The FTC's last report on real estate brokerage, twenty-three years ago, stated: Some claim that things have not changed.166 Some commenters observe that the relative inflexibility of commission rates coupled with rising home prices has caused consumers to pay more in commissions, and that if brokers competed more on commission rates, commission fees would be lower.167 Moreover, citing consumers' increasing use of the Internet in real estate transactions and the substantial savings that the Internet has brought to consumers across numerous service industries168, some commenters maintain that the Internet should also be reducing the costs of providing real estate brokerage services.169, In its comment, the American Bankers Association ("Association") observed that "[one] would expect to see variations in brokerage commissions across geographical regions as the supply and demand varies dramatically across the United States, but little if any variation exists. Between 1998 and 2005, the real median real estate broker commission per transaction grew by 25.5% to $11,549. It is a standard question now. The exact requirements vary by state."). REAL ESTATE RES. Id. 205. 249. In September 2005, DOJ's Antitrust Division sued NAR, alleging that its nationwide rules violated Section 1 of the Sherman Act. Texas Real Estate Agency Flashcards | Quizlet A NAR economist explained at the workshop that any average commission rate reported by a prominent entity such as NAR could be used by industry participants as a focal point for collusion on commission rates. As described infra, however, this is not necessarily the case with respect to the entry of new business models in the real estate brokerage industry. 6. 282. 129. . at 157. Perriello, Tr. "330 A Workshop panelist who owns a fee-for-service brokerage recounted his experiences: Brokers also filed public comments alleging that competing brokers have withheld cooperation with, or engaged in harassment of, discounters. Several Workshop panelists expressed a similar view. The norm years ago was 7%, then 6% . "323 A commenter further noted that "[a]lthough we all compete for business, there is a need to cooperate in order to bring a transaction to a successful close. For example, 1% Realty offers buyers a rebate of approximately 1 percent of the purchase price in states that have not prohibited rebates.68 Brokers sometimes also pay rebates to home sellers. at 1089 ("the cost of finding a customer increases with the number of realtors in the market, without necessarily generating additional benefits to the consumer"). 136. 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. See, e.g., Mortgage101.com, http://www.mortgage101.com (last visited April 20, 2007). 258. (2007). See also Blomquist, Public Comment 194, at 1; Forgues, Public Comment 118, at 1 ("Here in Tucson, Arizona, competition amongst real estate agents is fierce. . 78. See, e.g., Your Igloo Real Estate, http://www.yourigloo.com/ (last visited Apr. Brokerage entry appears to be more difficult than agent entry. See Lewis, Tr. 330. What is split Agency? 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. NAR 2005 SURVEY, supra note 38, at 29. This experience builds expertise in gauging market conditions and knowledge of the details involved in completing a real estate transaction. Lawrence Yun, Ph.D., Senior Economist, National Association of Realtors, Presentation at the Federal Trade Commission & Department of Justice Public Workshop: Competition Policy and the Real Estate Industry, Real Estate Brokerage Industry: Structure-Conduct-Performance, at 9 (Oct. 25, 2005) [hereinafter Yun Presentation], available at http://www.ftc.gov/opp/workshops/comprealestate/yun.pdf. of Realtors, 2000 WL 34239114, at *4 n.4 ("It is undisputed that ABOR has significant market power in the relevant product market for residential real estate brokerage services in the Austin metropolitan area and exclusive access to the MLS Data which is essential to effective competition in this market. They should also avoid enacting such laws, rules, and regulations in the future. 29. 328. 312. . MLS-only packages offered by fee-for-service brokers typically include other services provided via the MLS. . "154 A study of real estate transactions obtained from the Lincoln, Nebraska, MLS reported that although homes in the sample were listed by fifteen brokerage firms, "[t]wo of these firms listed 75% of the properties in the sample, with the remaining listings fairly evenly distributed between the other thirteen firms. hristopher M. Ries, Trial Attorney, Litigation III Section "); Bourgoin, Public Comment 30 at 1 ("[T]he FTC did a study which was completed and published in 1983. Overall, the evidence suggests that while commission rates may vary modestly with housing prices and overall market conditions, they do not tend to vary in proportion to changing home prices. Suggested Rules additionally Regulations for a Commercial/Industrial MLS Separately Incorporated but Completely Owned by a Board of REALTORS. at 34 (Internet cited by 80% of home buyer respondents, while yard sign cited by 63%). The Agencies should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances. In such instances, the fact that the gross commission is subject to court approval and either the potential reduction in compensation payable to cooperating brokers or the method by which the potential reduction in compensation will be calculated must be clearly communicated to potential cooperating brokers prior to the time they submit an offer that ultimately results in a successful transaction. For example, one industry participant stated: "Becoming a real estate agent is far too easy and too fast for what the service contemplates: The sale of what for many people is both their most important asset, and the one thing that physically binds their family together: a home."160. The ability of novice entrants to attract clients relative to more experienced agents was not discussed at the Workshop and, likewise, is not addressed in this Report. "97, According to NAR's 2006 Profile of Home Buyers and Sellers, 83 percent of home sellers who retained a broker used one who provided the traditional "full" array of services; 8 percent hired a broker who listed the seller's