at 111. 290. Second, most brokers have been involved in many more real estate transactions than their clients. Learn how to properly use the logo and terms. 100. You can post virtual tours. 273. 16, 2007). See Blanche Evans, Prudential Neutralizes eRealty, Buys Technologies, REALTY TIMES, Jan. 29, 2004, available at http://realtytimes.com/rtapages/20040129_erealty.htm. Get the latest top line research, news, and popular reports. "); 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.") Kentucky S.B. "62, Due to these significant efficiencies and procompetitive features, the Fifth Circuit held that the alleged MLS-related restrictions at issue should not be condemned as per se illegal.63 At the same time, the Court held that the efficiencies and benefits flowing from the MLS, combined with other factors, resulted in the MLS having market power in a relevant antitrust market, thereby simplifying the rule of reason inquiry concerning the legality of restrictions imposed by the MLS and its members.64, Although the data show that most consumers currently contract with a broker that supplies the full range of services traditionally offered by brokers, many consumers prefer to use brokers whose business models are alternatives to the traditional one. And you can have that information easily searched and frequently searched by buyers from their own homes on the [I]nternet."). . 152. 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. Although there is no legal impediment to consumers buying and selling homes on their own, the large majority of consumers choose to work with a real estate broker. at 149; Lewis, Tr. . In light of the contrasting views presented above, it is reasonable to ask what empirical evidence reveals about commission rates and fees in recent years. This factor is discussed in detail in Chapter IV of this Report. 78. Other analysts have expressed similar views. at 55 ("[W]e found local markets to consistently have commission modes at either six or seven percent. The scenarios covered by the FAQs reference Standards of Practice 3-3 and 16-16. 11. STATUTES 339.780(7)(1)-(3). This finding was significant at the one percent level for each of the equations tested. 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. at 38-39; NAR 2006 SURVEY, supra note 4, at 48 (64 percent of buyers reported that they worked with an agent who represented their interests alone); see also Christopher Curran & Joel Schrag, Does it Matter Whom and Agent Serves? . Section A examines the structural features of the real estate brokerage industry. 6 (New York University School of Law, New York University Law and Economics Working Papers 51, 2006); GAO REPORT, supra note 3, at 3, 12-13 (MLS may encourage price conformity by, for example, by requiring that each listing state the fee split that the cooperating broker will receive. 20, 2005), available at http://www.usdoj.gov/atr/public/comments/209229.htm; Letter from DOJ to the New Mexico Real Estate Commission (Nov. 2, 2005), available at http://www.usdoj.gov/atr/public/comments/212656.htm. The Cooperating Broker Compensation Agreement (Form CBC) provides the buyer agent, transaction licensee or the subagent for seller to be paid by the listing broker. 141. MLSs do not allow FSBO homes to be listed in the local MLS because a listing broker member is not involved. . "190, Data reported to the Securities Exchange Commission by Realogy, the largest brokerage firm in the United States, are consistent with these findings. 27. A few brokers surveyed supported eliminating the rebate ban, recognizing some of the procompetitive benefits that repeal of the ban would foster. Although a subagent cannot assist the buyer in any way that would be . Commentary from NAR experts on technology, staging, placemaking, and real estate trends. Based on the 1992 median price, home sales price indices from the Office of Federal Housing Enterprise Oversight (see http://www.ofheo.gov/HPI.asp) imply median home sales prices of $71,920 in 1985, $63,620 in 1989, and $73,600 in 1992. 321. N.J. STAT. The latter reading would ultimately seem to leave the choice up to the client as to who receives or presents the offers and counteroffers. of Realtors v. E-Realty, Inc., No. 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. "); GAO REPORT, supra note 3, at 7-8 ("A discount broker may advertise a lower commission rate to attract listings, but the broker's success in selling those homes, and in attracting additional listings in the future, depends in part on other brokers' willingness to cooperate (by showing the homes to prospective buyers) in the sale of those listings."). This bill, signed into law on March 22, 2007, becomes effective July 1, 2007. 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. single agent A single agent is an agent who represents only one person in the transaction, either the buyer or the seller. Royce de R. Barondes & V. Carlos Slawson, Jr., Examining Compliance With Fiduciary Duties: A Study of Real Estate Agents, 84 OR. First, only brokers have direct access to the MLS, which is a local or regional joint venture of real estate brokers who pool and disseminate information on homes available for sale in their particular geographic areas.17 The MLS provides information both on the homes currently for sale in a particular geographic area and past sales data, which typically are used in determining a home's listing price or a buyer's offer price. See Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. The increased ease with which home buyers and sellers can perform tasks that once were the exclusive domain of real estate agents and brokers likely has been an important factor in the increased demand for innovative, non-traditional real estate brokerage services.4 In fact, the Internet has surpassed the yard sign as the most important marketing tool to reach consumers.5. Access to the MLS is one of the most important services that real estate brokers traditionally have offered. In a 1997 study, the authors tested a theoretical model relating commission rates to changes in a local housing market.209 This study addressed both how the distribution of commission rates varied across home prices within a geographic area and with changes in economic conditions across an entire area over time. at 34 (Internet cited by 80% of home buyer respondents, while yard sign cited by 63%). Growth in home prices was relatively flat through most of the 1990s and real commission fees did not surpass their 1991 levels until 2002. 