NAR, Public Comment 208, at 6 ("In a few markets, some firms may have a larger than usual market share, but market shares are known to change measurably from one year to the next."). Civ. A fee-for-service broker in Texas, who was a panelist at the Workshop, has complied with the Texas minimum-service law by providing clients with an electronic "frequently asked questions" sheet, offering to answer questions by fax or email, and communicating with buyers' brokers during negotiations. REAL ESTATE RES. A buyer who is rebated half of this would receive $3,459. Dwyer, Public Comment 55, at 1. See DEL. The real estate brokerage industry has been characterized by cooperation among brokers and agents for well over a century, going back to the first real estate boards and MLSs.321 Under the MLS system, listing brokers rely on cooperating brokers to procure a buyer in the majority of transactions.322 The emphasis on cooperation continues today, as reflected in statements made at the Workshop and in public comments filed with the FTC and DOJ. 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. cooperating broker spends many hours, even days, trying to locate the right property for the Buyer. 187, 187 (2001) ("A number of studies have argued that the uniformity of the commission rate across different properties and regions is an indication of collusive behavior. Shiawee X. Yang & Abdullah Yavas, Bigger is Not Better: Brokerage and Time on the Market, 10 J. Part 5: Suggested Rules & Regulations for a Commercial/Industrial MLS 67. Similarly, at a recent Congressional hearing on competition in the real estate brokerage industry, Representative Baker analogized minimum-service laws and regulations to requiring a consumer to have his or her entire house painted when he or she only wanted the porch painted. Use the data to improve your business through knowledge of the latest trends and statistics. Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved. In some instances the cooperating and listing agents may work for the same brokerage firm. N.J. STAT. 1992). Subsequent decisions largely have followed this approach. Id. CENT. While there have been many positive developments in the residential real estate industry, there are some indications that consumers are not enjoying all of the possible benefits of competition in the real estate brokerage industry. How Does Co-Broking Work in NYC? - Medium . Competition in the real estate brokerage industry would likely be enhanced if consumers had better access to such information. See the NAR website (http://www.realtor.org/law_and_policy/mls/ild/regulator_letters.html) for more details on the association's instructions and suggested content. However, that dynamic may not operate as well in industries, like real estate brokerage, where many consumers have significant limits on their knowledge, thus making it easier for competitors to steer business away from new or maverick brokers, or to otherwise withhold necessary cooperation, without the knowledge of their customers. 201. Although the terms may vary by state, there are two principal categories of real estate brokerage professionals: "agents" and "brokers." Consumers differ in their willingness, ability and opportunity to use the Internet to perform functions traditionally provided by brokers. Buyer's broker The broker is employed as the buyer's agent. One commenter, the owner of a discount brokerage franchise, reported that he has "not experienced any discrimination by agents in the showing or selling of our properties"333. Both Rutherford et al. The extent to which brokers supply these services "provides the margin for nonprice competition among brokers." at 55 ("[W]e found local markets to consistently have commission modes at either six or seven percent. 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. See Yun, Tr. 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. See Letter from DOJ to Oklahoma Representatives and Senators (Apr. The Nature of Competition Among Brokers, Brokers compete for clients on several dimensions by offering the most attractive service and price combination.162. 249. Define cooperating broker. 12. See MiRealSource, Inc., FTC Dkt. The average sales price of an existing home in 1980 was $72,800. They should also avoid enacting such laws, rules, and regulations in the future. See, e.g., William C. Erxleben, In Search of Price and Service Competition in Residential Real Estate Brokerage: Breaking the Cartel, 56 WASH. L. REV. Hahn observed that such specialization and dividing of real estate services into smaller parts could result in "substantial gains for consumers." ANN. 1983 FTC STAFF REPORT, supra note 9, at 64. at 160- 61 (although the Internet provides useful information to buyers and sellers of real estate, by the time properties are advertised on the Internet, they may be gone already; thus, the MLS is crucial). Only members of NAR can call themselves a REALTOR. 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. 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. 