The staff found that 85 percent of the sellers surveyed were quoted a commission rate of either six or 7 percent by their broker. to help them see the home."90. 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.). 317. 133. at 3. 627 (2005); Steven D. Levitt & Chad Syverson, Market Distortions When Agents are Better Informed: The Value of Information in Real Estate (NBER Working Paper 11053, 2005), available at http://www.nber.org/papers/w11053. In addition to listing information derived from MLSs, consumers also can view homes for sale on third-party advertising websites such as Craigslist.com, and on a variety of websites that promote homes that are for-sale-by-owner.108 Further, the Internet helps consumers to educate themselves about other areas of home buying and selling. They can provide varying levels of service to sellers in marketing their homes, such as holding open houses more or less frequently. 5. Its data are derived from a survey of the top 500 brokerage firms in the country and a group of rising firms just below the top 500. 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"). 156. . The ability to buy individual brokerage services, without purchasing the full package offered by full- service brokers, is increasingly important to consumers. Sellers often want potential buyers to be pre-qualified for the level of financing required to purchase their homes. at 1082. One panelist observed that "[brokers] are cooperative with the competition in ways unheard of in any other industry that I know of. 241. 33, no. ASS'N 519 (1992); Crockett, supra note 51, at 213. See VA. CODE 54.1-2138.1. 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. 72. . The Agencies should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances. See, e.g., GAO REPORT, GAO-03-749, Airline Ticketing: Impact of Changes in the Airline Ticket Distribution Industry (July 2003) (discussing how Internet distribution lowered transaction costs in the sale of airline tickets), available at http://www.gao.gov/new.items/d03749.pdf; GAO REPORT, GAO/GGD-00- 43, Online Trading: Better Investor Protection Information Needed on Broker's Web Sites (May 2000) (discussing how Internet brokerages charge far less commission per trade on securities), available at http://www.gao.gov/new.items/gg00043.pdf. 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. 189. 4. Higher profits may accrue to participants in the industry not subject to intense entry and profit dissipation. The average sales price of an existing home in 1980 was $72,800. 320. "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. Assuming a commission rate of 5.8% in 1985, Sirmans and Turnbull's statistical results imply a commission rate that varies from 5.8% in 1985, upwards to a commission rate of 6.06% at the end of 1989, and downward to 5.95% by the end of 1992. "179 Another commenter observed that "[t]he 6% commission of long ago has decreased to 4 or 5% on the majority of deals. If that cooperation cannot be obtained, it is possible that an entrant might fail even if it is more efficient and provides a more attractive combination of price and service to consumers. As noted above, 80 percent of consumers use the Internet to search for homes in 2006.134 To the extent that consumers have greater knowledge of the stock of housing for sale than they used to, brokers will be less able to exclude a particular listing from home buyers' searches without their knowledge. AEI-Brookings Paper, supra note 3, at 12. In contrast to VOWs and to brokers' "brick and mortar" offices, websites that rely on an IDX datafeed contain less information than the actual MLS database, and that information may be out of date.104 If a broker opts to not participate in the IDX, which NAR's rules allow, none of the broker's listings are included on the IDX datafeed, and he or she cannot operate a website based on an IDX datafeed. 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."). of this Report. 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. at 20. The exact requirements vary by state."). Such entities are likely to gain financially from increased entry into the brokerage industry. . The final part of the Report offers conclusions and recommendations. The examples of relatively high local market shares for brokerages described above suggest that agent entry is more common than brokerage entry. By reducing the cost of transmitting and searching information, the Internet has enabled consumers more easily to educate themselves about all facets of home buying and selling. 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 Hahn's concerns are more fully developed in his AEI-Brookings Paper, where he describes how the cooperative relationship among brokers in an MLS has the potential to give rise to uniformity in services provided and brokerage fees charged. 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. Weicher, supra note 166, at 121, reports that Sirmans and Turnbull calculated an average contract commission rate of 5.8% in Baton Rouge over the period 1985-1987. The essential and appropriate requirement by a multiple listing service is that the information to be published shall clearly inform the participants as to the compensation they will receive in cooperative transactions unless advised otherwise by the listing broker in writing in advance of their submitting an offer to purchase. c. Both a and b. d. Neither a nor b. b. their broker. A fiduciary duty is a special relationship recognized in law. 144. In any instance where a participant discloses a potential short sale, they must also be permitted to communicate to other participants how any reduction in the gross commission established in the listing contract required by the lender as a condition of approving the sale will be apportioned between the listing and cooperating participants. The reduced susceptibility to unilateral steering of cooperating brokers who rebate underscores the importance of the Agencies' efforts to educate state legislators and regulators about the competitive harms that may be caused by anti-rebate laws. The Agencies have not encountered evidence supporting any of these arguments in favor of minimum-service restrictions. See Steve Sawyer et al., Redefining Access: Uses and Roles of Information and Communication Technologies in the US Residential Real Estate Industry from 1995 to 2005, 20 J. Fee-for-service brokers sometimes also referred to as "flat-fee" brokers or "limited-service" brokers represent a departure from traditional full-service brokers who typically charge a commission based on the sales price in return for a bundle of services. . 