ForSaleByOwner.com Corp. v. Zinnemann, 347 F. Supp. Academic opportunities for certificates, associates, bachelors, and masters degrees. Furthermore, given that the targeted selling price will impact the time the asset stays on the market, the agent's desired time on the market may diverge from that of the seller."). at 90. See GAO REPORT, supra note 3, at 13-14, 21. 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 final part of the Report offers conclusions and recommendations. Lucy Malcolm, Paralegal, Litigation III Section 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. This Section examines three types of restraints imposed by state laws and regulations that are likely to reduce competition and consumer choice in the real estate brokerage industry: anti-rebate laws and regulations; minimum-service requirements; and overly broad licensing requirements. . In the next Chapter, we turn to obstacles innovators may be encountering. Mid-America Real Estate Co. v. Iowa Realty Co., No. Stay informed on the most important real estate business news and business specialty updates. 155. 710(16). Subagency offers are typically communicated to cooperating brokers via the MLS. "204, A 1988 study analyzed the relationship between the commission rate offered to cooperating brokers and the selling price of the home.205 The sample data were comprised of 532 home sales drawn from 1983 and 1987 sales data in the Knoxville, Tennessee, Board of Realtors' MLS.206 The study found that the cooperative commission rate was negatively related to the sales price of the home and positively related to the percent of the list price achieved by the seller.207 The authors concluded, "[t]hese results provide strong evidence that the presumption by previous researchers that real estate brokerage firms are unwilling to negotiate differential rates is inaccurate."208. cooperating broker Definition | Law Insider Thomas J. Miceli, The Welfare Effects of Non-Price Competition Among Real Estate Brokers, 20 J. See The Changing Real Estate Market: Hearing Before the House Financial Services Subcommittee on Housing and Community Opportunity, 109th Cong. Cooperating broker who is an agent of the listing broker but not strictly a subagent of the seller. 40. The staff found that 85 percent of the sellers surveyed were quoted a commission rate of either six or 7 percent by their broker. REV. 172. These websites often will also provide potential home buyers with general information on neighborhoods, such as demographics, crime rates, and school quality. 332. The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. at 26. Charles Schneider, Executive Director, James C. Cooper, Deputy Director, Office of Policy Planning 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. National Brokerage Pg. 64 - Unit 2: Flashcards | Chegg.com 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. A principle is the person who hires an agent to represent the principle. Subagent Definition, 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). 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. 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. 1325, 1346 (1970)); accord Metropolitan Multi-List, 934 F.2d at 1580 ("Market power turns on the number of brokers who use the service, the total dollar amount of annual listings, and a comparison of the rate of sales using the multilisting service to the market as a whole. 316. The Agencies and industry regulators should assess the feasibility of an empirical study of the real estate brokerage industry. So, at that point, if it was say a 6 percent commission, I might take 2 percent and offer 4 percent."). Stay current on industry issues with daily news from NAR. Whatley, Tr. 150. Because cooperating brokers typically receive 50 percent of the overall commission, a broker who returns half of his or her commission to the client provides a 25 percent discount on the overall commission payment; rebating one-third provides approximately a 16 percent discount. 59. See PATRICK WOODALL & STEPHEN BROBECK, CONSUMER FEDERATION OF AMERICA, STATE REAL ESTATE REGULATION: INDUSTRY DOMINANCE AND ITS CONSUMER COSTS 3 (July 2006), available at http://www.consumerfed.org/pdfs/CFA_Real_Estate_Commissioner_Report.pdf. at 39; Perriello, Tr. 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. John H. Crockett, Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 209, 211 (1982). The Agencies' review of fee-for-service broker websites indicates that most offer at least two tiers of service and the complete array of traditional services at a reduced commission. 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? REALOGY, REALOGY BUSINESS OVERVIEW 4 (Dec. 2006), available at http://library.corporate- ir.net/library/19/198/198414/items/223251/RealogyDecember06%20Final.pdf. A discussion of the various private litigation involving alleged MLS-related restraints is beyond the scope of this Report. At the same time, as housing price growth accelerated from 2001 through 2005, real commission fees rose about 25 percent. 