Zornitsa Slavova, Institute for Market Economics
Over the last decade, one of the associations of real estate brokers has repeatedly tried to pass a law that would regulate the profession through a series of requirements and the creation of a quasi-state structure (chamber) that would effectively drive and run the sector (see here, here and here). Now another association of brokers is trying to determine what the rules should be in the practice of the profession. The new proposed law does not provide for the creation of a chamber, but many of the elements of heavy regulation and restriction of competition are present:
- Education and Experience Requirement. The draft law provides for the introduction of an education and experience requirement for the profession. This is one of the regulations that will unjustifiably reduce the number of market participants. A decision of the Commission for Protection of Competition (CPC) in 2024 explicitly criticised such a proposal, arguing that it excluded from the market persons engaged in intermediation in real estate transactions, but not as their main activity. The existence of such a requirement also makes it difficult for new entrants to enter the market. The CPC decision states that the most useful characteristic of an intermediary in any transaction, not only for real estate, is to connect the buyer and the seller, who can also prepare the necessary documents for the transaction themselves, including with the help of lawyers. In addition, consumers can decide whether they are satisfied with an intermediary who can only find them a counterparty or whether they want an intermediary who can provide them with a comprehensive service, including advice and assistance with the necessary documents for the transaction. In this respect, it is not necessary to make this choice for consumers. The requirement of a certain amount of professional experience also falls within the scope of regulations that limit competition in the sector and its absence does not imply insufficient professional competence.
- Requirement for entry in a register. The Bill proposes to establish a National Register of Real Estate Intermediaries, maintained by the Registry Agency, and to require all who wish to provide this service to register. According to the CPC Guidelines for assessing the compatibility of regulatory and general administrative acts with competition rules, regulations that introduce a register as a prerequisite for carrying out a given activity belong to the category of restrictions on competition that reduce the number or range of market participants. Specifically with regard to the requirements for brokers, the CPC states in a decision that “there is no need for a register as it can in no way contribute to consumer awareness and protection or to increasing tax collection”. In practice, it is unlikely that many consumers would choose a broker on the basis of the scarce information about them in this hypothetical register.
- Periodic training requirement. The bill would require brokers to engage in professional training of a minimum total duration of 40 hours at least twice in two calendar years at a licensed training institution. The rationale for this proposal is that it will ensure that brokerage services are provided by qualified brokers with the requisite knowledge and experience. This regulation in itself does not guarantee any such thing. In practice, however, the profession is not characterised by such a high level of sophistication and/or technological or scientific development as to require such continuous and compulsory training. Thus, regulation is essentially an unnecessary mandatory requirement for the exercise of an activity.
- Requirement for professional insurance. The bill also provides for mandatory insurance for each agency and each broker to cover damages caused by their acts or omissions. In fact, having such insurance does not ensure faster or easier payment of compensation, but only determines whether, if proven at fault, the broker will pay out of pocket or through an insurance company. Separately, in a 2021 European Commission report on recommendations for reforms to the regulation of professional services, the requirement for indemnity insurance is among the six most serious restrictions on practising and entering a profession. For its part, the CPC considers that ‘the introduction of an obligation to have liability insurance limits competition by unduly increasing the costs of entry, which are even more significant for those not primarily engaged in real estate brokerage. At the same time, the existence of insurance does not protect consumers, since in any event the damage suffered must be proven’.
With regard to the previous bills that aimed at regulating the brokerage profession, the European Commission calls for taking into account the Proportionality Directive requiring an objective and independent analysis by a competent authority to justify the restriction of access to and exercise of a profession. One of the main objectives of this Directive is to prevent the proliferation of new unjustified and unnecessary rules and regulations at national level. This case is the same. Regulations on entry to the profession (such as the exclusive rights, registration and education and experience requirements proposed here) restrict the number of players in the market, reduce competition and encourage higher prices. On the other hand, business regulations (such as requirements for the form of the business, the placement of additional requisites, regular obligations – for training, declaration, etc.) cartelises the guild, makes services more expensive, stimulates the emergence of a grey market, and limits the expansion of activity.