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." See Olazabal, supra note 19, at 91-100; see also Early, Tr. 192. "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. 69. 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. NAR's 1,600 local and state member boards control approximately 80 percent of the approximately 1,000 MLSs in the United States. 142. "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%. The seller then assumes responsibility for future tasks related to the sale of his or her home. 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. Each of the next four largest firms enjoyed less than 10% of the listings and sales. 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. 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. See also generally Hepp, Public Comment 117, at 1-3 (alleging various ways in which MLSs across the country have discriminated against nontraditional real estate firms); 1983 FTC STAFF REPORT, supra note 9, at 75 ("Our Consumer and Alternative Broker Surveys suggest the possibility that steering practices may be widely prevalent."). CODE 452.133. See also id. "); 1983 FTC STAFF REPORT, supra note 9, at 66, 68-69 (reporting that as many as three-fifths of recent sellers and three-fifths of recent buyers may have been unaware of the negotiability of commission rates). The obstacles discussed so far in this Chapter represent concerted efforts of real estate incumbents to insulate themselves from new and innovative types of competitors. The subagent owes all the same fiduciary duties to the principal that the principal's representing broker owes. at 83. L. REV. 150. 1980). Some consumers choose to sell their homes without any assistance from a real estate broker. See also Blomquist, Public Comment 194, at 1; Forgues, Public Comment 118, at 1 ("Here in Tucson, Arizona, competition amongst real estate agents is fierce. 1991). NAR 2006 SURVEY, supra note 4, at 77. Different fee-for-service brokers may offer different arrays of services, and home sellers can pick and choose the services they wish to procure from the provider or providers of their choice. Another gap in consumers' knowledge albeit one that does not necessarily affect competition in the real estate brokerage industry may be that consumers are not fully informed as to what, if any, duties they are owed by their broker. The complaint against Realcomp alleges that it engaged in anticompetitive conduct by prohibiting information on exclusive agency listings and other forms of nontraditional listings from being transmitted from the MLS to public real estate websites. Federal Trade Commission and The multiple listing service shall not have a rule requiring the listing broker to disclose the amount of total negotiated commission in his listing contract, and the multiple listing service shall not publish the total negotiated commission on a listing which has been submitted to the MLS by a participant. An official website of the United States government. The Agencies and industry regulators should assess the feasibility of an empirical study of the real estate brokerage industry. 8. Id. The authors did not identify the source of the U.S. commission data. 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."). 151. 16. This code comprehension resource, distributed during the November 2019 REALTORS Conference & Expo, sets forth two FAQs that clarify the right of cooperating brokers to negotiate commissions with listing brokers. White, The Residential Real Estate Brokerage Industry: What Would More Vigorous Competition Look Like? Additionally, some listing brokers pay their clients secret rebates rather than offering a lower listing commission in order to disguise discounting.69. . Typically, agents solicit listings, work with homeowners to sell their homes, and show buyers homes that are likely to match their preferences. He concluded that these empirical findings are consistent with his hypothesis that "higher commission fees in more expensive cities are dissipated by excessive entry of brokers. Rebates are permitted in most states, and brokers in these states may freely advertise their willingness to offer rebates that save consumers hundreds and often thousands of dollars per transaction. See Hahn, Tr. 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. A decrease in commission rates does not necessarily imply a decrease in fees. To facilitate a particular transaction, "[b]rokers can help sellers (and buyers) to varying degrees throughout the entire transaction process: helping the seller set the asking price, guiding buyers when they formulate their offers, providing guidance through the maze of paperwork faced by buyers and sellers and recommending reliable inspectors, lawyers, mortgage brokers, etc. See Hsieh & Moretti, supra note 139, at 1089 ("prospecting" and "farming" are not "entirely socially wasteful," rather "society's gain from free pumpkins for Halloween and from free notepads with the realtor's picture is far less than their cost to the realtor, in terms of the direct cost of these freebies, but particularly in terms of the opportunity cost of the time the realtor puts into such activities. 