208. Id. Our review suggests that although the real estate industry has undergone a number of substantial changes in recent years in particular as a result of technological advances such as the Internet competition in the industry has been hindered as a result of actions taken by some real estate brokers, acting through MLSs and NAR, state legislatures, and real estate commissions. The multiple listing service shall not disclose in any way the total commission negotiated between the seller and the listing broker. 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). "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. A-00-CA-154JN, 2000 WL 34239114, at *2 (W.D. The Only Thing Discount Brokers Might Disrupt. See Lawrence J. Second, minimum-service requirements can reduce the competitive constraint that fee-for-service brokers pose to full-service brokers. On its face, the law is ambiguous as to whether it requires brokers actually to perform the service of receiving and presenting offers and counteroffers or simply requires them to make themselves "available" to their client to do so. "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. 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]. at 32. 65, 75 (2003). 30, 2000). and Levitt & Syverson find empirical evidence consistent with a principal-agent conflict between sellers and agents. 39. A remaining question, not resolved by Workshop participants or commenters, is why commission rates are relatively inflexible.229 Regardless of the answer, it is desirable that brokers have the freedom to offer a variety of price and service combinations to attract consumers. The broker can designate one of your agents to represent the buyer and another to represent the seller. 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. Although the terms may vary by state, there are two principal categories of real estate brokerage professionals: "agents" and "brokers." 67. 45. The subagent owes fiduciary duties to the listing broker and to the seller. If a cooperating broker ultimately secures a buyer for the home, he or she would receive the cooperating commission.72 A seller who finds a buyer without the help of a cooperative broker, however, would not pay this compensation. In effect, real estate becomes by virtue of the multiple listing service 'a more liquid commodity. See, e.g., Massachusetts Bd. Some consumers choose to sell their homes without any assistance from a real estate broker. Hahn observed that such specialization and dividing of real estate services into smaller parts could result in "substantial gains for consumers." For example, there are several websites devoted to advertising FSBO homes.91 One Workshop panelist representing a major FSBO website explained that his company allows home sellers to post color photos, virtual tours, and 3,000-word descriptions that are searchable by potential home buyers.92 According to this panelist, the industry average price for this service is a flat fee of approximately $300. See William C. Goolsby & Barbara J. Childs, Brokerage Firm Competition in Real Estate Commission Rates, 3 JOURNAL OF REAL ESTATE RESEARCH 79 (1988). at 154. To the extent that fee-for-service options cost more, full-service brokers will have less need to offer these incentives. at 154. See Complaint, United States v. Kentucky Real Estate Comm'n, Civil Act. 061-0267; Monmouth County Ass'n of Realtors, Inc., FTC File No. 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. As for services, brokers may provide agents with computers, website hosting, office space, training, and marketing. 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. 262. The referral website may then rebate a portion of its referral fee to the consumer, if state law or regulations do not prohibit rebates. REV. Section A examines the structural features of the real estate brokerage industry. A. Hahn, Tr. NAR 2005 SURVEY, supra note 38, at 59. at 225. 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. 202. See id. 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. CODE tit.24 2973, FLA. STAT. How the cost of such repairs is split is often the subject of additional negotiation. 136. "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]. State commissions, frequently composed of real estate brokers, oversee drafting of and compliance with these laws and regulations.14. A 2002 study analyzing commission rates in the United States and several other countries concluded that U.S. commission rates "should equal something closer to 3.0% versus the common 6% or 7% fee." 288. Seller Broker Definition, One who earns a commission from the seller of a property in exchange for finding a buyer and assisting in negotiation. 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. 246. Such entities are likely to gain financially from increased entry into the brokerage industry. The question raised is whether this cooperating broker is a subagent of the Seller based on the Seller's listing and the MLS system, or an implied agent of the Buyer based on the actions of the agent in "representing" Continued from page 1 Finally, this Chapter addresses gaps in consumer knowledge that may exist despite the extensive information now available on the Internet. 75. * (Revised 11/04). tit. 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. . 