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The "New" Chapter 452: Defining Real Estate Broker Practice 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. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice. They instinctively start with the [I]nternet before they search to buy anything. 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. In contrast, in 1997 only 2 percent of recent home buyers had first located their home on the Internet. 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. 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. See Hahn, Tr. 330. 43, available at http://www.lrc.ky.gov/record/06RS/SB43.htm. Most MLSs require that a member broker, upon acceptance of a listing, enter the listing into the MLS database within a short period of time, e.g., twenty-four to seventy- two hours. A-00-CA- 154 JN, 2000 WL 34239114, at *4 (W.D. However, in many cases, individual brokerage firms exist under common ownership or as part of a franchise system. 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). See Perriello, Tr. . 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. One panelist observed that "[brokers] are cooperative with the competition in ways unheard of in any other industry that I know of. Some parties submitted a cover letter with the public comment. However, the cooperating broker finds a buyer for the listed property. Virginia also has a less restrictive law that requires the broker who is providing limited services to disclose the services that he or she will perform. Learn About Subagency in Real Estate - The Balance 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. at 46 (49.6% of sample paid 6%, while 27.9% paid 7%). 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. 2023 National Association of REALTORS. 67. [In w]hat other business can you find that kind of cooperation?"324. Prudential Real Estate purchased eRealty. 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. 273. 1983 FTC STAFF REPORT, supra note 9, at 31. States require real estate brokers and agents to be licensed. See also Tradii, Public Comment 340, at 1; Wharton, Public Comment 179, at 1. an agent) do not appear to be substantial. One reason is that, if one firm refuses to cooperate with rivals for self- serving reasons when cooperation would have benefited customers, those customers ordinarily would punish the uncooperative firm by taking their business elsewhere. In terms of branding, the broker may invest in and create a brand or affiliate with a national or regional franchisor that provides a brand with certain reputational value and an advertising campaign. According to one panelist, "there are no significant barriers to entry or expansion in the residential real estate industry. The MLS facilitates the offering of unilateral offers of compensation to cooperating brokers, according to NAR. 75. Alternatively, brokers may adopt a combination of flat fees and a commission rate. "204, A 1988 study analyzed the relationship between the commission rate offered to cooperating brokers and the selling price of the home.205 The sample data were comprised of 532 home sales drawn from 1983 and 1987 sales data in the Knoxville, Tennessee, Board of Realtors' MLS.206 The study found that the cooperative commission rate was negatively related to the sales price of the home and positively related to the percent of the list price achieved by the seller.207 The authors concluded, "[t]hese results provide strong evidence that the presumption by previous researchers that real estate brokerage firms are unwilling to negotiate differential rates is inaccurate."208. 299. 243. NAR 2005 SURVEY, supra note 38, at 29-30. refer to the transcript of the Workshop. See Farmer, Tr. AEI-Brookings Paper, supra note 3, at 12. See, e.g., GAO REPORT, supra note 3, at 16. 133. 113. The subagent represents the seller, and therefore, works with the buyer, but not for the buyer. It is clearly beneficial in providing them access to a large amount of information at a minimal cost, but at the same time it permits brokers to coordinate their efforts, possibly at the expense of sellers' interests. Research on a wide range of topics of interest to real estate practitioners. "175, Several other commenters claimed that there is vigorous price competition. Commenters using this form highlighted local competition between individual agents as an outstanding example of rigorous competition to which the rest of the economy should aspire. Advocates for minimum-service requirements claim that ordinary people are "plainly unable" to handle their real estate transactions, and thus argue that states need to mandate the number of services real estate brokers provide to ensure that consumers receive assistance from an experienced professional.282 Along similar lines, at least one proponent of minimum-service requirements suggests that they are necessary because consumers who hire fee-for-service brokers are subject to so-called hold-up; once a consumer has entered into an exclusive agreement with a fee-for-service broker, the consumer effectively is locked into acquiring from that broker all of the additional brokerage services that subsequently may be needed.283, Another argument is that consumers expect real estate agents to perform certain tasks, and that these laws merely meet consumers' expectations.284 For example, one panelist, the executive director of the Texas Real Estate Commission, noted that minimum-service requirements can "prevent [] false claims by those who sign an agency agreement with a client, promise to provide representation, place the property on the Internet, and then walk away from any further involvement in the real estate transaction. The authors performed regressions analyzing how the contract commission rate was affected by various market conditions and housing variables. 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."). 53. To enforce his or her right to payment, the cooperating broker may bring a complaint to the MLS's arbitration system. 