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. In the next Chapter, we turn to obstacles innovators may be encountering. Hahn believes that the involvement of multiple parties and the "unique" compensation arrangements in real estate transactions make it difficult for home buyers and sellers to pay for services according to their needs, and he questioned whether alternative business models have had a fair chance to compete under the current structure. For example, home sellers who are referred by one broker to another broker sometimes receive rebates. 2782, available at http://billstatus.ls.state.ms.us/documents/2006/html/SB/2700-2799/SB2782IN.htm. The MLS facilitates the offering of unilateral offers of compensation to cooperating brokers, according to NAR. Figure 3 illustrates annual percent changes in real housing prices and commission fees from 1992 through 2005, and provides additional illustration of how fees tend to move in tandem. at 89; American Bankers Association, Public Comment 10, at 3. The examples of relatively high local market shares for brokerages described above suggest that agent entry is more common than brokerage entry. 50. Because broker fees are paid indirectly, buyers may be less likely to negotiate over them. at 82-83. Competition among brokers on price primarily occurs through lower commission fees and rebates. Most fee-for-service brokers offer sellers two or more service packages, and many offer an additional itemized list of optional services. 101. See Hearing, supra note 1, at 5 (testimony of David G. Wood), available at http://financialservices.house.gov/media/pdf/072506dgw.pdf. 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. We have not found any increased incidence of undisclosed dual agency problems associated with limited-service brokerage. In the twenty-five years since the Realty Multi-List case, the Agencies have brought a number of antitrust cases involving anticompetitive effects associated with an MLS. When exercised, the opt-out provision prevents Internet-based brokers from providing all MLS listings that respond to a customer's search, effectively inhibiting the new technology. '"60 Second, sellers benefit from wider exposure of their listings, while buyers benefit from reduced search costs.61 Finally, the court noted that "[t]he broker is particularly benefited by having immediate access to a large number of listings and at the same time by being furnished with a method for quickly and expansively exposing his own listings to a broader market. But with more and more agents competing to close transactions, the average number of transactions per agent will decline. The MLS also operates an arbitration mechanism to resolve compensation disputes between listing and cooperating brokers. 109. . Some commentators have argued that buyers may have the misimpression that their brokers' services are free. Brokers also compete for customers by marketing their services to potential buyers and sellers in various ways. State anti-rebate laws and regulations and their effect on price competition and consumer choice are discussed in Chapter IV.A.1 of this Report. should be able to choose their service models as well as the provider of those services, whether they be limited service or full-service"). 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. at 27. N.D. 184. This line of argument typically focuses on three types of risks to the cooperating broker. "256, One panelist noted that, given the clear benefits of rebates to consumers, it is "hard to find a good articulated defense" of rebate prohibitions.257 Proponents of such provisions claim that they protect consumers from false and misleading offers of rebates and help ensure that consumers choose brokers on the basis of the quality of the service, rather than price. 169. The subagent owes fiduciary duties to the listing broker and to the seller. For example, a broker in Alexandria, Virginia, competes with other brokers able to meet the needs of consumers who are buying and selling homes in the area; this is likely to include other brokerage firms located in and around Alexandria, but not those located in California. at 233 ("[T]he real puzzle in the real estate business is why does there seem to be this relatively fixed commission structure? The commission "rate" is the percentage of the home sales price that the broker retains as a commission. A buyer who is rebated half of this would receive $3,459. The authors performed regressions analyzing how the contract commission rate was affected by various market conditions and housing variables. 061-0267; Monmouth County Ass'n of Realtors, Inc., FTC File No. The Agencies have responded to allegations of steering in two distinct ways, depending on whether the steering was unilateral or involved an agreement among incumbent brokers. REAL ESTATE RES. to help them see the home."90. 24. 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. See Michael Carney, Costs and Pricing of Home Brokerage Services, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 331 (1982). Additionally, fee-for-service brokers typically provide the client additional selling aids, such as yard signs, online advertisements, and a lock-box to allow buyers' agents to show the home when the seller is not present. 110. They instinctively start with the [I]nternet before they search to buy anything. edmonson, kentucky 1962, sam lucas sammit, diversity coaching fellowship,
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