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. Georgia salespersons pre license level 08 chapter 4 - Course Hero See also Hsieh & Moretti, supra note 139, at 1078; Hsieh, Tr. 704 (1993); Puget Sound Multiple Listing Ass'n, FTC Dkt. 3. For example, a recent National Association of Realtors ("NAR") survey found that 84 percent of consumers employ a real estate broker to help them sell their home, and the vast majority of these home sellers appear to be contracting with real estate brokers to provide assistance on all aspects of the transaction.11 Another NAR survey found that nine out of ten buyers use a real estate professional during their home searches.12 The Internet also appears to be playing an increasingly important role in the real estate transaction. 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. 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. (Amended 11/98). 73. As noted above, 80 percent of consumers use the Internet to search for homes in 2006.134 To the extent that consumers have greater knowledge of the stock of housing for sale than they used to, brokers will be less able to exclude a particular listing from home buyers' searches without their knowledge. Both Rutherford et al. You can post virtual tours. The norm years ago was 7%, then 6% . If a buyer asks a seller to pay part of the . A 1983 FTC Staff Report on the real estate brokerage industry observed that "the nearly universal opinion is that there are no significant barriers to entry, if entry is construed as gaining a license in order to practice. 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. 37:1455 (West 2006). Under the terms of the settlement, which was approved by a federal judge, the Kentucky Real Estate Commission agreed to cease enforcement of its rebate prohibitions,245 allowing Kentucky consumers to avail themselves of the benefits of increased competition through broker- offered rebates, discounts, and other inducements.246, During the course of the investigation, DOJ found evidence that brokers wanted to restrict rebates because they understood that rebates are a form of price competition. Other referral websites do not display aggregated listings, but use Internet marketing to advertise their referral services and rebates to consumers. 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. 06 Law of Agency (10) Chapter 10: Agency and Brokerage 328. 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. Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF URBAN ECONOMICS 102 (1997). . 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. at 81 n.1. DOJ subsequently filed an amended complaint to take the revisions into account. Id. The source of listings for many of these advertising websites is the MLS. C-3461, 116 F.T.C. . The FTC's last report on real estate brokerage, twenty-three years ago, stated: Some claim that things have not changed.166 Some commenters observe that the relative inflexibility of commission rates coupled with rising home prices has caused consumers to pay more in commissions, and that if brokers competed more on commission rates, commission fees would be lower.167 Moreover, citing consumers' increasing use of the Internet in real estate transactions and the substantial savings that the Internet has brought to consumers across numerous service industries168, some commenters maintain that the Internet should also be reducing the costs of providing real estate brokerage services.169, In its comment, the American Bankers Association ("Association") observed that "[one] would expect to see variations in brokerage commissions across geographical regions as the supply and demand varies dramatically across the United States, but little if any variation exists. Anti-rebate laws are discussed in more detail in Chapter IV of this Report. See HUD REPORT, supra note 201. See Ann Morales Olazabal, Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses, 40 HARV. Second, most brokers have been involved in many more real estate transactions than their clients. 299. 212. First, some fear that sellers using fee-for-service brokers foist additional work onto full-service cooperating brokers and jeopardize the transaction due to the sellers' inexperience. Although neither commenters nor Workshop panelists presented evidence to explain the cause of relatively inflexible rates, this phenomenon has meant that the price that consumers paid for brokerage services rose considerably during the recent run-up in housing prices. Section D reports one panelist's attempt to make sense of the evidence presented in Sections A through C. A. Rather, minimum-service requirements discourage competition and raise prices for consumers. Commission "fees" are the total dollar amount paid by consumers for real estate brokerage services. Although many brokers who specialize in the fee-for-service option are not affiliated with major national brokerage chains, some brokers who are affiliated with such chains offer fee-for-service or flat fee brokerage options.76 Although brokers using these models have existed since the 1970s, industry participants told GAO that the Internet has allowed such brokerages to grow in numbers and size in recent years, in part because they can market their services to a larger population of buyers and sellers.77.
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