And by returning money to home buyers, rebates can also benefit home sellers, because buyers will have more to spend on the home as opposed to commission payments. Christopher P. Adams, Bureau of Economics 225. INFORMATION TECH. Id. See, e.g., GAO REPORT, supra note 3, at 16. (Amended 11/98). Access to the MLS is one of the most important services that real estate brokers traditionally have offered. 187. See C.F. The scenarios covered by the FAQs reference Standards of Practice 3-3 and 16-16. 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. For example, the FTC sued to prevent MLSs from discriminating as to the listings that are made available on the Internet, and DOJ sued to prevent NAR from establishing rules against VOWs that limit the ability of a broker's client to see via the Internet all the listing information formerly screened by the broker. 241. For example, before the introduction of the Internet, consumers had to learn about homes for sale through real estate brokers, or through various offline marketing vehicles, such as yard signs, newspaper advertisements, or real estate magazines. 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. 061-0267; Monmouth County Ass'n of Realtors, Inc., FTC File No. Hahn believes that rebating will have a positive impact on consumer welfare, and sees no compelling economic rationale for not allowing rebates since they are a form of price competition that should improve efficiency by putting pressure on brokerages to provide better services at lower prices. "179 Another commenter observed that "[t]he 6% commission of long ago has decreased to 4 or 5% on the majority of deals. As illustrated in Figure 1, commission rates have fallen gradually over this time period, from 6.1 percent to just over 5 percent. Official websites use .gov A few brokers surveyed supported eliminating the rebate ban, recognizing some of the procompetitive benefits that repeal of the ban would foster. Tex. According to Hsieh, in a booming real estate market, relatively stable commission rates imply higher commission fees per transaction and an increased profit opportunity for agents. . ."). (Revised 11/96), This shall not preclude the listing broker from offering any MLS participant compensation other than the compensation indicated on his listings as published by the MLS, provided the listing broker informs the other broker in writing in advance of their submitting an offer to purchase and provided that the modification in the specified compensation is not the result of any agreement among all or any other participants in the service. While states properly are concerned with issues of consumer fraud, there is no evidence that rebates have harmed consumers or that rebate bans improve service quality. See AEI-Brookings Paper, supra note 3, at 19. Commenters and participants in the real estate brokerage industry report steering behavior. See Yun Presentation, supra note 145, at 3. A cooperating broker may represent either the seller or the buyer. 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. "10 Brokers reduce the transaction costs of matching buyers and sellers and also provide their clients with ancillary services related to the transaction. Such entities are likely to gain financially from increased entry into the brokerage industry. Yet, consumers are paying almost 25 percent more for brokerage services, after adjusting for inflation, than they did in 1998. 62-13-403, WI. See also Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. NAR 2005 SURVEY, supra note 38, at 59. First, some fear that sellers using fee-for-service brokers foist additional work onto full-service cooperating brokers and jeopardize the transaction due to the sellers' inexperience. they are confronted with the question how much can you reduce your commission? These include advertising the seller's listing on Internet websites that home buyers search directly (e.g., Realtor.com)73 and on other MLS members' websites. Citations to submissions by these parties contain a parenthetical reference either to the "comment" or the "cover letter." (Amended 5/10), Multiple listing services shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships. Sirmans & Turnbull, supra note 209, at 111. 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"). c. Both a and b. d. Neither a nor b. b. their broker. "113 Another commenter observed: One panelist opined that "a generation of Americans are now comfortably and constantly connected to the [I]nternet and to [eC]ommerce. 7. OHIO CODE 4735.75(B) ("A licensee who negotiates directly with a seller, purchaser, lessor, or tenant pursuant to a written authorization as described in division (A) of this section does not violate division (A)(19) of section 4735.18 of the Revised Code and negotiations conducted by a licensee pursuant to the authorization shall not create or imply an agency relationship between that licensee and the client of that exclusive broker."). However, in many cases, individual brokerage firms exist under common ownership or as part of a franchise system. 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. Panelists representing the gamut of real estate business models remarked that they do not see a need for minimum-service laws. 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. REAL Trends publishes nationwide average commission rates. And trust me, everyone asks."). See, e.g., Hsieh, Tr. See Commission Minutes at 4 (July 12-13, 2006) (suspending enforcement); Commission Minutes at 3 (Aug. 9-10, 2006) (repealing rule). We refer to all such rebates and inducements generally as "rebates" throughout this Report. Although they typically do not play an active role at this stage, brokers often accompany their clients to the closing.38 The brokers are paid their commission at closing. See Lewis, Tr. "); see also, e.g., Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312, 317 (7th Cir. Id. This field also includes selling expenses other than commissions, like closing costs and attorneys fees, so it is likely to overstate the actual commission rate. 