Peggy Bayer Femenella, Bureau of Competition A fiduciary duty is a special relationship recognized in law. 475.278, OHIO CODE 4735.621, OKLA. STAT. "[C]ompeting over variables other than price[,] . It also addresses the role that the cooperative nature of real estate brokerage may play in shaping competition in the real estate brokerage industry. 22, 2005, available at http://realtytimes.com/rtcpages/20050422_dojstepsin.htm (quoting Texas Association of Realtors claiming that minimum-service rules would avoid consumer confusion); Peter G. Baker, Hiring a Broker: Should You Expect Less?, REALTY TIMES, Apr. Each survey participant who had sold through a broker was asked the commission rate that had been quoted by the broker. should be able to choose their service models as well as the provider of those services, whether they be limited service or full-service"). Although consumers benefit to some extent from all of these forms of competition, the available data suggest that brokers may compete less on price than would be expected in a competitive market. Amber Buycks, Paralegal, Litigation III Section An exclusive brokerage agreement is defined as "a written brokerage agreement which provides that the broker has the sole right, through the broker or through one or more affiliated licensees, to act as the exclusive limited agent, representative, or transaction broker of the client or customer that meets the requirements of section 339.780." Similar percentages of brokers reported threats or disparagements of their business to clients and prospective clients. See, e.g., Glenn Roberts, Jr., "Secret Agents" Quietly Offer Real Estate Rebates, INMAN NEWS, Mar. RE57R07: Brokerage Relationships | Mass.gov cash payments) and inducements, such as gift certificates, coupons, vouchers, and discounted or free services relating to buying and selling a home, to buyers and sellers.67 These are incentives that typically are offered by cooperating brokers to home buyers to encourage them to use the brokers' services. Hahn, Tr. at 68 (describing the option). "256, One panelist noted that, given the clear benefits of rebates to consumers, it is "hard to find a good articulated defense" of rebate prohibitions.257 Proponents of such provisions claim that they protect consumers from false and misleading offers of rebates and help ensure that consumers choose brokers on the basis of the quality of the service, rather than price. The staff found that 85 percent of the sellers surveyed were quoted a commission rate of either six or 7 percent by their broker. A subagent can be an unaffiliated cooperating broker. 061-0087; Northern New England Real Estate Network, Inc., FTC File No. Since the authors only observed the cooperative commission rate, they note that their conclusion rests on the assumption that the cooperative split is a fixed share of the total listing commission. The important role played by more listing information being made directly available to consumers underscores the benefits of the antitrust actions against collective action to reduce the availability of such information. Prudential Real Estate purchased eRealty. Further, proponents of minimum-service requirements have failed to present evidence that this risk is either unique to fee-for-service brokers or so prevalent as to warrant minimum-service requirements. In addition, consumers likely would benefit significantly from additional knowledge about the range of options available in brokerage services and fees. 1992). By reducing the cost of transmitting and searching information, the Internet has enabled consumers more easily to educate themselves about all facets of home buying and selling. Texas Real Estate Agency Flashcards | Quizlet 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. STATUTES. 33. See Montgomery County Ass'n of Realtors, Inc. v. Realty Photo Master Corp., 783 F. Supp. 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"). Think about it. In the case of the Austin Board of Realtors, for example, the data showed that three months after the MLS implemented its exclusive agency listing policy, the percentage of all listings that were exclusive agency listings fell from 18 percent to 2.5 percent.314 The complaints also alleged that the exclusive agency listing policy did not give rise to any plausible or cognizable efficiencies, and was "not reasonably ancillary to the legitimate and beneficial objectives of the MLS. 38. 251. at 179 ("While some consumers may be sophisticated enough to represent themselves in some or all of the steps of a transaction, most are not."). "155, The requirements for becoming a real estate licensee (i.e. Second, minimum-service requirements can reduce the competitive constraint that fee-for-service brokers pose to full-service brokers. 29. Section A examines the structural features of the real estate brokerage industry. (Amended 5/10) M. Your resource for all things Real Estate. 43, available at http://www.lrc.ky.gov/record/06RS/SB43.htm. These include advertising the seller's listing on Internet websites that home buyers search directly (e.g., Realtor.com)73 and on other MLS members' websites. In fact, commentators have expressed concern that some buyers may believe that their brokers' services are free. 184. 