138. on Financial Services), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:31541.pdf. The authors used a sample of 388 home sales in calendar year 1991 from the multiple listing service. The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. In my own experience, I have already lost listings to brokers who have offered to take the listing at a lower brokerage fee. at 427-28. Alternatively, brokers may adopt a combination of flat fees and a commission rate. at 146. 259. The commission "rate" is the percentage of the home sales price that the broker retains as a commission. See NAR 2006 SURVEY, supra note 4, at 78 (75 percent of home sellers surveyed reported that the listing agent was compensated with a percentage of the sales price of the home). The potential negative impacts of steering are not likely to be as pronounced when brokers discount to home buyers via rebates because listing agents do not have the same incentives or ability to steer that cooperating agents have. & ECON. The primary evidence presented is the near-uniformity of commission rates in a given market. Competition among brokers on price primarily occurs through lower commission fees and rebates. 77. Of the alternative brokers providing MLS access, 84% reported that they either frequently or occasionally experienced "refusals by other brokers to show homes listed by [their] business," with 49% reporting this as a frequent problem. Instead, their fiduciary duty and their allegience lies with the listing agent. 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. Other referral websites do not display aggregated listings, but use Internet marketing to advertise their referral services and rebates to consumers. No. A form of alternative dispute resolution whereby a neutral third party listens to each party's position and makes a final decision. Kunz, Tr. Code of Ethics, NAR's Constitution & Bylaws, and model bylaws for state & local associations. at 38. For most years, the annual percent change in real commission fees is very similar to the annual percent change in real housing prices. 258. See Lawrence J. Most brokers have agents working for them and they collect a portion of those commissions in exchange for providing office space, marketing, and other overhead. A fiduciary duty is a special relationship recognized in law. This case resulted in a consent decree, under which MiRealSource is prohibited from adopting or enforcing any rules or polices that deny or limit the ability of MLS members to enter into exclusive agency listings, or any other lawful listing agreements, with home sellers.316. 2023 National Association of REALTORS. In 2005 real estate broker commissions exceeded $60 billion. In this Section we discuss the following non-traditional business models: (1) full-service discount brokers; (2) fee-for service brokers; (3) VOW brokers; (4) websites that provide advertising and other assistance to sellers who choose not to use a broker; and (5) referral networks.65, Discount brokers offer buyers and sellers full-service real estate brokerage services at a price lower than the prevailing commission fees.66 For example, a discount broker may offer all of the services provided by a traditional broker for a 3 or 4 percent commission in an area where 6 to 7 percent is the prevailing rate. 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. 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. See Amended Complaint, United States v. Nat'l Ass'n of Realtors (Oct. 4, 2005), available at http://www.usdoj.gov/atr/cases/f211700/211751.htm. The listing broker retains the right to determine the amount of compensation offered to subagents, buyer agents, or to brokers acting in other agency or nonagency capacities, which may be the same or different. BLACK'S LAW DICTIONARY 234 (8th ed. In effect, real estate becomes by virtue of the multiple listing service 'a more liquid commodity. See Tenn. Admin. Id. Hahn believes that rebating will have a positive impact on consumer welfare, and sees no compelling economic rationale for not allowing rebates since they are a form of price competition that should improve efficiency by putting pressure on brokerages to provide better services at lower 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. . 101. 272. See, e.g., Massachusetts Bd. According to the author, "[t]he [HUD-1] data clearly reveal systematic variation in the actual home brokerage commission rates according to the three variables examined. We do not have an answer to this puzzle."). Other studies have examined REAL Trends data and have made the same observations about patterns in commission rates, housing prices, and brokerage fees. See Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. Maureen K. Ohlhausen, Director, Office of Policy Planning 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. 