Because consumers tend to know the prices of additional services before entering contracts with fee-for-service brokers, they are not likely to suffer from the "hold-up" that minimum- service advocates have asserted as a reason for such provisions.288, Further, the origins of these laws suggest that the asserted public interest justifications are not genuine. Although this section reports a variety of statistics that purport to measure "market share," this Report makes no attempt to define a relevant antitrust market for this, or any other, analysis. "180, Some commenters identified discount and fee-for-service brokers as key drivers of price competition. A Report by the "23 Cooperating brokers typically attempt to find housing from the available stock that match buyers' preferences, show prospective buyers homes for sale, provide them information about comparable home sales that have occurred in the area, assist prospective buyers in becoming pre-qualified for a certain level of financing,24 advise them on making offers, and assist in closing the transaction. 30. *Relates to Point No. Given that under minimum-service requirements choice is reduced and in many cases prices go up, those who favor minimum-service provisions should bear the burden of demonstrating that consumers affirmatively benefit from them. (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. 9321 (2007) (decision and order), available at http://www.ftc.gov/os/adjpro/d9321/070323decisionorder.pdf. According to one panelist, "there are no significant barriers to entry or expansion in the residential real estate industry. 23, 27-28 (1995). 174. 221. See also Bunnell, Public Comment 146, at 1 ("Low barriers to entry and recalcitrance to change have created a situation where the status quo makes sense for none of the transaction participants. See C.F. The Internet's Effect on the Real Estate Industry, By placing more information in the hands of consumers, the Internet has facilitated the growth of nontraditional business models such as fee-for-service brokers, VOWs, and broker referral networks that allow consumers opportunities to substitute their efforts for those of the broker, in many cases in return for lower fees. Broker IDX websites enable home sellers to get greater exposure for their listings, and enable home buyers to search listings, both on national IDX websites (e.g., Remax.com), and on broker websites focused in a local area. He anticipated that some firms would specialize in specific parts of real estate transactions allowing consumers to choose what fits their needs. 2005). of Realtors, FTC Dkt. at 348 ("[O]n average, a $100,000 rise in the price of the home reduces the commission rate by about 0.5 percentage points"). The ability to buy individual brokerage services, without purchasing the full package offered by full- service brokers, is increasingly important to consumers. Because cooperating brokers typically receive 50 percent of the overall commission, a broker who returns half of his or her commission to the client provides a 25 percent discount on the overall commission payment; rebating one-third provides approximately a 16 percent discount. What Is Subagency In Real Estate? (Solved) - Signature Group Realty 1983 FTC STAFF REPORT, supra note 9, at 1. Practice all cards. 187. Finally, this Chapter addresses gaps in consumer knowledge that may exist despite the extensive information now available on the Internet. Real estate brokers compete to attract customers in different ways based on price and non-price dimensions. 49. For example, in states allowing rebates, some brokers operate business models pursuant to which they rebate up to one-third or one-half of their commission to their buyers. See, e.g., Zillow.com, http://www.zillow.com (last visited April 20, 2007). Where steering behavior appears to be merely the result of a single firm's unilateral decision not to cooperate with a particular competitor, the Agencies have not pursued enforcement actions. 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 noted that, in her experience as a broker, lenders' increased use of technology has streamlined the mortgage process, causing the average time from contract to closing to fall from forty- five to sixty days, to thirty days.37 The HUD-1 form required by the Real Estate Settlement Protection Act ("RESPA") is a centerpiece of the closing and requires a detailed listing of the flow of funds from buyer to seller and the use of funds, including selling and buying expenses associated with the transaction and the amount of commission paid to each broker. Subsequent decisions largely have followed this approach. 311. The obstacles discussed so far in this Chapter represent concerted efforts of real estate incumbents to insulate themselves from new and innovative types of competitors. 