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. 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. 114. Instead of working with customers directly, brokers often provide agents with branding, advertising, and other services that help the agents complete transactions. See also Bunnell, Public Comment 146, at 1 ("Low barriers to entry and recalcitrance to change have created a situation where the status quo makes sense for none of the transaction participants. 2023 National Association of REALTORS. at 154. 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. Other analysts have expressed similar views. 144. Dwyer, Public Comment 55, at 1. A home selling for $100,000 more, or $172,000, would pay a commission rate of 5.73%, for a commission fee of $9,901. See Farmer, Tr. Since cooperating brokers do not directly participate in negotiating listing contracts, rebates offer a way for them to compete on price.164. Brokers also compete for customers by marketing their services to potential buyers and sellers in various ways. 4. 135, 2007 Leg., 59th Sess. 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 sometimes also referred to as "flat-fee" brokers or "limited-service" brokers represent a departure from traditional full-service brokers who typically charge a commission based on the sales price in return for a bundle of services. 233. Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved. This field also includes selling expenses other than commissions, like closing costs and attorneys fees, so it is likely to overstate the actual commission rate. 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. 67. Figure 2, however, shows that despite the downward trend in rates, the dollar amount of commission fees appears to have increased closely in line with rising housing prices. Stay informed on the most important real estate business news and business specialty updates. Consumers differ in their willingness, ability and opportunity to use the Internet to perform functions traditionally provided by brokers. 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. Instead, their fiduciary duty and their allegience lies with the listing agent. "); Salinger, Tr. The reduced susceptibility to unilateral steering of cooperating brokers who rebate underscores the importance of the Agencies' efforts to educate state legislators and regulators about the competitive harms that may be caused by anti-rebate laws. Unfortunately, as one author recently noted, "There is not much empirical evidence on commission rates. Performing such ministerial acts that are not inconsistent with subsection A shall not be construed to violate the licensee's brokerage relationship with the seller unless expressly prohibited by the terms of the brokerage relationship, nor shall performing such ministerial acts be construed to form a brokerage relationship with such buyer or potential buyer."). See Whatley, Tr. Austin Bd. at 3. 2782, available at http://billstatus.ls.state.ms.us/documents/2006/html/SB/2700-2799/SB2782IN.htm. The selling agent may be (1) the subagent or listing agent of the seller; (2) a buyer's agent; or (3) a dual agent. A representative of a self-described "alternative real estate brokerage company" reported: "I have had agents tell me personally they have been instructed by their broker not to show our properties. Subagency | Study Guide for NY Real Estate Salesperson License Note 1: The compensation specified on listings filed with the multiple listing service by the participants of the service shall be expressed as a percentage of the gross sales price or as a definite dollar amount. 72. at 1089 ("the cost of finding a customer increases with the number of realtors in the market, without necessarily generating additional benefits to the consumer"). 125. 126. Cooperating brokers may also seek to negotiate higher compensation from the listing broker or from the home buyer. C-4167, at 17 (2006) (complaint), available at http://www.ftc.gov/os/caselist/0510219/0510219AustinBoardofRealtorsComplaint.pdf. Real estate study .docx - The purpose of a liscense Article They do extensive research online. 275. 310. a. the price range of property the agent is most likely to list and sell. As discussed in Chapter I, rebates can be powerful tools for price competition among brokers. 42. 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. . city or state) under examination, as home prices increased, commission rates decreased.200 However, despite a lower commission rate, the results imply the dollar magnitude of the commission fee paid was considerably higher for higher priced homes.201 The study also found that commission rates associated with sales of existing homes were higher and less varied than rates associated with new homes.202 On average, the commission rate paid on sales of existing homes was approximately 1.2 percentage points higher than the rate paid on new home sales.203 Finally, the study found that commission rates in transactions involving cooperating brokers were on average approximately 0.4 percent higher than rates in non-cooperative transactions. some collusion between brokers through the [MLS] . 