See PATRICK WOODALL & STEPHEN BROBECK, CONSUMER FEDERATION OF AMERICA, STATE REAL ESTATE REGULATION: INDUSTRY DOMINANCE AND ITS CONSUMER COSTS 3 (July 2006), available at http://www.consumerfed.org/pdfs/CFA_Real_Estate_Commissioner_Report.pdf. At the time of publication of this Report, the Rhode Island legislature is considering minimum-service requirements. In 2006, the FTC charged six different MLSs the Austin Board of Realtors, Information and Real Estate Services, LLC, Northern New England Real Estate Network, Inc., Williamsburg Area Association of Realtors, Inc., Realtors Association of Northeast Wisconsin, Inc., and Monmouth County Association of Realtors, Inc. with violating Section 5 of the FTC Act by adopting MLS rules that limit the publication and marketing on the Internet of certain sellers' homes, but not others, based solely on the terms of their respective listing contracts.312 The FTC obtained consent agreements with all six MLSs. For example, it is not uncommon for MLSs to withhold the home address, a critical piece of information for brokerage clients, from the IDX datafeed. b. their broker. National, state & local leadership, staff directories, leadership opportunities, and more. 251. Each survey participant who had sold through a broker was asked the commission rate that had been quoted by the broker. 152. should be able to choose their service models as well as the provider of those services, whether they be limited service or full-service"). The broker can designate one of your agents to represent the buyer and another to represent the seller. Commenters and participants in the real estate brokerage industry report steering behavior. The questionnaire is available at http://www.ftc.gov/opp/workshops/comprealestate/questionnaire.htm. The increased ease with which home buyers and sellers can perform tasks that once were the exclusive domain of real estate agents and brokers likely has been an important factor in the increased demand for innovative, non-traditional real estate brokerage services.4 In fact, the Internet has surpassed the yard sign as the most important marketing tool to reach consumers.5. . Yun Presentation, supra note 145, at 5, 7. United States v. Nat'l Ass'n of Realtors, 2006 WL 34344263, at *14 (N.D. Ill. Nov. 27, 2006) (denying motion to dismiss where group's collective action enabling brokers to unilaterally withhold listings from innovative competitors "is backed up by sanctions and further is alleged to promote, inter alia, express and tacit anti-competitive collusion and to provide a [group]-created mechanism to punish overly aggressive competition from any Internet-based broker"). 186. (Amended 11/96), Note 2: Multiple listing services, at their discretion, may adopt rules and procedures enabling listing brokers to communicate to potential cooperating brokers that gross commissions established in listing contracts are subject to court approval, and that compensation payable to cooperating brokers may be reduced if the gross commission established in the listing contract is reduced by a court. Additionally, fee-for-service brokers typically provide the client additional selling aids, such as yard signs, online advertisements, and a lock-box to allow buyers' agents to show the home when the seller is not present. Pursuant to the state's administrative proceedings, the Tennessee Real Estate Commission scheduled a public hearing regarding the rebate ban's final repeal for May 2007. The antitrust laws generally do not require firms to cooperate with their competitors. 168. Although consumers benefit to some extent from all of these forms of competition, the available data suggest that brokers may compete less on price than would be expected in a competitive market. Repairs may be ordered by the lender as a condition for financing or requested by the home buyer after the results of inspection. 549 (1988). A fiduciary duty is a special relationship recognized in law. 287. 18. In this Section we discuss the following non-traditional business models: (1) full-service discount brokers; (2) fee-for service brokers; (3) VOW brokers; (4) websites that provide advertising and other assistance to sellers who choose not to use a broker; and (5) referral networks.65, Discount brokers offer buyers and sellers full-service real estate brokerage services at a price lower than the prevailing commission fees.66 For example, a discount broker may offer all of the services provided by a traditional broker for a 3 or 4 percent commission in an area where 6 to 7 percent is the prevailing rate. The Cooperating Broker Compensation Agreement (Form CBC) provides the buyer agent, transaction licensee or the subagent for seller to be paid by the listing broker. Accordingly, there is no basis for believing that there is a need for a minimum-service law to "protect" cooperating brokers from doing additional work when facing a home seller represented by a fee-for-service broker. 