The Internet's Effect on the Real Estate Industry, By placing more information in the hands of consumers, the Internet has facilitated the growth of nontraditional business models such as fee-for-service brokers, VOWs, and broker referral networks that allow consumers opportunities to substitute their efforts for those of the broker, in many cases in return for lower fees. of Realtors, FTC Dkt. 329. For example, if a cooperating broker secures a buyer for a transaction and can establish through arbitration that he or she was the "procuring cause" of the sale, then the listing broker is liable for the cooperative compensation.45, One panelist who is a real estate broker and past president of NAR described the MLS as "a broker-to-broker information exchange that provides an opportunity for cooperation and compensation. Acknowledging experience and expertise in various real estate specialties, awarded by NAR and its affiliates. DOJ's lawsuit seeks to ensure that traditional brokers, through NAR's policy, cannot deprive consumers of the benefits that would flow from these new ways of competing. 184. Hahn, for example, suggested that there may be a transition towards "a new era" in the industry in which real estate firms will develop and use a variety of different business models. at 39; Perriello, Tr. Each of the next four largest firms enjoyed less than 10% of the listings and sales. This line of argument typically focuses on three types of risks to the cooperating broker. Specifically, both studies find that homes owned by agents sell for more than other homes, even after controlling for housing characteristics that are likely to affect prices. Specific legal requirements to offer subagency to cooperating brokers are: Written informed consent must be obtained from seller client to offer subagency, the consent must state the following: That the broker may cooperate with another broker who is then a subagent of the seller. Federal Trade Commission and The Nature of Competition Among Brokers, Brokers compete for clients on several dimensions by offering the most attractive service and price combination.162. at 174 (noting that all traditional companies "have a significant online presence"). The "New" Chapter 452: Defining Real Estate Broker Practice Fialkowski, Public Comment 113, at 1. * (Revised 11/04). ."). 345, 350 (1997) (noting that agency relationships can be created by actions). Finally, some have argued that the cooperating full-service broker risks not being compensated because the home seller might complete a deal directly with the buyer. 249. 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. Realty Multi-List, 629 F.2d 1351 (5th Cir. Listing brokers may verify the pre-qualification letter. at 149. At the same time, as housing price growth accelerated from 2001 through 2005, real commission fees rose about 25 percent. Even though national average commission rates have fallen steadily since 1991 and commission rates appear to vary inversely with housing prices, it appears that rates are sufficiently inflexible to cause commission fees to move in tandem with housing prices. These are the 'normal' modes for virtually all markets, regardless of how they might vary from one another, and nationwide a very high percentage of real estate brokerage transactions occurred at a commission rate of one or the other. 28. Lucy Malcolm, Paralegal, Litigation III Section 221. See also Hahn, Tr. NAR is widely considered one of the most effective advocacy organizations in the country. Press accounts indicate that fee-for-service brokers have raised their prices or exited the market altogether in response to minimum-service laws. All confidential disclosures and confidential information related to short sales must be communicated through dedicated fields or confidential remarks available only to participants and subscribers. Code Comprehension: Article 16 Commissions Are Negotiable Academic opportunities for certificates, associates, bachelors, and masters degrees. In addition to the flat fee price of $495 paid at time of listing, the "flat-fee plus" option requires the seller also to pay $1,500 at closing. . See R.C. One of the primary motivations for the FTC's 1983 investigation was "complaints from sources within the brokerage industry claiming harassment and boycotting of brokers who charge lower than 'customary' commission rates . Several Workshop panelists expressed a similar view. Several Workshop panelists and commenters remarked on how the Internet has expanded the amount of information available to consumers, making them more knowledgeable as they enter into real estate transactions. "190, Data reported to the Securities Exchange Commission by Realogy, the largest brokerage firm in the United States, are consistent with these findings. For example, the head of a major real estate brokerage franchise stated that "while we have no reason to believe that the states' motives [in adopting minimum-service laws] are anything but well-intentioned, neither Century 21 nor our parent company, Cendant, believes that minimum standards legislation is truly necessary. 216. Review your membership preferences and Code of Ethics training status. Such rules are illegal if they unreasonably restrict competition,308 and the Agencies recently have challenged, as antitrust violations, MLS rules that unreasonably restrict competition by brokers who use alternative business models. 