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. 54. C-3449, 116 F.T.C. 108. 2d 868, 870-71 (E.D. 233. See Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. As discussed in Chapter I, rebates can be powerful tools for price competition among brokers. Id. NAR, Public Comment 208, at 5 ("An agent can obtain a broker's license, usually after having been in business for several years, and passing a broker's license exam. Although, as noted in Chapter I, cooperation among brokers can lower transaction costs, it may also foster a natural impediment to discount brokers.325 As one author has explained: As a result, brokers may be deterred from discounting if cooperating brokers threaten to "concentrate their efforts" or steer buyers toward transactions for which higher commissions are available. Local broker marketplaces ensure equity and transparency. STATUTES 339.780(7)(1)-(3). 0. See Whatley, Tr. Report Anticompetitive Conduct After a Natural Disaster, Deputy Assistant Attorney General for Economic Analysis, Deputy Assistant Attorney General for Criminal Enforcement, Deputy Assistant Attorney General for International, Policy and Appellate Matters, Deputy Assistant Attorney General for Civil Enforcement, Competitive Effects of Minimum-Service Requirements. 297. 321. 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. 213. 311. An official website of the United States government. 83. See, e.g., Rules and Regulations of North Texas Real Estate Information Systems, Inc. 5.01-5.02 (amended Sept. 21, 2005), available at http://www.ntreis.net/documents/Documents_262006124924. Second, minimum-service requirements can reduce the competitive constraint that fee-for-service brokers pose to full-service brokers. Hahn, Tr. First, if the seller chooses to hire a real estate broker rather than selling the home on his or her own, the seller contracts with a "listing broker." 192. Mar. This can occur if the broker fails to disclose such information to the client as legally required. 272. "105 The same panelist elaborated on the advantages of MLS data: As this panelist explained, access to full MLS, rather than limited IDX datafeeds, is "extremely valuable" because it allows agents to tell consumers "the minute that something is listed, 'Let me tell you, there was a new listing that just popped up, it's matched your criteria, I think we ought to go out and look at it.'"107. 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). Therefore, IDX datafeeds may contain listings on fewer than all of the homes listed for sale in the MLS's area. To view the PDF you will need Acrobat Reader, which may be downloaded from the Adobe site. Using that information, as well as Agency expertise, the almost 400 submissions filed in response to the Agencies' request for public comment in connection with the Workshop, and other available information, this Report has undertaken a careful examination of the real estate brokerage industry. . "176 An agent who has been in the business for less than a year stated: "Realtors are competing fiercely on the price at which they will take listings. ANN. Because brokers usually set the rules for each others' participation in the MLS by agreement, it is possible for one dominant group of brokers to establish MLS rules that favor them and disfavor other brokers who compete in a manner that they dislike. 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). 52. These data come from the "total home selling expense" field in the Bureau of Labor Statistics' annual Consumer Expenditure Survey from 1980-1990. 9. For an official signed copy, please contact the Antitrust Documents Group. Should another broker in the MLS procure the buyer that ultimately purchases the seller's home, the fee- for-service broker is typically obligated under MLS rules to pay the cooperative compensation listed on the MLS to that broker. Missouri's law is representative of these requirements, mandating that all brokers who enter into an exclusive brokerage agreement259. Hahn, Tr. Namely, a broker's success typically depends on securing significant cooperation from direct competitors. Further, if commission rates are relatively inflexible, such that agents do not seek to attract customers by offering lower rates, agents will compete along other dimensions to gain clients.214 For instance, agents may expend resources "prospecting" for listings by, for example, door-to-door canvassing, mailings, providing potential clients with free pumpkins at Halloween, and calling on FSBO sellers.215, Marketing is often beneficial to consumers and competition,216 and some consumers may benefit from the enhanced service competition in this market. 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. There were contrasting views among Workshop participants and commenters about the extent to which brokers compete on the price dimension. The Agencies' review of fee-for-service broker websites indicates that most offer at least two tiers of service and the complete array of traditional services at a reduced commission. 704 (1993); Puget Sound Multiple Listing Ass'n, FTC Dkt. One panelist who worked with eRealty, an early discount broker that operated a VOW,83 described aspects of its business model. 