounts for courses, trainings and seminars. The NRA also operates a Professional Training Center, which trains brokers and certifies them as professionals.

In 2012, the National Real Estate Brokers Association announced the final result of many years of work on the creation of a draft Law on Real Estate Brokers. According to the National Real Estate Brokers Association website, the draft provides for: "regulating the legal status of real estate brokers, the requirements for carrying out their activities, the terms and conditions for acquiring professional qualifications and exercising the profession. It is envisaged to establish a Chamber of Real Estate Brokers and regulate its status, organization and activities, as well as create a public register of real estate brokers."

What lies behind the regulations proposed by the NSNI?

But is this really the case or is this just a means for an organization to use the state's back to take over the entire industry? Again, according to the representatives of the NSNI, who do not fail to mention the topic in every media appearance, this will lead to the restriction of unethical agencies on the market and will "whiten" the gray sector, in which many real estate agencies are traditionally located. But let's look at a few main conflicting points in the draft law, which is publicly available on the NSNI website: ( http://www.nsni.bg/sites/default/files/poekt_zbni.pdf ).

• Creation of a Chamber of Real Estate Brokers, which is intended to be an organization in whose hands and with the blessing of the state the regulation of the entire industry will be given. There is some doubt whether this Chamber of Brokers is not the representatives of the NSNI, but with a law that gives exclusive powers to the organization.
• The Chamber of Brokers is the only organization/institution authorized by the state that has the right to authorize the performance of brokerage activities by anyone. Each broker, upon certification of professional education and payment of a fee, is subject to registration in the etc. It is planned to introduce a National Register of Brokers. Each broker is also obliged to conduct his activities according to a standardized model introduced by law, including the mandatory use of certain content of contracts, as well as office premises that meet the requirements of the Chamber.
• Every member of this register must be careful and listen a lot, because the law provides that the Chamber can punish him. The penalties range from a warning, through a property penalty of 500 to 5,000 leva and a temporary ban from practicing for 3 months, and even the deletion of the registration of the respective broker.
• The law provides for the creation of a Regulation on the minimum prices of services provided by real estate brokers, which will determine the minimum remuneration for each type of service. Such a type of regulated payment is not in the service of the industry, because at the moment there are disputes whether brokers deserve their remuneration. As with any type of market transaction, interested parties should be free to negotiate the price of the service, but not with a guaranteed minimum.
• Bad news awaits anyone who dares to act as a broker and is not registered as such in the National Register. By an act of the (note!) Consumer Protection Commission under the Ministry of Economy, Energy and Tourism, violators are punished with a property penalty of 5,000 to 20,000 leva. In case of a repeated violation, the penalty is from 10,000 to 50,000 leva!

The brokerage business does not need government regulation

All of the above is a field for reflection on how anyone could even think of such a law. No, the state cannot and should not be involved in the regulation of any profession. Moreover, this regulation will be carried out in favor of the unambiguous interest of a group of people who will use the state in pushing through a law with a controversial nature and effect.

This is certainly not the way to promote good practices in the real estate market by limiting access to it. To this day, people without formal education in the field of real estate, but with ideas and experience, as well as a penchant for innovation, deal with real estate. Yes, there will always be fraudsters, but whose fault is it really for someone's naivety and incompetence? Each person in their role as a client bears personal responsibility for not having researched the relevant brokers and agencies, for not having looked at references on the Internet or not having asked relatives and acquaintances. The state has no place in determining who will be a broker.

Image sources: Investopedia.com, Bg-imoti.net

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