a cooperating broker would be a subagent

172. Although, as noted in Chapter I, cooperation among brokers can lower transaction costs, it may also foster a natural impediment to discount brokers.325 As one author has explained: As a result, brokers may be deterred from discounting if cooperating brokers threaten to "concentrate their efforts" or steer buyers toward transactions for which higher commissions are available. I see agents advertising commissions as low as 2%. NAR, 2006 NATIONAL ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS AND SELLERS 34, 38 (2006) [hereinafter NAR 2006 SURVEY] (covering 12-month period ending June 2006). Throughout this Report citations to "Tr." 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. For example, one Workshop participant who operates a flat- fee brokerage stated that about 30 percent of his clients who sign up for a flat-fee listing eventually purchase additional brokerage services.74 This panelist's website offers the flat-fee listing at $595, but also offers two other packages: "flat-fee plus," which costs an additional $1,500 and includes negotiation and post-contractual assistance, and full- service brokerage for a discounted percentage fee.75 Further, many fee-for-service brokers allow their clients to cancel their listing agreement at any time, leaving consumers free to pursue other brokerage or non-brokerage options if they become dissatisfied with the broker's service. For example, one panelist explained that "what you see in the MLS is more detailed information [than is displayed on IDX websites], but again, [brokers] have access to that [information in the MLS], and [brokers] can provide that to the consumer. 207. Typically, agents solicit listings, work with homeowners to sell their homes, and show buyers homes that are likely to match their preferences. 78. In this manner, brokers can take advantage of their superior knowledge of market conditions by steering clients away from home listings that otherwise match the criteria identified by the consumers, but provide lower financial gains for the broker than other homes.133, Home buyers' increasing use of the Internet may limit brokers' ability to steer buyers away from discounters' listings without their knowledge. Mar. Increased Consumer Access to Real Estate-Related Information. See Darryl W. Anderson, Minimum-Service Requirements in Real Estate Brokerage: A Response to Maureen K. Ohlhausen, ANTITRUST SOURCE, Jan. 2006, at 3-4 (arguing that minimum-service requirements are procompetitive because they foster price negotiations before entering a representation agreement over what a fee-for-service broker will charge for all the services required by law). Natalya Delcoure & Norm G. Miller, International Residential Real Estate Brokerage Fees and Implications for the US Brokerage Industry, 5 INTERNATIONAL REAL ESTATE REVIEW 12, 29 (2002). Yun, Tr. 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. Overall, Form CBC is used to deal with compensation between brokers. While offers of compensation made by listing brokers to cooperating brokers through MLS are unconditional (except where MLS rules create specific exceptions as specified elsewhere in this policy statement), a listing broker's obligation to compensate a cooperating broker who was the procuring cause of sale (or lease) may be excused if it is . 681, 689 (2005). 39. "155, The requirements for becoming a real estate licensee (i.e. We have not found any increased incidence of undisclosed dual agency problems associated with limited-service brokerage. "115, Industry-produced data appear to support this view. . 212. Each of the next four largest firms enjoyed less than 10% of the listings and sales. Sirmans, Geoffrey K. Turnbull & John D. Benjamin, The Markets for Housing and Real Estate Broker Services, 1 JOURNAL OF HOUSING ECONOMICS 207 (1991). 218. . Hsieh, Tr. REALTOR.com, http://www.realtor.com (last visited April 20, 2007) (according to its website, REALTOR.com is the "Official Site of the National Association of REALTORS"). 126. 228. See Yun, Tr. NAR, Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents (Jan. 17, 2006), http://www.realtor.org/press_room/news_releases/2006/hmbuyersellersurvey06.html. INFORMATION TECH. Buyers typically do not pay their brokers directly.25 Rather, listing brokers compensate cooperating brokers according to the terms stated in the MLS listing, which usually specifies an unconditional offer of compensation to any broker that is the "procuring cause" of the sale.26 For example, a listing broker who charges a 6 percent commission may offer to compensate a cooperating broker with 3 percent, half of the listing broker's commission. 2005): 58. The marketplace is likely to function more efficiently and provide greater benefits to consumers when consumers have direct access to more information about those listings. (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. 061-0267; Monmouth County Ass'n of Realtors, Inc., FTC File No. To compete on price, they can offer lower commissions to home sellers and, where permitted, rebates to home buyers. 201. "157 Another panelist, a NAR economist, stated that in 2004 "253,000 [licensees] entered the market, became realtor members, and 127,000 dropped out, indicating that the market is fairly dynamic, that there's free entry, free exit. at 39; Perriello, Tr. Dwyer, Public Comment 55, at 1. (Amended 11/98). 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. 202. Kunz, Tr. According to a NAR survey of home buyers and sellers, broker IDX websites were among the top three most popular websites searched by buyers, with 40% of buyers conducting their home searches on these websites.103 In addition, many MLSs contribute the IDX datafeed to some of the most popular publicly accessible websites like Realtor.com, a national website that NAR owns. 308. See Robert W. Hahn et al., Paying Less for Real Estate Brokerage: What Will Make It Happen? So in effect, any agent that showed the listed property automatically became a subagent of the listing broker and the seller. at 235 ("there's relatively free entry into the profession and into the real estate brokerage business . Founded as the National Association of Real Estate Exchanges in 1908. 