64. They instinctively start with the [I]nternet before they search to buy anything. There is some overlap between the categories because certain business models fit into more than one category. Rebate bans inhibit price discounting and thereby harm consumers. However, the cooperating broker finds a buyer for the listed property. Specifically, by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from VOW brokers by means of an "opt out,"319 it enables traditional brokers to block their competitors' customers from having full on-line access to all of the MLS's listings. Network with other professionals, attend a seminar, and keep up with industry trends through events hosted by NAR. 135. 310. 159. As discussed in Chapter I of this Report, rebates are a meaningful component of price competition between brokers in states that do not prohibit rebates. "179 Another commenter observed that "[t]he 6% commission of long ago has decreased to 4 or 5% on the majority of deals. See, e.g., Massachusetts Bd. In response to DOJ's investigation, the Tennessee Real Estate Commission voted to suspend enforcement of its rebate ban on July 13, 2006, and subsequently voted to repeal the offending regulation. Gregory P. Luib, Assistant Director, Office of Policy Planning at 235 ("there's relatively free entry into the profession and into the real estate brokerage business . 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]. Both the MiRealSource and Realcomp complaints allege that the conduct was collusive and exclusionary, because in agreeing to keep non-traditional listings off the MLS or significant public websites, the brokers enacting the rules were, in effect, agreeing among themselves to limit the manner in which they compete with one another, and withholding valuable benefits of the MLS from real estate brokers who did not go along. Because, all else being equal, brokers have less incentive to show properties that offer them a lower commission, brokers may refrain from offering less than the prevailing commission.). National Brokerage Pg. 64 - Unit 2: Flashcards | Chegg.com "89 As he explained, consumers "expect systems, servers, to do the grunt work of searching for homes, gathering data on schools and neighborhoods, monitoring new listings, and the reporting whenever a listing fits their profile, [and] scheduling appointments . at 172 ("There are no barriers to entry in our industry . NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers contacted only one agent; 74% of sellers found their agent through either a referral or a prior relationship with the agent). The authors did not identify the source of the U.S. commission data. at 101 (noting that several types of business models operate under the Century 21 franchise). 91. at 20. (Amended 05/10), While offers of compensation made by listing brokers to cooperating brokers through MLS are unconditional (except where MLS rules create specific exceptions as specified elsewhere in this policy statement), a listing brokers obligation to compensate a cooperating broker who was the procuring cause of sale (or lease) may be excused if it is determined through arbitration that, through no fault of the listing broker and in the exercise of good faith and reasonable care, it was impossible or financially unfeasible for the listing broker to collect a commission pursuant to the listing agreement. Mid-America Real Estate Co. v. Iowa Realty Co., No. Performing such ministerial acts that are not inconsistent with subsection A shall not be construed to violate the licensee's brokerage relationship with the seller unless expressly prohibited by the terms of the brokerage relationship, nor shall performing such ministerial acts be construed to form a brokerage relationship with such buyer or potential buyer."). See discussion in Hsieh & Moretti, supra note 139, at 1116 (estimating $1.1 billion to $8.2 billion social waste resulting from excess entry in 1990). For most years, the annual percent change in real commission fees is very similar to the annual percent change in real housing prices. 1 (2006) [hereinafter Hearing] (testimony of David G. Wood, Director, Financial Markets and Community Investment, Government Accounting Office), available at http://financialservices.house.gov/media/pdf/072506dgw.pdf. Through a cooperating broker agreement, the cooperating broker earns a share of the commission paid at the close of the sale. Chang-Tai Hsieh Presentation, Associate Professor of Economics, University of California, Presentation at the Federal Trade Commission and Department of Justice Public Workshop: Competition Policy and the Real Estate Industry, The Tragedy of the Commission (Oct. 24, 2005), available at http://www.ftc.gov/opp/workshops/comprealestate/hsieh.pdf. Get the latest top line research, news, and popular reports. In filing property with the multiple listing service, participants make blanket unilateral offers of compensation to the other MLS participants and shall therefore specify on each listing filed with the service the compensation being offered by the listing broker to the other MLS participants. As the authors explain, the commission rate captured in the sample is "the contract rate and therefore does not reflect any adjustment or changes that might be renegotiated between the house seller and the agent at the time of sale." Id. at 146. 