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. eRealty was a licensed brokerage and employed licensed agents.84 It provided the ability to search MLS data online to bona fide buyers who had registered for a password, monitored the MLS, and reported to its clients when any listing came up that fit a profile that the client had pre-established.85 In this way, the VOW model allows consumers to substitute their search effort for that of a broker: eRealty also would "communicate instantly through email or any device [clients] needed to assist [them] with scheduling of appointments and the whole scheduling of the transaction all the way through to close. 31, 2005) (hereinafter "Kentucky Complaint"), at http://www.usdoj.gov/atr/cases/f208300/208393.htm. Yun Presentation, supra note 145, at 5, 7. 108. White, supra note 47, at 4. 25. Proponents of this argument state that this outcome is more likely to occur with a fee-for- service listing than a traditional listing because the person soliciting buyers is the home seller who is not regulated as a real estate licensee and thus has less concern about attempting to solicit clients who are already represented. Access to such websites, however, is a key input in the brokerage of residential real estate sales in the respective MLS service areas. 7. 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. 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. 153. 103. Secure .gov websites use HTTPS But with more and more agents competing to close transactions, the average number of transactions per agent will decline. What is co-broking, and why does it matter? 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). 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. Although buyers do not pay a direct fee to their brokers, some portion of brokerage fees likely is built into the prices of homes for sale. This finding was significant at the one percent level for each of the equations tested. 96. "); Richard J. Buttimer, Jr., A Contingent Claims Analysis of Real Estate Listing Agreements, 16 J. 148. 262. ASS'N 519 (1992); Crockett, supra note 51, at 213. at 348 ("[O]n average, a $100,000 rise in the price of the home reduces the commission rate by about 0.5 percentage points"). 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. . There are a variety of options available to buyers and sellers from full service agents to very limited service agents with a wide variety of fee structures. 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 ability of novice entrants to attract clients relative to more experienced agents was not discussed at the Workshop and, likewise, is not addressed in this Report. Access to the VOW and its listings search features is limited to prospective buyers or sellers who have entered into an agreement with the VOW operator that includes a terms-of-use agreement.80 The VOW permits clients to search the database at their leisure until they are ready to contact their broker for assistance in viewing the home, making an offer, etc. . 1980) (membership in the MLS becomes essential to a broker's ability to compete effectively on equal terms); GAO REPORT, supra note 3, at 12. Carney, supra note 198, at 339 (excluding five areas with insufficient observations for new homes, in 59 percent of the remaining market areas the mean commission rate paid was statistically significantly higher for existing homes than for new homes). 176. Complete listing of state and local associations, MLSs, members, and more. The Agencies and industry regulators should promote consumer understanding of marketplace options. See Perriello, Tr. "249, DOJ also investigated rebate bans by the South Dakota Real Estate Commission, the West Virginia Real Estate Commission, and the Tennessee Real Estate Commission. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose suchlike information to their client before the client makes an offer to purchase other lease. We use the terms "cooperating broker" and "buyer's broker" interchangeably throughout this Report. The Only Thing Discount Brokers Might Disrupt. Whatley analogized the real estate transaction to a play where each actor has a role and knows the script; the play would be disrupted if an actor were to enter at the wrong time or forget his or her lines. Chang-Tai Hsieh Presentation, Associate Professor of Economics, University of California, Presentation at the Federal Trade Commission and Department of Justice Public Workshop: Competition Policy and the Real Estate Industry, The Tragedy of the Commission (Oct. 24, 2005), available at http://www.ftc.gov/opp/workshops/comprealestate/hsieh.pdf. AEI-Brookings Paper, supra note 3, at 5. 41. . They do extensive research online. 316. "255 Another panelist who was an officer in an early VOW operator noted that his company gave a 1 percent rebate to buyers, but explained that rebate prohibitions "immediately slammed the door [in] certain states for [his company]. 208. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice.
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