152. Part 5: Suggested Rules & Regulations for a Commercial/Industrial MLS Subagency offers are typically communicated to cooperating brokers via the MLS. Michigan H.B. As the FTC and DOJ have explained in letters to several states, minimum-service requirements harm consumers in two ways.274 First, minimum-service requirements frustrate consumer choice by reducing the options available to consumers in the marketplace; consumers who would otherwise choose a lower-cost fee-for-service option are harmed if they can no longer choose their preferred option because it does not comply with state minimum-service requirements. 316. AEI-Brookings Paper, supra note 3 at 8-10. . 26. Upon execution of this Lease by both parties, Lessor shall pay to said brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate agreement between Lessor and said broker(s). Analysis of commercial market sectors and commercial-focused issues and trends. Given how important competition is to consumers in this industry, the Federal Trade Commission ("FTC") and the Department of Justice Antitrust Division ("DOJ") held a public workshop in October 2005 ("Workshop") to address issues affecting competition in the residential real estate brokerage industry.6 Panelists at the Workshop included traditional real estate brokers, brokers offering nontraditional business models, state regulators, and academics.7. 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. Fee-for-service brokers offer home sellers the option to purchase less than the full bundle of services traditional brokers provide. Rebate bans inhibit price discounting and thereby harm consumers. These authors also considered whether commission rates within the Baton Rouge market responded to market-wide changes akin to housing booms and busts. 45. at 199 ("[W]hen I was in a market that was very, very slow, it was not uncommon to actually have a disproportionate share going to the buyer . 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. Cf. 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. Mississippi S.B. REV. Lucy Malcolm, Paralegal, Litigation III Section 2 of the MLS antitrust compliance policy. "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. where the REALTOR is an agent oder subagent, the obligations of a fiduciary. 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."). A recent NAR survey of home sellers and buyers concluded that "[t]he most significant trend in the home search process is the increasing importance of the Internet as a source of information about homes and the characteristics of different communities. No. The MLS allows broker- members to search and filter homes based on detailed criteria, including property and neighborhood information, offers made on the home, prior sales history, and days on the market.44 In addition to the database of currently available homes, an MLS maintains a database of homes sold through the MLS. 2023 National Association of REALTORS. In this manner, brokers can take advantage of their superior knowledge of market conditions by steering clients away from home listings that otherwise match the criteria identified by the consumers, but provide lower financial gains for the broker than other homes.133, Home buyers' increasing use of the Internet may limit brokers' ability to steer buyers away from discounters' listings without their knowledge. Tex. Buyers typically do not pay their brokers directly.25 Rather, listing brokers compensate cooperating brokers according to the terms stated in the MLS listing, which usually specifies an unconditional offer of compensation to any broker that is the "procuring cause" of the sale.26 For example, a listing broker who charges a 6 percent commission may offer to compensate a cooperating broker with 3 percent, half of the listing broker's commission. 113. 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. 42. For a discussion of exclusive agency contracts and other types of listing agreements, see supra Chapter I.A.2. . As a member, you are the voice for NAR it is your association and it exists to help you succeed. See Hsieh, Tr. We use the terms "cooperating broker" and "buyer's broker" interchangeably throughout this Report. In September 2005, DOJ's Antitrust Division sued NAR, alleging that its nationwide rules violated Section 1 of the Sherman Act. 217. In fact, many listing agents will be purposefully slow to respond to inquiries from discount brokers. at 81-82; Lewis, Tr. See id. It is clear, however, that rebate prohibitions harm consumers by preventing price competition.258, Over the last two years, several states have imposed so-called minimum-service requirements on brokers. 174. In situations where the cooperating full-service broker is an agent of the buyer, but provides assistance to a seller to help close the sale, they claim that the broker risks becoming an undisclosed dual agent. Id. 306. See Turnbull, supra note 162, at 293. 23. Competition among brokers based on service to consumers includes a wide range of possibilities. No. 161. The resistance of some traditional brokers to dealing with firms that more fully or innovatively use the Internet is one factor that could limit realization of the Internet's full potential.127 Restrictions on the availability of real estate listing information can also limit the economic benefits that Internet use provides.128. The latter reading would ultimately seem to leave the choice up to the client as to who receives or presents the offers and counteroffers. Reppert, Public Comment 294, at 1. A cooperating broker may represent either the seller or the buyer. 311. . 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." In December 2005, NAR filed a motion to dismiss the lawsuit. 50. Resources to foster and harness the grassroots strength of the REALTOR Party. Our review of fee-for-service broker websites reveals that consumers appear to have ready access to prices that fee-for-service brokers charge for additional services beyond the MLS-only option in advance of entering into a contractual relationship.
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