home in the MLS and performed few, if any, additional services; and 9 percent hired a broker to provide a broader array of services, but short of full-service.98, NAR data show that the number of FSBOs consumers who sell their homes without the assistance of a real estate professional has been declining. DOJ subsequently filed an amended complaint to take the revisions into account. In the most common of the three, an "exclusive right to sell" contract, the listing broker receives a payment if the home is sold during the listing period, regardless of who finds a buyer for the home.20 In an "exclusive agency" agreement, the listing broker receives payment if any broker finds the buyer, but does not receive payment if the seller finds the buyer.21 In an "open listing," a broker has a nonexclusive right to sell the home and receive payment, but other brokers or the seller may also sell the home without any payment to the listing broker.22, The broker who works with the buyer is often referred to as the "cooperating broker" "or "buyer's broker. NAR 2006 SURVEY, supra note 4, at 37. Thomas J. Miceli, The Welfare Effects of Non-Price Competition Among Real Estate Brokers, 20 J. If a buyer asks a seller to pay part of the . C-3300 (1990). If a home buyer finds a discounter's listing on his or her own that appears to be a good match, a broker likely will either have to show the home buyer the discounter's listing or explain why he or she will not.135, In addition, consumers also may be unaware that when they pay their broker a commission based solely on a percentage of the sales price at closing (as most do today),136 the broker's financial incentives are not necessarily aligned with the consumer's. Learn About Subagency in Real Estate - The Balance NAR, Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents (Jan. 17, 2006), http://www.realtor.org/press_room/news_releases/2006/hmbuyersellersurvey06.html. Sellers often want potential buyers to be pre-qualified for the level of financing required to purchase their homes. 24. One panelist who worked with eRealty, an early discount broker that operated a VOW,83 described aspects of its business model. for a description of VOWs. See, e.g., Metropolitan Multi- List, 934 F.2d at 1579-80; Austin Bd. 251. "253 Similarly, another panelist representing a major national brokerage franchise stated that "brokers and agents should be allowed the ability to freely negotiate transaction service pricing with their clients in any way they see appropriate. Civ. It varies greatly. Similar percentages of brokers reported threats or disparagements of their business to clients and prospective clients. 281. For those of you old enough to remember, we had things like the sandwich wars on some airplanes to get people to come on.).". Practice all cards. "); 1983 FTC STAFF REPORT, supra note 9, at 37 ("At the MLS level, there is, in fact, no effective competition at the present time, and almost all brokers are, therefore, members of one system in each local community.") In fact, NAR has agreed that disclosure creates "appropriate expectations" for all parties in the transaction to avoid undisclosed dual agency.301 Further, licensing laws or regulations could be amended to clarify that negotiations with a party who has chosen not to use his or her broker for such negotiations do not imply an agency relationship. 08.88.401 (Michie 2005). is defined as any broker other than the listing broker entitled to a share of any commission arising under this Lease. Hahn, Tr. The MLS also operates an arbitration mechanism to resolve compensation disputes between listing and cooperating brokers. 257, 257 (1998) ("Much of the literature argues that there is . Consumers differ in their willingness, ability and opportunity to use the Internet to perform functions traditionally provided by brokers. See supra Chapter I.C.3. 165. In litigating its case against Realcomp, the FTC staff will seek to prove that this group of competitors should be prohibited from engaging in such conduct to the detriment of consumers. 262. . Competition among brokers based on service to consumers includes a wide range of possibilities. We have not found any increased incidence of undisclosed dual agency problems associated with limited-service brokerage. at 225-26. at 4. 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. Workshop panelists reported how some MLS rules discriminate against brokers who enter into exclusive agency listing agreements, which provide that the broker is entitled to compensation only when the home is sold by an agent, and not in the event the home seller sells the home on his or her own.309 This is the type of agreement used in most fee-for-service transactions. AEI-Brookings Paper, supra note 3 at 8-10. "); see also, e.g., Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312, 317 (7th Cir. 109. See also FTC OFFICE OF POLICY PLANNING, REPORT OF THE STATE ACTION TASK FORCE (Sept. 2003), available at http://www.ftc.gov/os/2003/09/stateactionreport.pdf (analyzing state action immunity doctrine). Barnett, Tr. Split Agent (noun): a licensee assigned by a broker to represent a buyer or seller in a transaction, usually in an in-company dual agency situation. 127. For example, the most recent NAR survey of home sellers and buyers found that the majority of home sellers contact only one listing agent before hiring one to assist with the sale of their home.129 Further, there is evidence that some consumers of brokerage services are not necessarily aware that commission rates are negotiable.130 This may be especially true of buyers who pay for their brokers' services indirectly via the purchase price of the home.131 Although some Workshop comments suggest that consumers' awareness of their ability to negotiate over the price and terms of brokerage services is increasing,132 perhaps due to the increasing numbers of discount brokers that have entered the industry over the past few years, some consumers do not negotiate over commission rates. Dwyer, Public Comment 55, at 1. In addition to the flat fee price of $495 paid at time of listing, the "flat-fee plus" option requires the seller also to pay $1,500 at closing. The antitrust laws generally do not require firms to cooperate with their competitors.