172. Blann, Public Comment 250, at 1. 43, available at http://www.lrc.ky.gov/record/06RS/SB43.htm. 202. "190, Data reported to the Securities Exchange Commission by Realogy, the largest brokerage firm in the United States, are consistent with these findings. See Barry, Public Comment 19, at 57 (reporting that, because the public sources of property listings never show the commission offered by the listing brokers, buyers are unaware that their agents have screened out listings with lower commission offerings); WOODALL & BROBECK, supra note 14, at 5 ("home buyers will not have access to this information about the splits, so they cannot check to see whether their broker is steering them away from houses carrying lower splits"); White, supra note 47, at 5 n.13 ("in a milieu where there is a great deal of uncertainty as to which house will best fit the demands of a buyer and which buyers are true prospects for a seller, it may be difficult for the client to determine that her agent is steering in a disadvantageous way"); 1983 FTC STAFF REPORT, supra note 9, at 75 ("Because many buyers think they are seeing all the properties a broker or salesperson knows to be on the market, the practice of steering coupled to the general practice of denying consumers direct access to information from a MLS may mislead buyers."). See, e.g., Paul Anglin & Richard Arnott, Are Brokers' Commission Rates on Home Sales Too High? The following people testified at the Workshop: Cathy Whatley, real estate broker and Past President of NAR; Robert Hahn, economist and Executive Director, American Enterprise Institute-Brookings Joint Center for Regulatory Studies; Aaron Farmer, Owner of Texas Discount Realty; Thomas Kunz, President and Chief Executive Officer of Century 21 Real Estate LLC; Colby Sambrotto, Chief Operating Officer of ForSaleByOwner.com; Wayne Thorburn, Administrator, Texas Real Estate Commission and Immediate Past President of the Association of Real Estate License Law Officials; Steve DelBianco, Executive Director, NetChoice Coalition; Thomas Early, President, National Association of Exclusive Buyers' Brokers; Philip Henderson, Vice President, Lending Tree; Geoff Lewis, Senior Vice President and Chief Legal Officer, RE/MAX International, Inc; Alexander Perriello, President and Chief Executive Officer, Cendant Real Estate Franchise Group; Lawrence Yun, Managing Director of Quantitative Research, NAR; Chang-Tai Hsieh, Associate Professor of Economics, University of California. See Whatley, Tr. One panelist who is a fee-for-service broker describes this as his "flat-fee plus" option, where, in addition to listing the home in the MLS and placing it on several websites, he provides the seller assistance once the buyer is found. These data come from the "total home selling expense" field in the Bureau of Labor Statistics' annual Consumer Expenditure Survey from 1980-1990. 29. Ohio,302 Virginia,303 and Wisconsin304 recently have adopted this approach. Based on the foregoing, the FTC and DOJ recommend the following to help maintain competition and protect consumers in the real estate brokerage industry: 1. vol. Because becoming an agent is easy, an increasing number of people enter the industry in search of these higher profits. If a listing broker fails to pay a cooperating broker, the cooperating broker can bring a "procuring cause" dispute against the listing broker through the MLS arbitration mechanism. at 113-14. Cooperating Broker Compensation Agreement - Pennsylvania Association of . Id. 2007), Notice of Rulemaking, available at http://www.tn.gov/sos/rules_hearingnotices/2007/1260/1260.20070228.02-37-07.notice.pdf (last updated Feb. 28, 2007). REAL ESTATE RES. "116 Among the evidence supporting this conclusion is the finding that in 2006, 80 percent of home buyers used the Internet during their home searches (up from 71 percent in 2003).117 In addition, in 2005 and 2006, 24 percent of recent home buyers first found the home that they purchased on the Internet up from only 2 percent in 1997.118 Conversely, the number of buyers reporting real estate agents as the first source of such information has decreased from 50 percent in 1997 to 36 percent in 2005 and 2006.119 Among the most popular websites used by home buyers in their searches were Realtor.com (52 percent of respondents), MLS websites (53 percent), and real estate company websites (41 percent).120 Features ranked as most useful among home buyers searching for a home on the Internet were photos (identified as very useful by 83 percent of home buyers), detailed property information (81 percent), and virtual tours (60 percent).121 Brokers surveyed by NAR cite the Internet more frequently than any other method, including yard signs, as a way to market homes.122, B. Id. 168. CODE 43-23-11.1 (2006). So, given the fact that the Realtor membership has increased far more than actual home sales, it's not surprising that the median income has fallen."228. . ."). 