Tex. 279. 243. Geoffrey K. Turnbull, Real Estate Brokers, Nonprice Competition and the Housing Market, 24 REAL ESTATE ECONOMICS 293, 295 (1996). Throughout this Report citations to "Tr." For example, Realogy through its franchises and wholly-owned brokerages claims to have "participated in approximately one of every four domestic homes sold through a brokerage in 2005. See, e.g., VA. CODE ANN. Paulsen, Public Comment 364, at 1. 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. See also Whatley, Tr. 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. Chapter II discusses the impact of the Internet on the real estate brokerage industry and information asymmetries. 258. The seller then assumes responsibility for future tasks related to the sale of his or her home. 42. Since the authors only observed the cooperative commission rate, they note that their conclusion rests on the assumption that the cooperative split is a fixed share of the total listing commission. Competition In The Real Estate Brokerage Industry See http://www.remax-cahi.com/esource/marketingmaterials/2005realtrends500.pdf; and http://www.realtrends.com/past_newsletters.asp?article=newsletters/2005_04_6.htm. Agents also may have incentives to steer buyers toward their listings or homes listed by other agents who are affiliated with the same brokerage firm. NAR 2005 SURVEY, supra note 38, at 29-30. As discussed in Chapter I of this Report, the commission "rate" is the percentage of the home sales price that the broker retains as a commission, and commission "fees" are the total dollar amount paid by consumers for real estate brokerage services. 283. "248 Another broker observed: "If inducements were allowed, they could lead to competitive behavior, which would make us look unprofessional in the eyes of the public. A comprehensive review of the empirical research conducted in the real estate brokerage industry is beyond the scope of this Report. 061-0087; Northern New England Real Estate Network, Inc., FTC File No. Illustrative of the continued changes is a court's description of a local MLS as it progressed from distribution of an index card for each property listing to computerized downloads of digitized photographs. 2d 868, 872 (E.D. Licensees who work for the listing broker or for the selling (cooperating) broker are the subagents of their respective brokers. at 248 ("[A]s Dr. Hsieh and I'm sure many people today have pointed out, the puzzle is why the percentage commission has been so stubbornly persistent. An example of steering would be a cooperating broker purposely failing to show his or her client a home listed by a discount broker notwithstanding the fact that the home matches the buyer's stated preferences.327 Because listing brokers depend on cooperation from rivals, brokers have an opportunity to deter discounting by steering buyers away from discounters' listings.328 Lack of cooperation will reduce the probability that homes listed by discounting brokers sell.329. 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. "150, In any case, competition among brokerages tends to be local, and brokerage shares calculated at the local level can be far higher than those suggested by national data.151 For example, in Re/Max International, Inc. v. Realty One, Inc., the plaintiff's expert presented "essentially unchallenged" testimony explaining that "[i]n a majority of the 161 cities and towns in northeast Ohio, the [two] defendants' combined market share exceeds 50%. As used in MLS rules, short sales are defined as a transaction where title transfers, where the sales price is insufficient to pay the total of all liens and costs of sale, and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies. CODE 452.133. This Chapter also discusses the Internet as a means of providing real estate brokerage and related services to consumers. See United States v. Realty Multi-List, 629 F.2d 1351, 1370 (5th Cir. Section D reports one panelist's attempt to make sense of the evidence presented in Sections A through C. A. Id. See Farmer, Tr. A Conceptual Analysis, 27 REAL ESTATE ECONOMICS 719, 721 (1999) ("Another factor in sustaining a collusive commission rate is that many sellers do not realize that the commission rate is negotiable. 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. "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. 30, 2000). See Tenn. Admin. One panelist represented RealEstate.com, a business that uses the Internet to build a network of local brokers and agents.94 Participating brokers and agents pay a cooperative brokerage fee to the company for referrals, and RealEstate.com cultivates buyers by using online tools and information and, where permitted, by offering the buyer a rebate.95 The buyers are then referred to the local broker for further assistance.96 As this panelist noted, the Internet and the new business models are "about unleashing brokers to have the ability to use new methods and tools to expand, to succeed and to succeed in this market that is competitive. Instead of working with customers directly, brokers often provide agents with branding, advertising, and other services that help the agents complete transactions. 