These websites often will also provide potential home buyers with general information on neighborhoods, such as demographics, crime rates, and school quality. 627 (2005); Steven D. Levitt & Chad Syverson, Market Distortions When Agents are Better Informed: The Value of Information in Real Estate (NBER Working Paper 11053, 2005), available at http://www.nber.org/papers/w11053. 217. See TexasDiscountRealty.com, Home Sellers, http://www.texasdiscountrealty.com/sellers1.htm (last visited April 20, 2007). ; NAR, Public Comment 208, at 3 (comment). 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. ANN. See NAR, Public Comment 208, at 5 (comment) ("Brokerages of different sizes and business models are able to compete on a level playing field because most real estate professionals and firms share their detailed property listing information . See Amended Complaint at 5, United States v. Nat'l Ass'n of Realtors (N.D. Ill. Oct. 4, 2005). Commission "fees" are the total dollar amount paid by consumers for real estate brokerage services. Austin Bd. tit. 31. 334. 274. In subagency, the agent bringing the buyer is actually working for the seller as a subagent of the listing broker. Using that information, as well as Agency expertise, the almost 400 submissions filed in response to the Agencies' request for public comment in connection with the Workshop, and other available information, this Report has undertaken a careful examination of the real estate brokerage industry. "89 As he explained, consumers "expect systems, servers, to do the grunt work of searching for homes, gathering data on schools and neighborhoods, monitoring new listings, and the reporting whenever a listing fits their profile, [and] scheduling appointments . Detailed discussion of the ancillary services often provided in connection with real estate transactions was beyond the scope of the Workshop and, likewise, is beyond the scope of this Report. Some consumers may not be aware of the range of alternatives available to them when hiring a real estate broker, including the types of business models available and the negotiability of fees, for both home buyers and sellers, and/or may not understand the duties owed by their broker. Throughout this Report citations to "Public Comments" refer to comments submitted in response to the Agencies' Federal Register Notice inviting comments on the topics addressed at the Workshop. A-00-CA-154JN, 2000 WL 34239114, at *2 (W.D. 113. In a typical transaction, the listing broker may seek the cooperation of other brokers to fulfill the objective of the agency, such as finding a buyer, a tenant/lessee, or a lender. The cost of an agent's service, therefore, should go down reflecting this shift in burden."124. 213. 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. 135. Designated sales agent Technique in which in-house dual agency can be handled. 34. William Blumenthal, General Counsel at 101 (noting that several types of business models operate under the Century 21 franchise). Id. 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. Between 1998 and 2005, the real median real estate broker commission per transaction grew by 25.5% to $11,549. . 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. According to Hsieh, in a booming real estate market, relatively stable commission rates imply higher commission fees per transaction and an increased profit opportunity for agents. 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. In fact, NAR has agreed that disclosure creates "appropriate expectations" for all parties in the transaction to avoid undisclosed dual agency.301 Further, licensing laws or regulations could be amended to clarify that negotiations with a party who has chosen not to use his or her broker for such negotiations do not imply an agency relationship. "176 An agent who has been in the business for less than a year stated: "Realtors are competing fiercely on the price at which they will take listings. The broker can designate one of your agents to represent the buyer and another to represent the seller. 179, 184-185 (1981); Crockett, supra note 51, at 211. . Id. Geoffrey K. Turnbull, Real Estate Brokers, Nonprice Competition and the Housing Market, 24 REAL ESTATE ECONOMICS 293, 295 (1996). See, e.g., J. HOWARD BEALES & TIMOTHY J. MURIS, STATE AND FEDERAL REGULATION OF NATIONAL ADVERTISING 7-19 (1993). A cooperating broker does not assume compensation from the listing firm. A Workshop panelist, Chang-Tai Hsieh, an academic economist, offered one possible explanation of how, in the presence of relatively inflexible commission rates, the increased entry and non-price competition by brokers can reflect an inefficient constraint on price competition. Blann, Public Comment 250, at 1. As the authors explain, the commission rate captured in the sample is "the contract rate and therefore does not reflect any adjustment or changes that might be renegotiated between the house seller and the agent at the time of sale." . Michigan H.B. Mar. But when competition occurs primarily along such dimensions, brokers may expend more resources providing additional services than the value of those services to consumers.217, According to Hsieh, real estate agents may be competing intensely but do so primarily by expending resources to gain listings rather than competing by lowering their commission fees, a phenomenon Hsieh calls the "tragedy of the commission. Mid-America Real Estate Co. v. Iowa Realty Co., No. First, the full-service broker can disclose his or her responsibilities to both parties in the transaction to make clear the scope of the broker's services. 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. 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. 245. at 225-26. "); see also, e.g., Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312, 317 (7th Cir. 271. Chapter IV addresses obstacles to a more competitive market environment, including government-imposed impediments, MLS rules that can cause anticompetitive effects, and the importance of broker interdependence. 