Regulation of the real estate industry in Maryland is inadequate, with the state real estate commission favoring realty interests over the general public's, the Maryland Department of Fiscal Services has concluded in a blistering review of the agency.

In the report's wake, two state senators who oversee the Maryland Real Estate Commission said they expect the eight-member commission to come under scrutiny in January when the Maryland General Assembly reconvenes.

The report, which has been forwarded to the state legislature for action, found that only 2 percent of the 769 consumer complaints the commission received in 1989 resulted in specific disciplinary action being taken against real estate sales people. It also found that officials were reluctant to award compensation to victims of wrongdoing, despite the availability of a fund of more than $2 million intended for that purpose.

"... The Commission has not demonstrated a strong commitment to consumer protection," said the report, written by Kieron Swaine, a state research analyst. So-called "sunset reviews," mandated by Maryland law, are periodic examinations of all state regulatory agencies to determine whether they are performing satisfactorily and whether they should continue to operate.

The chairman of the real estate commission, Robert E. Mitchell, said he believed the sunset review would prove helpful because it might result in additional resources for the agency. In particular, he said, it could result in expedited efforts to establish a computerized complaint-tracking system that would allow the commission to resolve complaints more quickly.

"I think it's great," he said. "We need mirrors to reflect our image with the public."

Mitchell said he believed the low percentage of cases resulting in disciplinary action was misleading, however, because many complaints in Maryland are settled through negotiation rather than through disciplinary action against real estate firms.

Other commissioners and state employees were generally unavailable for comment or unwilling to be quoted. Cumberland Realtor Michael P. Goodfellow referred inquiries to Mitchell, saying that he would speak unilaterally for the group.

"We pretty well act in concert when we do something," Goodfellow said.

The Maryland Real Estate Commission is not the only such government agency in the nation to come under criticism in recent years because of a perceived bias toward the real estate industry and against the consumer.

A 1983 Federal Trade Commission study of the residential real estate brokerage industry said that such regulatory commissions tend to be dominated by members of the industry who are also members of the major real estate trade group, the National Association of Realtors, and the NAR's state affiliates.

The FTC said that although such state agencies do not contribute to the lack of price competition on real estate commissions and the obstruction of information to consumers, they sometimes limit fair and nondeceptive competition among real estate agencies.

The commissions also contain a built-in bias because their memberships are dominated by successful, long-term participants in the industry who have a vested interest in maintaining the status quo, according to numerous real estate industry observers.

"It is common knowledge that in most states the foxes are guarding the hen house," said real estate agent Bernadette McTighe, president of the nonprofit Single-Agency Realty Association in Rockville, which promotes consumer and industry awareness of sales-representation issues.

"In many states where there are commissions, they are used to enforce ... rules that restrict competition," said James Baldwin, executive deputy of the New York Department of State, which is one of the few real estate regulatory agencies directed by government employees rather than industry representatives.

However, Maryland's 2 percent discipline rate is low even by national standards. According to a 1990 report by the Utah-based National Association of Real Estate License Law Officials (NARELLO), only a handful of states reported a lower percentage of complaints that resulted in disciplinary actions. North Carolina, South Carolina and Nevada had similarly low percentages.

The District of Columbia is on the low side as well, with about 5 percent of complaints resulting in disciplinary action. According to Leon Lewis, contact representative for the D.C. Real Estate Commission, the office is restricted in its activities because it only has two full-time employees, unlike Maryland, where 19 full-time positions were authorized by the state legislature this year.

Other states, however, deal sternly with those accused of real estate wrong-doing, according to the NARELLO figures. The Virginia Real Estate Board, for example, is one of the toughest: About 34 percent of consumer complaints result in disciplinary action against real estate licensees.

"Our mission here is to protect the public, and our board recognizes that," said Alvin D. Whitley, spokesman for the Virginia Department of Commerce. "We try to instill in each board that the first priority is to put aside the interests of the industry and think of what's best to protect consumers against practices that are improper, unethical or illegal."

The Maryland review recommended several specific changes to improve the realty commission's performance. It recommended that consumer participation on the panel be increased -- five of the eight members are industry representatives -- and that real estate license renewals be staggered by birth date rather than telescoping the activity into a single three-month period every two years. The review also urged the commission to probe why it has a predisposition to find in favor of private industry rather than the public.

In addition, some Maryland real estate laws may need to be changed, according to the review. It found, for example, that some of the biggest problems for consumers in the state have been institutionalized by traditional real estate practice. Misrepresentation appears to be widespread, with property characteristics and the potential for price appreciation described inaccurately. It recommended that real estate licensees should be compelled by law to double-check information provided by home sellers to ensure no false representations are made to prospective buyers.

The report also suggested that legislation be enacted to improve disclosure to buyers and sellers of who represents who in a real estate transaction. Many buyers, the study noted, do not realize they are not legally represented by the real estate agent they work with, and that both agents in a transaction generally represent the financial interests of the seller.

"If consumers have to worry about being unduly victimized just as much with real estate licensees as they would with unlicensed real estate participants, then the value of state licensure is dubious," the report said.

Two state legislators said they expect action in January by the Maryland Senate Economic and Environmental Affairs Committee to improve the real estate commission's performance.

"I think there will be efforts to beef it up," said Maryland Sen. Gerald W. Winegrad (D-Anne Arundel).

Sen. Arthur Dorman (D-Prince George's) said it appeared that money and jobs intended for the real estate commission have instead been diverted elsewhere within the state Department of Licensing and Regulation. The real estate commission generates an average of about $1 million a year in real estate licensing fees.

"My concern is that the real estate commission is not only self-sufficient, but it is providing funds for the rest of the Department of Licensing," Dorman said. "{The commission} doesn't have enough staff. That's not right."