250. Some commentators have posited that alternative payment structures may better align consumer and broker interests.139. 9321 (2007) (decision and order), available at http://www.ftc.gov/os/adjpro/d9321/070323decisionorder.pdf. 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. Sirmans & Turnbull, supra note 209, at 111. at 32. is defined as any broker other than the listing broker entitled to a share of any commission arising under this Lease. If the seller accepts the offer, the home is "under contract," and, pursuant to contracts containing typical contingencies, several things must occur during a stated time period before the transaction closes, such as home inspections, appraisals, securing buyer financing, assuring the title to the home is clear, and conducting necessary repairs.34 Both listing and cooperating brokers typically work together to assure that all contingencies are satisfied, allowing the closing to occur as scheduled. (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 it is not possible to quantify the relative inflexibility based on information reported by the authors, supplemental information can be used to compute a rough approximation. See, e.g., VA. CODE ANN. Designated sales agent Technique in which in-house dual agency can be handled. 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). Id. We do not, for example, allow consumers to save money by hiring doctors who cut costs by not sterilizing surgical instruments or washing their hands."). 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. 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. (Apr. The examples of relatively high local market shares for brokerages described above suggest that agent entry is more common than brokerage entry. PDF Connecticut Real Estate Commission Policy on Agency at 31 ("The MLS is strategically one of the most valuable things to me"). Define cooperating broker. VOW brokerages typically maintain physical offices in the markets in which they operate, staff those offices with licensed brokers who participate in their local MLSs, and represent both buyers and sellers.82. See, e.g., Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1579-80 (11th Cir. Legislative and Regulatory Restrictions on Competition. ANN. 952, 955 (D. Md. 49. NAR's 2006 Survey estimated that FSBOs account for about 12 percent of home sellers, with an additional 5 percent of sellers first trying the FSBO route, but then retaining a broker to complete the sale.99 NAR's 2005 data estimated FSBOs at approximately 13 to 14 percent, and noted that this number has been steady since 2001, and is lower than it was for the 1990s: 19 percent in 1991; 17 percent in 1993; 15 percent in 1995; 18 percent in 1997; and 16 percent in 1999.100, II. 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. See Yun, Tr. 137. at 89; American Bankers Association, Public Comment 10, at 3. "); John C. Weicher, The Price of Residential Real Estate Brokerage Services: A Review of the Evidence, Such At It Is 1 (presented at AAI Conference on Competition in the Residential Real Estate Brokerage Industry Nov. 8, 2005) (noting "a fairly widespread view that brokerage is not a competitive industry" based several perceptions, including: (1) excessive commission rates that are "sticky downward" even as technology reduces brokers' costs; (2) commission rates are higher in the United States than in many other developed countries; (3) lobbying efforts by NAR and state Realtor associations in favor of state laws restricting competition; (4) NAR's successful lobbying of Congress to prohibit banks from entering the real estate brokerage business; and (5) NAR-imposed restrictions on discount and Internet brokers' access to the MLS). 2006) ("In short, it is impossible to perform the tasks of a real estate agent or appraiser in the relevant geographic area without using [the defendant MLS]. 38. 3 (Mar. Hahn, Tr. United States v. Colgate & Co., 250 U.S. 300 (1919). 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. 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. The court denied NAR's motion, holding that collective action that "purports to regulate how [competitors] will compete in the marketplace" can, if proven, constitute a restraint of trade.320, C. Steering As a Possible Obstacle to Greater Price Competition. When implemented by each of the respondents, this "Web Site Policy" prevented homes with exclusive agency or other non-traditional listing contracts from being displayed on a broad range of public real estate websites, including Realtor.com. There were contrasting views among Workshop participants and commenters about the extent to which brokers compete on the price dimension. 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. While cooperation among brokers through a multiple listing service can provide consumers with important efficiencies, cooperation used to adopt rules that hinder rivals can be anticompetitive and, as recent Agency actions indicate, may violate the antitrust laws. at 198-99. See also Whatley, Tr. on Financial Services), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:31541.pdf. Unfortunately, as one author recently noted, "There is not much empirical evidence on commission rates. See Lawrence J. See Farmer, Tr. 1983 FTC STAFF REPORT, supra note 9, at 64. A broker who brings the buyer to the listing agent is a subagent of the listing broker. 208. 43, available at http://www.lrc.ky.gov/record/06RS/SB43.htm.