283. On its face, the law is ambiguous as to whether it requires brokers actually to perform the service of receiving and presenting offers and counteroffers or simply requires them to make themselves "available" to their client to do so. Patrick J. Roach, Deputy Assistant Director, Bureau of Competition on Financial Services), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:31541.pdf. See, e.g., J. HOWARD BEALES & TIMOTHY J. MURIS, STATE AND FEDERAL REGULATION OF NATIONAL ADVERTISING 7-19 (1993). Other commentators have observed that if commission rate competition is limited, brokers will likely compete by engaging in marketing activities or offering to provide higher quality services. One panelist who represents a FSBO website discussed his company's experience with state laws that require firms that advertise FSBO homes to become licensed real estate agents. 275. 30, 2000). Most fee-for-service brokers offer sellers two or more service packages, and many offer an additional itemized list of optional services. 2006) ("In short, it is impossible to perform the tasks of a real estate agent or appraiser in the relevant geographic area without using [the defendant MLS]. L. REV. 1992). 2004) (defining procuring cause as "[t]he efforts of the agent or broker who effects the sale of realty and who is therefore entitled to a commission."). Buyer's broker The broker is employed as the buyer's agent. Establishing such name recognition could be aided by affiliating with a national franchise (e.g., Prudential or Re/Max). Thus, if fee-for-service brokers are forced to raise their prices in response to minimum-service requirements, consumers who choose full-service brokers are also likely to pay higher prices for real estate brokerage due to a reduction in the competitive constraint provided by fee-for-service brokers. at 179 ("While some consumers may be sophisticated enough to represent themselves in some or all of the steps of a transaction, most are not."). A few brokers surveyed supported eliminating the rebate ban, recognizing some of the procompetitive benefits that repeal of the ban would foster. "285, The evidence, however, does not suggest that consumers who choose to use fee- for-service brokers are harmed by performing certain aspects of the real estate transaction themselves or misunderstand the nature of the contractual relationships into which they enter. "185 Consistent with this observation, none of the Workshop participants or commenters provided data on commission rates or fees.186 To our knowledge, REAL Trends is the only source that publishes commission rate data. See supra note 26. 40. See, e.g., Kunz, Tr. Some have suggested, however, that the industry has not yet experienced the sort of sweeping benefits to consumers in the form of cost savings and service enhancements that have been seen in other industries from the use of the Internet and other technology.101 This Chapter examines how the Internet has increased consumer access to information about real estate and how this increased access has in turn affected consumer behavior. 76. Id. For sellers, this may mean setting their own sales price and relying on the wide online exposure of MLS listings rather than broker effort to market their home, and hiring an agent only to list their home in the MLS and for assistance in closing the transaction. States typically require agents to disclose to their clients the duties that they owe to their clients under state law. This business model is likely to benefit consumers who do not want to forgo broker assistance completely but who feel comfortable handling many aspects of the transaction without such assistance. a cooperating agent from a brokerage firm not affiliated with the listing or buyer broker but who is assisting that broker by finding a buyer or a property for that broker's client; has fiduciary obligations to the client but does not operate as a subagent of the client See, e.g., FSBOAdvertisingService.com, Houston Texas Realtor Flat Fee MLS, http://www.fsboadvertisingservice.com/flat-fee-mls-MLSTX3.asp (last visited April 20, 2007) (2-3 percent commission for broker that finds a buyer); ifoundahome.net, http://www.ifoundahome.net/Listingwork/SBasicListing.htm (last visited April 20, 2007) (allowing home sellers to offer "a 3% commission or more" to buyers' brokers); TexasDiscountRealty.com, Flat Fee Listing, http://www.texasdiscountrealty.com/flatfee.htm (last visited April 20, 2007) (3 percent commission for a broker that finds a buyer). A cooperating broker likewise can search the MLS to provide a home buyer with information about all the listed homes in the area that match the buyer's housing needs. Specific legal requirements to offer subagency to cooperating brokers are: Written informed consent must be obtained from seller client to offer subagency, the consent must state the following: That the broker may cooperate with another broker who is then a subagent of the seller. 