Jim Smith, of Citizens Union State Bank & Trust of Clinton, Missouri, and president-elect of the American Bankers Association, addressed the audience of real estate brokers, agents, association executives and vendors who provide services to the real estate industry at the 6th Annual Real Estate Connect conference, sponsored by Inman News. His speech addressed the banking industry's foray into the practice of real estate, a proposal being considered for authorization by the Federal Reserve and Treasury Department.
Smith took the opportunity to assure the audience that bankers are conservative in nature and "pretty cautious" when entering new work arenas. He strongly doubts that banks will go out and get real estate licenses because real estate practitioners have very different skills than bankers. He foresees, instead, that banks will work out joint ventures with real estate firms and that a few in the audience may choose to buy banks.
Smith told the audience that 26 states already allow state-chartered banks to sell real estate and that credit unions and others have ability to engage in real estate. Right now more than half of the financial services companies in this country already have the right to sell real estate, he says. The purpose of the proposed legislation is to allow banks and financial service companies in the other 24 states to do the same thing.
"Parity was the goal of the legislation passed by Congress - the Gramm-Leach-Bliley Act," he told the audience and allowing banks in the remaining 24 states to operate in the real estate field would level the playing field and bring parity, as intended.
Smith talked about the status of insurance agents and their firms who thought that the banks would do them in. Instead there is a whole new broad market and he feels there is a happy ending. After the law passed, insurance agents did not lose -- they sold some agencies at healthy premiums, they partnered and banks have provided capital and a broader market. The bankers left them alone to do the business they do best and showed respect for their knowledge and expertise.
Predictions for the real estate industry -- practitioners and firms-- include bigger salaries or bigger prices for their firms and more income from sales by broadening their markets, according to Smith. One way or the other, Smith says, "this cross-fertilization is going to happen... let's build on each others skills. Let's not dwell on the past - let's look ahead."
Smith noted that the nay Sayers believe that home sales are not financial in nature - they are commerce. He contends that is not true and since over 15,000 financial institutions can currently do real estate sales; the proposal is to make real estate sales available to all the members.
If the two major industries fight it out, they could both could come out bloody and bruised, he said. He urged the audience to deal with the marketplace of rapid change together and prosper, not pull down the industry.
Audience questions included the issue of a firewall - what is the firewall needed to do real estate business? Smith noted that if his bank is working with anyone he has to disclose and cannot give preferential treatment. He remarked that banking is a highly regulated industry in this country and regulations are already in place to protect consumers.
Another question concerned if banks would use data mining to make referrals to brokers. Smith said that under privacy rules that probably could not take place. When Smith was asked what would happen when the banks are in the real estate brokerage business -- will they fail to provide capital to real estate brokers? Smith said that the banks need customers so they probably wouldn't limit their loans to just their own customers and ignore the customers of real estate brokers.
The last question dealt with the inability of a "big" bank to resolve problems in contrast to smaller community banks that "know" customers by name and could provide better service. Smith noted he was from a community bank in Missouri and that consumers have the right to choose to do business with the bank that provides the best services for their needs.
Pat Rioux