051-0217. See Perriello, Tr. Second, most brokers have been involved in many more real estate transactions than their clients. "); Bourgoin, Public Comment 30 at 1 ("[T]he FTC did a study which was completed and published in 1983. 98. Blann, Public Comment 250, at 1. 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. Most brokers have agents working for them and they collect a portion of those commissions in exchange for providing office space, marketing, and other overhead. 320. On the morning the lawsuit was filed, NAR announced a revised policy that contained a blanket opt-out under which the listings of brokers who withheld their listings from a VOW could appear on no brokers' website, except for NAR's website, Realtor.com. Commentary from NAR experts on technology, staging, placemaking, and real estate trends. Cf. 215. at 172 ("There are no barriers to entry in our industry . "); Richard J. Buttimer, Jr., A Contingent Claims Analysis of Real Estate Listing Agreements, 16 J. 295. For example, Weicher calculates that although the average commission rate as reported by REAL Trends fell by 16 percent (6.1 percent to 5.1 percent), because the average price of existing housing increased during this period ($128,400 to $236,000), the average inflation-adjusted commission per transaction increased by 11 percent in dollar terms between 1991 and 2004.187 More specifically, Weicher's analysis indicates that inflation- adjusted commission fees per home sale declined by approximately 7 percent between 1991 and 1998, but increased 19 percent between 1998 and 2004.188 The GAO, also using REAL Trends' commission rate data, reached the similar conclusion that commission rates do not appear to have changed enough to offset rapidly rising home prices in recent years.189 Specifically, the GAO observed that a decrease in commission rates from the prevalent 5.5 percent in 1998 to an estimated 5 percent in 2005, a 9 percent decrease in commission rates, was more than offset by a 58 percent increase in the median inflation-adjusted home sales price. A 1983 FTC Staff Report on the real estate brokerage industry observed that "the nearly universal opinion is that there are no significant barriers to entry, if entry is construed as gaining a license in order to practice. 222. "190, Data reported to the Securities Exchange Commission by Realogy, the largest brokerage firm in the United States, are consistent with these findings. See Complaint, United States v. Kentucky Real Estate Comm'n, Civil Act. These licensing statutes form the framework for state regulation and oversight of the profession by establishing requirements for licensure (such as minimum age, education, and experience) and various requirements and prohibitions regarding business practices and conduct. What is a subagency relationship? Cooperating brokers may also seek to negotiate higher compensation from the listing broker or from the home buyer. single agent A single agent is an agent who represents only one person in the transaction, either the buyer or the seller. It varies greatly. 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. Matthew Magura, Economist, Economic Regulation Section 166. State commissions, frequently composed of real estate brokers, oversee drafting of and compliance with these laws and regulations.14. at 198-99. For example, one Workshop participant who operates a flat- fee brokerage stated that about 30 percent of his clients who sign up for a flat-fee listing eventually purchase additional brokerage services.74 This panelist's website offers the flat-fee listing at $595, but also offers two other packages: "flat-fee plus," which costs an additional $1,500 and includes negotiation and post-contractual assistance, and full- service brokerage for a discounted percentage fee.75 Further, many fee-for-service brokers allow their clients to cancel their listing agreement at any time, leaving consumers free to pursue other brokerage or non-brokerage options if they become dissatisfied with the broker's service. 30 Today, after NAR argued that its VOW policies do not violate the Sherman Act because they merely empower individual brokers to opt out and therefore "restrain" nothing. Agency RelationshipsUnit 5 109 Is the Cooperating Broker a Subagent? 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. 29 During the 1990s, most states revised their laws to allow buyer representation, and at the same time NAR revised its policies, eliminating seller-subagency as a condition of participation in the MLS. Without rebates, if the buyer's broker were simply to reduce his or her commission, the savings would go to the seller's broker, not to the home buyer. a. the price range of property the agent is most likely to list and sell. The data are usually proprietary and not readily available to the public or to academic analysts. 1983 FTC STAFF REPORT, supra note 9, at 31. "181 Another agent at a full-service firm reported that "since we go up against limited service firms all the time, we are having to reduce our commission rate to keep the client. "); Austin Bd. See Yang & Yavas, supra note 154, at 23 (1995) (reporting that only 12 percent of listings in the State College, PA MLS in 1991 were sold by the listing broker); 1983 FTC STAFF REPORT, supra note 9, at 37 ("approximately 66 percent [of sales] involve more than one broker"). Generally speaking, agents work directly with consumers and brokers supervise agents. The seller then assumes responsibility for future tasks related to the sale of his or her home. 281. 