30. Two other companies together operate a program that rebates up to $3,000 for the sale or purchase of a home, which can yield a combined maximum rebate of $6,000 when a customer buys one property and sells another through the program when he or she moves. 061-0267; Monmouth County Ass'n of Realtors, Inc., FTC File No. Even though national average commission rates have fallen steadily since 1991 and commission rates appear to vary inversely with housing prices, it appears that rates are sufficiently inflexible to cause commission fees to move in tandem with housing prices. In the case of the Austin Board of Realtors, for example, the data showed that three months after the MLS implemented its exclusive agency listing policy, the percentage of all listings that were exclusive agency listings fell from 18 percent to 2.5 percent.314 The complaints also alleged that the exclusive agency listing policy did not give rise to any plausible or cognizable efficiencies, and was "not reasonably ancillary to the legitimate and beneficial objectives of the MLS. For example, a VOW operator may or may not also be a discount broker. Iowa 2004), rev'd on other grounds, 406 F.3d 969 (8th Cir. at 20. John R. Read, Chief, Litigation III Section In the twenty-five years since the Realty Multi-List case, the Agencies have brought a number of antitrust cases involving anticompetitive effects associated with an MLS. 1999). First, the full-service broker can disclose his or her responsibilities to both parties in the transaction to make clear the scope of the broker's services. 330. A. NAR 2005 SURVEY, supra note 38, at 65 (Internet cited by 84% of broker respondents, while yard sign cited by 79%). Real Estate Subagency in California: What Prospective Agents Need to The broker typically would retain the flat fee whether or not the home ultimately sells. 111. 49. See, e.g., Reifert, 450 F.3d at 317; Metropolitan Multi-List, 934 F.2d at 1579-80; Realty Multi-List, 629 F.2d at 1356. 27, 2007). See NAR 2006 SURVEY, supra note 4, at 78 (75 percent of home sellers surveyed reported that the listing agent was compensated with a percentage of the sales price of the home). Action No. 45:15-3.1 (West 2006). John H. Crockett, Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 209, 211 (1982). One commenter, the owner of a discount brokerage franchise, reported that he has "not experienced any discrimination by agents in the showing or selling of our properties"333. First, only brokers have direct access to the MLS, which is a local or regional joint venture of real estate brokers who pool and disseminate information on homes available for sale in their particular geographic areas.17 The MLS provides information both on the homes currently for sale in a particular geographic area and past sales data, which typically are used in determining a home's listing price or a buyer's offer price. We refer to brokers and agents collectively as "brokers" throughout this Report, except when a distinction between the two is necessary to the meaning or when quoting a panelist or author. (Amended 1/02) . In addition, consumers likely would benefit significantly from additional knowledge about the range of options available in brokerage services and fees. Denis A. Breen, Assistant Director, Bureau of Economics In recent years, the Agencies have become aware of actions taken by state legislatures, industry regulators and private actors that have the effect of restricting competition in the real estate brokerage industry. The "New" Chapter 452: Defining Real Estate Broker Practice 216. A Conceptual Analysis, 27 REAL ESTATE ECONOMICS 719, 721 (1999) ("Another factor in sustaining a collusive commission rate is that many sellers do not realize that the commission rate is negotiable. See, e.g., California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (entity claiming state action immunity from federal antitrust laws must demonstrate that its actions are (1) pursuant to a clearly articulated state policy intentionally displacing competition with an alternative regulatory scheme and (2) actively supervised by the state or a qualified government agency or official). From 1989 to 1992, despite a home sales price increase of about 15.5%, the average commission rate decreased about 2%. Understanding Agency Relationships - RILiving 295. A listing broker who has already agreed to pay a commission to a cooperating brokerin the MLS, for exampleshould fill out the Ratification of Fee box. Panelists representing the gamut of real estate business models remarked that they do not see a need for minimum-service laws. PATRICK WOODALL & STEPHEN BROBECK , CONSUMER FEDERATION OF AMERICA, HOW THE REAL ESTATE CARTEL HARMS CONSUMERS AND HOW CONSUMERS CAN PROTECT THEMSELVES (June 2006), available at http://www.consumerfed.org/pdfs/Real_Estate_Cartel_Study061906.pdf. "Thus, with the increase in housing prices, the brokerage fee (in dollars) for selling a median-priced home increased even as the commission rate fell. The MLS then makes these data available to all brokers who are members of the MLS.42 By listing information on a home in the MLS, a broker can market it to a large set of potential buyers. 