8. NAR 2006 SURVEY, supra note 4, at 44. an agent) do not appear to be substantial. See NAR, Public Comment 208, at 15-16; Delcoure & Miller, supra, at 15. Through a cooperating broker agreement, the cooperating broker earns a share of the commission paid at the close of the sale. Id. 44. Brokers and agents (hereinafter, "brokers")15 usually are more informed about the local real estate market and the process of a real estate transaction than most home buyers and sellers.16 This informational advantage derives from two sources. Several panelists and commenters cited Real Trends estimates of commission rates. For example, for each additional agent entering the industry a licensing fee is paid. The MLS is a local or regional joint venture of real estate brokers, typically operated by a local group of brokers affiliated with NAR, who pool and disseminate information on homes available for sale in their particular geographic areas.41 The MLS combines its members' home listings information into a database, usually in electronic form. In the residential real estate industry, competition is vitally important because buying or selling a home is one of the most important financial transactions a consumer will ever undertake. "10 Brokers reduce the transaction costs of matching buyers and sellers and also provide their clients with ancillary services related to the transaction. NAR's policy permits traditional brokers to discriminate against other brokers based on their business models, denying them the full benefits of MLS participation. Because broker fees are paid indirectly, buyers may be less likely to negotiate over them. For a discussion of exclusive agency contracts and other types of listing agreements, see supra Chapter I.A.2. Specifically, by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from VOW brokers by means of an "opt out,"319 it enables traditional brokers to block their competitors' customers from having full on-line access to all of the MLS's listings. See also 1983 FTC STAFF REPORT, supra note 9, at 87-88. "46 Another panelist, however, described the MLS as a "club" that can limit membership and access to MLS listings to firms that conduct business in a particular manner, thereby limiting consumer choice.47 This panelist, an economist, stressed that when competitors cooperate, as in an MLS, the rules governing that cooperation and the conditions under which the cooperation occurs must be examined closely.48, As the primary source of information about homes currently for sale and the prices at which other, comparable homes have been sold, the MLS is an extraordinarily important resource for sellers, buyers and brokers.49 Home sellers benefit from exposure of their listings to a wide audience of potential buyers, increasing the probability of selling their homes quickly and at an optimal price for those sellers.50 In addition, sellers, through their brokers, can use the MLS information on comparable homes to decide whether to sell their homes and, if so, at what price.51 According to NAR's 2006 survey of home buyers and sellers, 88 percent of sellers reported that their home was listed in the MLS.52, Buyers also benefit from the MLS because they can go to a single source (that is, a single broker) for information regarding the vast majority of homes for sale within a given area, instead of visiting multiple brokerages to obtain such information. 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"). 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. Id. 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. . "155, The requirements for becoming a real estate licensee (i.e. However, in many cases, individual brokerage firms exist under common ownership or as part of a franchise system. Instead, their fiduciary duty and their allegience lies with the listing agent. America's largest trade association, representing 1.5 million+ members, including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries. NAR 2005 SURVEY, supra note 38, at 65 (Internet cited by 84% of broker respondents, while yard sign cited by 79%). Fee-for-service brokers often offer an MLS-only package, which allows consumers, who are not permitted by MLS rules to list their homes in the MLS on their own, to list their homes in the MLS by contracting with a broker who is a member of the local MLS.71 For a flat fee (e.g., $500), the broker would list the home in the local MLS and make an offer of compensation in the MLS to other brokers who may cooperate in the sale of the home. Although these IDX websites, as explained more fully below, provide critically important avenues for brokers to advertise their listings to potential buyers and their agents, these websites are not a substitute for the MLS. 67. According to REAL Trends data, the number of transaction sides per agent declined from 12.7 in 2000 to 10.2 in 2005. 1983 FTC STAFF REPORT, supra note 9, at 64. at 233-46. Hahn observed that such specialization and dividing of real estate services into smaller parts could result in "substantial gains for consumers." Advancing best practices, bringing insight to trends, and providing timely decision-making tools. 330. Some have suggested, however, that the industry has not yet experienced the sort of sweeping benefits to consumers in the form of cost savings and service enhancements that have been seen in other industries from the use of the Internet and other technology.101 This Chapter examines how the Internet has increased consumer access to information about real estate and how this increased access has in turn affected consumer behavior. Panelists representing traditional brokers acknowledged that the listings information provided via an IDX datafeed is limited. The complaint against MiRealSource alleges that it adopted a set of rules to keep exclusive agency listings from being listed on its MLS, as well as other rules that restricted competition in real estate brokerage services. According to NAR, the MLS has been especially beneficial to smaller brokers, because it "levels the playing field" on which brokers compete. The recent run-up in housing prices illustrates this phenomenon: from 1998 to 2005, housing prices rose 37 percent in real terms and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period.140 At the same time, the efficiencies generated by the Internet and other technological advances suggest that broker costs should be falling.
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