150. While action by a state through legislation is generally immune from federal antitrust enforcement, not every act of a state governmental entity is protected by state action immunity.242 When actors other than the state itself (e.g., the legislature or state supreme court) unreasonably restrict competition under the guise of state authority, those actions may be subject to antitrust scrutiny.243 For example, where rebate bans have been imposed by state real estate commissions, DOJ has investigated, and where appropriate challenged, these restrictions in order to bring the benefits of price competition to consumers. He anticipated that some firms would specialize in specific parts of real estate transactions allowing consumers to choose what fits their needs. Namely, there has been substantial agent entry in recent years225 and the average number of transactions per agent declined by 20 percent from 2000 through 2005.226 Even though the income available from each transaction increased over the time period, according to NAR, the "typical" income of its members fell from $52,000 in 2002 to $49,300 in 2004, while the income of sales associates (who comprise two-thirds of NAR's membership) decreased from $41,600 to $38,300 during the same time period.227 A NAR economist appearing on a Workshop panel explained: "That's not surprising. A second effect of minimum-service requirements is that they reduce the competitive constraint fee-for-service brokers place on full-service brokers.281 A full- service broker who wants the business of a consumer considering fee-for-service brokerage will need to offer a lower commission rate and/or increased quality to induce the consumer to choose to purchase the additional services the broker offers. 972 (1993); American Industrial Real Estate Ass'n, Dkt. AEI-Brookings Paper, supra note 3 at 8-10. 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. Access to the largest number of potentially appropriate homes for sale allows buyers to maximize their chances of finding a home that most closely matches their desired characteristics.53, MLSs are so important to the operation of real estate markets that, as a practical matter, any broker who wishes to compete effectively in a market must participate in the local MLS. W. Robert Majure, Chief, Competition Policy Section at 114; Farmer, Tr. . Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF URBAN ECONOMICS 102 (1997). at 4. 136. 45:15-3.1 (West 2006). See NAR, CODE OF ETHICS AND STANDARDS OF PRACTICE OF THE NATIONAL ASSOCIATION OF REALTORS, STANDARD OF PRACTICE 17-4 (effective Jan. 1, 2006), available at http://www.realtor.org/mempolweb.nsf/pages/code. 16. The evidence presented above shows a dramatic increase in agent entry in recent years coupled with claims of intense competition among brokers. N.D. See, e.g., Mortgage101.com, http://www.mortgage101.com (last visited April 20, 2007). 103. Bringing you savings and unique offers on products and services just for REALTORS. Cal. at 172; NAR, Public Comment 208, at 12 (comment). Cf. Based on weighted average sales price of new and existing homes in 2005 ($271,263), the buyer's broker's share of a $13,834 commission would be $6,917. Avoiding fee-for-service listings without disclosure to buyers, however, may raise issues concerning the fulfillment of fiduciary duties. . According to one panelist, "there are no significant barriers to entry or expansion in the residential real estate industry. Alternatively, brokers may adopt a combination of flat fees and a commission rate. 134. Matthew J. Bester, Trial Attorney, Litigation III Section 54 As previously noted, brokers using the MLS reduce the costs of matching buyers and sellers and can market their service to a large set of potential clients. This Chapter explores evidence concerning competition among brokers. "247 Another broker predicted: "This [lifting the rebate ban] would turn into a bidding war, lessen our profits and cheapen our 'so-called' profession. But see 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). 1992). at 14. Brokers can provide varying degrees of assistance to buyers, such as performing MLS searches for homes for the buyer or allowing a buyer on-line access to MLS data to perform such searches on his or her own. Founded as the National Association of Real Estate Exchanges in 1908. This contract often specifies the commission the homeowner will pay the listing broker if the home is sold within a specified period of time, how the home is to be listed in the MLS, and, as discussed below, the share of the commission to be offered by the listing broker to a so-called "cooperating broker," who works with the buyer.19 The listing broker typically markets the home, both within his or her brokerage firm and to other brokers in the community, by uploading the listing data, including the offer of compensation to cooperating brokers, into the MLS database so that the information can be disseminated to cooperating brokers, who in turn can inform potential buyers of the listing. and Levitt & Syverson find empirical evidence consistent with a principal-agent conflict between sellers and agents. Yun Presentation, supra note 145, at 5, 7. . The only exception to this is in the case of the appointment of designated agents, as outlined in paragraph 10. See C.F. Gregory P. Luib, Assistant Director, Office of Policy Planning REV. 265, 269 (2000) ("In recent years it has become more common for buyers to employ a buyer's agent, rather than a traditional seller's agent"). Think about it. For a discussion of the positive network effects associated with MLSs, see 13 HERBERT HOVENKAMP, ANTITRUST LAW 2220b4, 2223b3 (2d ed. Empowers REALTORS to evaluate, enhance and showcase their highest levels of professionalism. 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. 102. 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. . 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.
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