151. at 4. Practice all cards. "); Hsieh & Moretti, supra note 139, at 1086 ("The apparent uniformity of commission rates presents an enormous puzzle, especially if one believes that the cost and effort necessary to sell a house do not increase one to one with the price of housing. 176. However, the authors' statistical results suggest commission rates are relatively inflexible.213 This result is consistent with the findings based on Real Trends data described above: as home sales prices have increased since 1991, commission rates have declined, but not in proportion to increases in home sales prices. Any superceding offer of compensation must be expressed as either a percentage of the gross sales price or as a flat dollar amount. The 1983 FTC Report traces the evolution of the exchange of home information by brokers, from the weekly in-person "exchanges" of the Nineteenth Century to the formation of the modern MLS.39 The MLS has evolved still further since 1983, reflecting the rapid pace of technological developments during this period.40 The following two sections describe the present-day MLS and discuss its importance to home sellers, buyers, and brokers. No. A discussion of the various private litigation involving alleged MLS-related restraints is beyond the scope of this Report. See Thorburn, Tr. 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. (Apr. Commission/Cooperative Compensation Offers, Section 1: Information See, e.g., Glenn Roberts, Jr., "Secret Agents" Quietly Offer Real Estate Rebates, INMAN NEWS, Mar. Matthew Magura, Economist, Economic Regulation Section See, e.g., STEVE SAWYER, LOCAL REAL ESTATE MARKET COMPETITION: EVIDENCE AND INSIGHT FROM AN ANALYSIS OF 12 LOCAL MARKETS 3 (2005), available at http://www.realtor.org/publicaffairsweb.nsf/Pages/Sawyer05?OpenDocument (noting existence of "micro- markets" within metropolitan areas. Patrick J. Roach, Deputy Assistant Director, Bureau of Competition This Chapter also discusses the Internet as a means of providing real estate brokerage and related services to consumers. The data are usually proprietary and not readily available to the public or to academic analysts. See Whatley, Tr. of Realtors, FTC Dkt. "185 Consistent with this observation, none of the Workshop participants or commenters provided data on commission rates or fees.186 To our knowledge, REAL Trends is the only source that publishes commission rate data. See, e.g., American Bankers Association, Public Comment 10, at 1 (cover letter) ("[b]y any standard, the real estate brokerage market is considerably less competitive than it should be and commissions are artificially high. at 149 (listing several features of real estate websites, including property photos, virtual tours, rich text, mapping functionality, and neighborhood information); Sambrotto, Tr. However, because sellers typically do not pay for title searches, abstracts, and many of the other fees associated with closing a residential real estate transaction, the data in this field are likely to closely represent commissions paid by the seller. 17. See Olazabal, supra note 19, at 74-75. See also Yun, Tr. "); 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). 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. Local broker marketplaces ensure equity and transparency. D. One Explanation of the Seemingly Contradictory Descriptions of Broker Competition. Through a cooperating broker agreement, the cooperating broker earns a share of the commission paid at the close of the sale. Indeed, antitrust agencies have challenged private associations' restraints on truthful competitor advertising. As one panelist explained: the mechanics of the typical real estate transaction make it difficult for a buyer's broker to reduce the price of his or her services because the "custom of the industry" is for the listing broker to split his or her commission with the buyer's broker.70 Rebates, therefore, can be powerful tools for price competition between brokers. "290 The chief operating officer of a major website that provides selling aids to FSBOs commented that "there seems to be no demand on the part of the consumer for [minimum-service] laws. 231. Weicher's calculations use average home sales prices, not median home sales prices. Even though an agent's commission increases with the price of the home, he or she likely retains no more than 1 to 2 percent of the sales price (after paying the cooperating broker and the agent's brokerage firm).137 Therefore, the agent may be less willing than the consumer to take the risks associated with getting a higher sales price, such as waiting for what might be a better offer and perhaps having to do additional work.138 Likewise on the buy side of the transaction, the broker may be less interested than the consumer in negotiating the lowest possible sales price because a lower sales price translates into a lower commission for the broker, likely requires additional work, and may increase the risk that the transaction falls through with no commission paid to the broker. Hahn, Tr. American Bankers Association, Public Comment 10, at 3 (comment). a. the price range of property the agent is most likely to list and sell. 65, 75 (2003). 269. Although a subagent cannot assist the buyer in any way that would be . No. 297. Maureen K. Ohlhausen, Director, Office of Policy Planning For many, co-broking makes sense. In an address at the beginning of the Workshop, (then Acting) Assistant Attorney General Thomas Barnett observed that minimum-service laws and regulations can be viewed as no different from states passing a regulation that says: "When I walk into McDonald's and order a hamburger, I'm told that I also have to buy some french fries, because the state has decided that it might be deceptive or misleading or bad if I only got the hamburger, paid for it and didn't realize I wasn't going to get the french fries." 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. Approximately half of the public comments submitted to the Agencies in response to their request for public comments were some variation of a form letter that NAR composed, posted on its website, and encouraged its 1.2 million members to send. IDX datafeeds can also be less complete than the full MLS listings database because each MLS determines which datafields to include in the IDX datafeed.

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