142. The FTC and DOJ do not necessarily endorse, support, verify, or agree with the comments, opinions or statements of Workshop participants or of others who have published articles regarding the industry that are included in this Report. 162. A-00-CA-154JN, 2000 WL 34239114, at *2 (W.D. "); Turnbull, supra note 162, at 296 ("[S]ince no direct pricing of service levels is allowed, the housing market and broker market lose an important channel normally responsible for ensuring that the services are provided to the point where the marginal value to clients equals the marginal cost to brokers."). Nina B. Hale, Assistant Chief, Litigation III Section He concluded that these empirical findings are consistent with his hypothesis that "higher commission fees in more expensive cities are dissipated by excessive entry of brokers. See also id. "177, Several commenters also provided anecdotal evidence regarding falling commission rates in various areas of the country.178 One commenter, for example, stated: "Real estate is very competitive in Arizona. 38. One author has described the service that brokers provide as not merely a completed match of buyer and seller, but rather "a completed transaction at some level of service provided to the parties involved." Designated sales agent Technique in which in-house dual agency can be handled. MLS-only packages are packages where, for a flat fee, the fee-for-service broker agrees to list the seller's home on the MLS by making a unilateral offer of compensation and cooperation to all of the other brokers within the MLS. GAO REPORT, supra note 3, at 17, 20-21. See DEL. What Is Subagency In Real Estate? (Solved) - Signature Group Realty The evidence presented above shows a dramatic increase in agent entry in recent years coupled with claims of intense competition among brokers. This can occur if the broker fails to disclose such information to the client as legally required. According to one survey, 80 percent of home buyers used the Internet during their home search in 2006, and 24 percent of recent home buyers first located the home they bought on the Internet. On the service dimension, they can offer more assistance or convenience to customers. This Report presents an overview of the information provided and opinions expressed at the Workshop, as well as existing literature and studies, and examines some of the competitive issues raised at the Workshop and in other proceedings.8 Chapter I provides background information on the real estate brokerage industry, including the roles that real estate agents and brokers play in a typical real estate transaction; considers the importance of MLSs; and examines some of the alternative business models used by real estate brokerages. 205. 86. Id. NAR's President-Elect has stated: Hearing, supra note 1, at 18-19 (testimony of Pat Vredevoogd-Combs, President-Elect, NAR), available at http://financialservices.house.gov/media/pdf/072506pvc.pdf. 4849, available at http://www.legislature.mi.gov/documents/2005-2006/billengrossed/House/pdf/2005-HEBH-4849.pdf. Rebates are an important form of price competition under the traditional structure of real estate transactions because the seller and seller's broker, not the buyer's broker, determine the amount of the buyer's broker's commission via the listing agreement. A-00-CA-154 JN, 2000 WL 34239114, at *4 (W.D. According to the U.S. Census, the median home sales price in Baton Rouge in 1992 was $73,600. Search Handbook on Multiple Listing Policy, REALTORS Political Action Committee (RPAC), Mission, Vision, and Diversity & Inclusion, Chronological Listing of Multiple Listing Policy Statements, Additional Resources for Members & the Public. 