113. 65. See Testimony Summary of Russell Capper, President and Chief Executive Officer, eRealty, Inc. before Federal Trade Commission Office of Policy and Planning Public Workshop on E-Commerce 2 (2002), available at http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/capper.pdf. It varies greatly. See Glenn Roberts, Jr., New Mexico Rescinds Controversial Real Estate Rules, INMAN NEWS (July 17, 2006), available at http://www.inman.com/InmanNews.aspx?ID=54526. Federal Trade Commission and NAR, Public Comment 208, at 5 (comment). Several states, including Delaware, Florida, Ohio, Oklahoma, Tennessee, and Wisconsin, have less restrictive laws that allow the client to decide whether he or she wants the listing broker to perform such services. However, because sellers typically do not pay for title searches, abstracts, and many of the other fees associated with closing a residential real estate transaction, the data in this field are likely to closely represent commissions paid by the seller. 36. 272. 59. (Amended 5/10), Note 3: Multiple listing services must give participants the ability to disclose to other participants any potential for a short sale. AEI-Brookings Paper, supra note 3, at 12. 1999). Other studies have examined REAL Trends data and have made the same observations about patterns in commission rates, housing prices, and brokerage fees. Counsel, Texas Real Estate Comm'n. If the seller accepts the offer, the home is "under contract," and, pursuant to contracts containing typical contingencies, several things must occur during a stated time period before the transaction closes, such as home inspections, appraisals, securing buyer financing, assuring the title to the home is clear, and conducting necessary repairs.34 Both listing and cooperating brokers typically work together to assure that all contingencies are satisfied, allowing the closing to occur as scheduled. The questionnaire is available at http://www.ftc.gov/opp/workshops/comprealestate/questionnaire.htm. See, e.g., Lord, Public Comment 254, at 1 ("The competition is fierce the majority of time that an agent has a listing appointment . Real Estate Subagency in California: What Prospective Agents Need to MLSs are the primary source of home listings information because they contain real time information on virtually every home listed for sale in a given area, except FSBO homes. Hahn, Tr. Another type of restraint that is likely to reduce competition and consumer choice in real estate brokerage-related services is overly broad licensing requirements, particularly those applicable to firms that advertise FSBO homes. MO. ANN. associate A sales agent or a broker license holder who is associated with a broker. See Commission Minutes at 4 (July 12-13, 2006) (suspending enforcement); Commission Minutes at 3 (Aug. 9-10, 2006) (repealing rule). 13. The full transcript is available at http://www.ftc.gov/opp/workshops/comprealestate/051209transcript.pdf and http://www.usdoj.gov/atr/public/workshops/rewagenda.htm. On the service dimension, they can offer more assistance or convenience to customers. REV. The potential negative impacts of steering are not likely to be as pronounced when brokers discount to home buyers via rebates because listing agents do not have the same incentives or ability to steer that cooperating agents have. Reg. 25. See Yun, Tr. NAR, Public Comment 208, at 7 (comment). 322. Although neither commenters nor Workshop panelists presented evidence to explain the cause of relatively inflexible rates, this phenomenon has meant that the price that consumers paid for brokerage services rose considerably during the recent run-up in housing prices. Founded as the National Association of Real Estate Exchanges in 1908. 152. See Whatley, Tr. of this Report. This document is available in two formats: this web page (for browsing content), and PDF (comparable to original document formatting). C-4167; Information and Real Estate Services, LLC, FTC File No. Prudential Real Estate purchased eRealty. 39. L. REV. The subagent represents the seller, and therefore, works with the buyer, but not for the buyer. 1992). 8, 2005), available at http://www.usdoj.gov/atr/public/comments/209203.htm; Letter from FTC and DOJ to Michigan State Sen. Alan Sanborn (Oct. 18, 2005), available at http://www.ftc.gov/os/2005/10/051020commmihousebill4849.pdf; Letter from the FTC and DOJ to Governor Matt Blunt (May 23, 2005), available at http://www.ftc.gov/opa/2005/05/mrealestate.htm; Letter from the FTC and DOJ to Alabama Senate (May 12, 2005), available at http://www.ftc.gov/os/2005/05/050512ltralabamarealtors.pdf; Letter from the FTC and DOJ to Loretta R. DeHay, Gen. 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.