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. James E. Larson & Won J. Id. See VA. CODE 54.1-2138.1. Tex. Thus, consumers who purchase the MLS-only package, but later feel they need more assistance with their transaction, typically can obtain it from their broker for an additional fee. Weicher, supra note 167, at 124. As one study explains: Thomas J. Miceli et al., Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis, 20 J. "); 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"). at 169 (discussing the timing of disclosure of agency relationship in many states as having been changed from "first meaningful contact" to "as soon as practical but no later than the writing of an offer," and how this can give rise to procuring cause issues). at 149; Lewis, Tr. 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. Finally, if there is a legitimate concern that some consumers who enter into fee- for-service brokerage arrangements truly do not understand that they are contracting to receive fewer services than a full-service broker would provide, a far less restrictive solution would be to require brokers to disclose in plain terms which services they will and will not be providing. (Amended 5/10), Note 3: Multiple listing services must give participants the ability to disclose to other participants any potential for a short sale. The Real Estate Board of New York has guidelines on broker ethics especially as it relates to the commission fee. 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. of Realtors, FTC Dkt. A listing broker who has already agreed to pay a commission to a cooperating brokerin the MLS, for exampleshould fill out the Ratification of Fee box. It varies greatly. Reg. Although the terms may vary by state, there are two principal categories of real estate brokerage professionals: "agents" and "brokers." . See Tenn. Admin. This experience builds expertise in gauging market conditions and knowledge of the details involved in completing a real estate transaction. Anti-rebate laws are discussed in more detail in Chapter IV of this Report. Rebate bans inhibit price discounting and thereby harm consumers. REAL ESTATE RES. 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). The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. STAT. 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. Practice all cards. 71. 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? One broker described the competition that he faces as follows: "In about 95 percent of the leads I get, I have competition from at least one other Real Estate Agent, and on listing appointments, I am often competing against [two] to [three] other Agents, and I lose quite a few [to] those who list with lower commission rates. 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. at 150. Cooperating brokers may also seek to negotiate higher compensation from the listing broker or from the home buyer. 45. Even with the significant amount of information currently available on the Internet, there may be gaps in knowledge by some consumers in several important areas that may result in real estate brokerage markets functioning less efficiently. A discussion of the various private litigation involving alleged MLS-related restraints is beyond the scope of this Report. Research on a wide range of topics of interest to real estate practitioners. No evidence was presented at the Workshop indicating that consumers are better off with minimum-service requirements, nor have the Agencies been able to find such evidence elsewhere. Cal. Further, this theory suggests that because agents compete profits away by incurring additional expenses to provide these services, rather than lowering their commission rates, they operate at inefficiently high cost levels.221, Hsieh provided empirical evidence at the Workshop consistent with competition in the brokerage industry occurring primarily in non-price dimensions. Drawing on commission rate data from the 1983 FTC Report and examining census data on commissions from the period of 1980 to 1998, Hsieh (and his co-author) found evidence suggesting that regardless of home selling prices, commission rates appear fairly stable around 6 percent over the relevant time period and across markets.222 Hsieh studied 282 cities over eighteen years and found that in cities with higher housing prices (and thus higher commission fees and higher profit opportunities for agents): (1) there are more real estate agents relative to the city's workforce; (2) these agents are less productive (measured by sales per agent or sales per hour worked); and (3) wages for agents are not higher than they are in cities with low housing prices. 152. to help them see the home."90. See, e.g., Metropolitan Multi- List, 934 F.2d at 1579-80; Austin Bd. Instead, their fiduciary duty and their allegience lies with the listing agent. The subagent assumes the same fiduciary obligations to the principal that the agent has. at 97-98 (noting the variety of tools available to FSBOs). Id. 704 (1993); Puget Sound Multiple Listing Ass'n, FTC Dkt. at 3. As one panelist reported, it is common for a listing broker to offer 50 percent of his or her commission to a broker who provides a buyer who closes on the home, although this percentage may vary according to market conditions; in slow markets, a listing broker may offer higher compensation to attract scarce buyers, and this may be reversed in a hot market.27 Differences in offers of compensation may also arise based on local norms for historical reasons.28, The legal relationship between the buyer and the cooperating broker varies from state to state and has changed over time. AM. 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. See, e.g., California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (entity claiming state action immunity from federal antitrust laws must demonstrate that its actions are (1) pursuant to a clearly articulated state policy intentionally displacing competition with an alternative regulatory scheme and (2) actively supervised by the state or a qualified government agency or official). white hennessy in atlanta,
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