08.88.401 (Michie 2005). For most years, the annual percent change in real commission fees is very similar to the annual percent change in real housing prices. Further, proponents of minimum-service requirements have failed to present evidence that this risk is either unique to fee-for-service brokers or so prevalent as to warrant minimum-service requirements. See also Perriello, Tr. Some have argued that subagency was created by members of NAR in order to restrict access to the MLS. In response to these investigations, the South Dakota and West Virginia Real Estate Commissions rescinded their regulations prohibiting rebates, thereby enabling consumers in those states to receive more benefits of competition.250 The Tennessee Real Estate Commission voted to suspend its rules and is in the process of rescinding them entirely.251, No Workshop panelist who commented on rebate bans found any justification for them. See C.F. of this Report. "182 These observations are similar to those of the GAO, which noted that competition from nontraditional brokers may be partially responsible for a recent decline in commission rates.183, C. Commission Rates and Fees: Empirical Evidence184. Even with the significant amount of information currently available on the Internet, there may be gaps in knowledge by some consumers in several important areas that may result in real estate brokerage markets functioning less efficiently. 051-0217. 13. at 90. 238. A cooperating brokeris a selling agent who assists another broker by finding a buyer. at 82-83. NAR's policy permits traditional brokers to discriminate against other brokers based on their business models, denying them the full benefits of MLS participation. See Glenn Roberts Jr., Flat-fee brokers adapt to new real estate law Texas' new minimum-service law enacted Sept. 1, INMAN NEWS (Oct. 12, 2005), available at http://www.inman.com/inmannews.aspx?ID=48325; see also http://www.texasdiscountrealty.com/laws.htm (website of Texas Discount Realty explaining that "because of the added responsibilities forced on to you, the seller and us the broker, by [the Texas minimum-service law], we are forced, as most brokers to adjust our prices"); Tracy Donhardt, New Law Provides Realtors and Edge, INDIANAPOLIS BUSINESS JOURNAL (July 10, 2006), available at http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=07&issueday=10&page=1 &article=Ar00101 (noting that Indiana's minimum-service law has caused at least one limited-service broker to exit the market). Multiple listing services may, as a matter of local discretion, allow participants to offer cooperative compensation as a percentage of the net sales price, with net sales price defined as the gross sales price minus buyer upgrades (new construction) and seller concessions (as defined by the MLS unless otherwise defined by state law or regulation). Natalya Delcoure & Norm G. Miller, International Residential Real Estate Brokerage Fees and Implications for the US Brokerage Industry, 5 INTERNATIONAL REAL ESTATE REVIEW 12, 29 (2002). Hahn, Tr. Secure .gov websites use HTTPS While there have been many positive developments in the residential real estate industry, there are some indications that consumers are not enjoying all of the possible benefits of competition in the real estate brokerage industry. See United States v. Realty Multi-List, 629 F.2d 1351, 1370 (5th Cir. 9. "150, In any case, competition among brokerages tends to be local, and brokerage shares calculated at the local level can be far higher than those suggested by national data.151 For example, in Re/Max International, Inc. v. Realty One, Inc., the plaintiff's expert presented "essentially unchallenged" testimony explaining that "[i]n a majority of the 161 cities and towns in northeast Ohio, the [two] defendants' combined market share exceeds 50%. W. Robert Majure, Chief, Competition Policy Section NAR, Public Comment 208, at 1 (comment). 191. Examples of FSBO websites include: ForSaleByOwner.com, http://www.forsalebyowner.com (last visited April 20, 2007); FSBO.com, http://www.fsbo.com (last visited April 20, 2007); craigslist.org, http://sfbay.craigslist.org/hhh (last visited April 20, 2007); and HomesByOwner.com, http://www.homesbyowner.com (last visited April 20, 2007). In its complaint, DOJ alleged that NAR's policy was the product of collective action by NAR's members and offers no procompetitive benefit. Further, if limited-service transactions do impose additional costs on cooperating brokers, sellers represented by fee-for-service brokers might find that they must offer cooperating brokers a higher commission to induce them to show their homes, and we are aware of no impediments to them doing so. . We use the terms "cooperating broker" and "buyer's broker" interchangeably throughout this Report. Between 1998 and 2005, the real median real estate broker commission per transaction grew by 25.5% to $11,549. 4. No. NAR reported in its public comment that in 2004 the top ten brokerage firms in the United States had a combined 9.1 percent market share, the top twenty firms had a 10.9 percent share, the top 100 firms had a 17 percent share, and the top 500 firms had a 26.6 percent share.148 In addition, according to NAR, the two largest brokerage firms in the industry had only 4.1 percent and 1.7 percent market shares, respectively.149 The market shares reported by NAR appear to be based on the nationwide shares of individual brokerage firms, most of which do not have a nationwide presence.
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