3:05CV188-H, available at http://www.usdoj.gov/atr/cases/f210100/210142.htm. 327. In those investigations, however, the Agencies have not found evidence sufficient to establish an agreement jointly to steer clients away from or boycott a particular rival and have declined to bring an antitrust case. Only members of NAR can call themselves a REALTOR. 061-0268; Realtors Ass'n of Northeast Wisconsin, Inc., FTC File No. Each policy had the effect of discouraging brokers from using exclusive agency listings. For example, brokers may reduce the time they spend servicing each customer face-to-face because customers conduct a portion of the time-consuming listings searches on their own.81 Although brokers offering VOWs differ from other brokerages in their innovative uses of the Internet, in other respects they operate like other brokers. 86. For example, NAR data show that the Internet was second only to real estate agents as the most commonly used information source for home buyers.13. . 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. 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. "112 A panelist described the Internet as "a very highly effective marketing tool as well as a tremendous information resource and communication tool. 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. CODE 452.133. See, e.g., Hsieh, Tr. "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. Part 5: Suggested Rules & Regulations for a Commercial/Industrial MLS See supra notes 117-118 and accompanying text. For example, these advocates fear that a cooperating full-service broker may be forced to explain aspects of the transaction to the seller or perform some of the tasks related to removing contingencies and closing the transaction typically performed by the listing agent. 57. These sellers are referred to as "for-sale-by-owners" or "FSBOs," and they market their homes themselves by placing ads in local media, posting signs, and conducting their own open houses. 71. 167. The Nature of Competition Among Brokers, Brokers compete for clients on several dimensions by offering the most attractive service and price combination.162. In December 2005, NAR filed a motion to dismiss the lawsuit. For example, within the Washington, DC metropolitan area, there is little or no competition among buyers, sellers, and real estate agents across the micro-markets of Montgomery County, MD, Fairfax County, VA, and southwest Washington, DC). Commission/Cooperative Compensation Offers, Section 1: Information For example, one realty company offers a 1% cash back rebate program for home buyers; another offers rebates worth up to $2,250 in the form of HomeDepot or American Express gift cards; and another offers to pay moving costs of up to $1,500 to consumers who buy particular properties. The authors did not identify the source of the U.S. commission data. 321. Weicher's calculations use average home sales prices, not median home sales prices. 325. 318. They found a counter-cyclical pattern for commission rates. Without full and timely disclosure a customer may reveal sensitive information, such as the buyer's maximum offer or the seller's minimum price, to a broker who is actually representing the party on the other side of the transaction. For instance, the buyer may have locked in a loan, putting his or her interest rate at risk if the sale fails to close, or may have begun arrangements to move out of his or her current living space.296, Second, some cooperating brokers claim that minimum-service laws are necessary because those brokers are concerned that work they end up performing when the listing broker is providing a limited set of services may give rise to liability for undisclosed dual agency. Panelists representing traditional brokers acknowledged that the listings information provided via an IDX datafeed is limited. REAL Trends publishes nationwide average commission rates. 302. The subagent assumes the same fiduciary obligations to the principal that the agent has. Hahn, Tr. "); Large, Public Comment 241, at 1 ("our average commission per transaction side has dropped 13% this year compared to last year as a result of competition from discount brokerage business models operating in our market"). 314. 271. . 475.278, OHIO CODE 4735.621, OKLA. STAT. Peter Taylor, Bureau of Competition. 303. Id. The authors report that interviews with industry members suggest that the cooperative split was almost uniformly 60/40, in favor of the listing broker. See also Perriello, Tr. In states without minimum-service requirements, a consumer typically can choose an MLS-only package as the lowest price/lowest service level option.275 Minimum- service provisions eliminate the option of buying an MLS-only package, or any other individual service.276 Fee-for-service brokers in minimum-service states must include the enumerated additional tasks in any package of listing services they provide, which often requires the broker to charge a higher price due to the increased costs and time commitments associated with each transaction.277, To illustrate how minimum-service requirements eliminate choice, consider the example of a consumer who is selling his or her home for $271,263 (the average sales price of a home in 2005).278 A consumer who lived in a state without a minimum-service requirement could choose to purchase a basic MLS-only package from a flat-fee broker for about $7,282 ($500 for the MLS-only brokerage package listing fee plus a 2.5 percent commission for a cooperating broker). Mar. This Chapter discusses these actions and the Agencies' responses. . cooperating broker spends many hours, even days, trying to locate the right property for the Buyer. Just as the 1983 FTC study provided valuable information about how real estate brokers competed in the late 1970s and early 1980s, a new study examining how transaction-level commission rates and fees vary based on such factors as market conditions, housing prices, and regulation would provide a better understanding of the current state of competition in the real estate brokerage industry.

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