1983 FTC STAFF REPORT, supra note 9, at 64. As one study explains: Thomas J. Miceli et al., Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis, 20 J. 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. 192. See id. Both the MiRealSource and Realcomp complaints allege that the conduct was collusive and exclusionary, because in agreeing to keep non-traditional listings off the MLS or significant public websites, the brokers enacting the rules were, in effect, agreeing among themselves to limit the manner in which they compete with one another, and withholding valuable benefits of the MLS from real estate brokers who did not go along. 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. 6, 2006), available at http://www.inman.com/inmannews.aspx?ID=50907. The "New" Chapter 452: Defining Real Estate Broker Practice For example, a VOW operator may or may not also be a discount broker. Affordability, economic, and buyer & seller profile data for areas in which you live and work. "23 Cooperating brokers typically attempt to find housing from the available stock that match buyers' preferences, show prospective buyers homes for sale, provide them information about comparable home sales that have occurred in the area, assist prospective buyers in becoming pre-qualified for a certain level of financing,24 advise them on making offers, and assist in closing the transaction. 246. Brokerage entry appears to be more difficult than agent entry. REV. 051-0217. See Farmer, Tr. 2005): 58. 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. Practice all cards. PDF Consultant's Legislative Report on Agency Relationships - Hawaii Barnett, Tr. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice. United States v. Nat'l Ass'n of Realtors, 2006 WL 34344263, at *14 (N.D. Ill. Nov. 27, 2006) (denying motion to dismiss where group's collective action enabling brokers to unilaterally withhold listings from innovative competitors "is backed up by sanctions and further is alleged to promote, inter alia, express and tacit anti-competitive collusion and to provide a [group]-created mechanism to punish overly aggressive competition from any Internet-based broker"). "253 Similarly, another panelist representing a major national brokerage franchise stated that "brokers and agents should be allowed the ability to freely negotiate transaction service pricing with their clients in any way they see appropriate. Contact the Webmaster to submit comments. 161. Olazabal notes that the subagency regime was not a creature of state law, but rather was a result of most MLSs permitting listing brokers to split commissions only with cooperating agents who agreed to be a subagent of the seller. As discussed in more detail in Chapter IV, brokers have certain incentives to "steer" consumers toward those homes that offer the highest cooperating broker commission payment and away from homes listed by brokers known to charge home sellers discounted commission rates. 30, 2000). OKLA. STAT. 108. 148. Listing brokers may verify the pre-qualification letter. NAR's policy permits traditional brokers to discriminate against other brokers based on their business models, denying them the full benefits of MLS participation. 40. 133. A cooperating broker participates in the multiple listing service (MLS), and finds a buyer for a property listed in 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. Competition in the real estate brokerage industry would likely be enhanced if consumers had better access to such information. Therefore, IDX datafeeds may contain listings on fewer than all of the homes listed for sale in the MLS's area. Cal. THE INTERNET'S ROLE IN REAL ESTATE BROKERAGE. In 2006, the FTC charged six different MLSs the Austin Board of Realtors, Information and Real Estate Services, LLC, Northern New England Real Estate Network, Inc., Williamsburg Area Association of Realtors, Inc., Realtors Association of Northeast Wisconsin, Inc., and Monmouth County Association of Realtors, Inc. with violating Section 5 of the FTC Act by adopting MLS rules that limit the publication and marketing on the Internet of certain sellers' homes, but not others, based solely on the terms of their respective listing contracts.312 The FTC obtained consent agreements with all six MLSs. For example, the most recent NAR survey of home sellers and buyers found that the majority of home sellers contact only one listing agent before hiring one to assist with the sale of their home.129 Further, there is evidence that some consumers of brokerage services are not necessarily aware that commission rates are negotiable.130 This may be especially true of buyers who pay for their brokers' services indirectly via the purchase price of the home.131 Although some Workshop comments suggest that consumers' awareness of their ability to negotiate over the price and terms of brokerage services is increasing,132 perhaps due to the increasing numbers of discount brokers that have entered the industry over the past few years, some consumers do not negotiate over commission rates. See GAO Report, supra note 3, at 19-20. Licensees who work for the listing broker or for the selling (cooperating) broker are the subagents of their respective brokers. 5. NAR, Public Comment 208, at 5 ("An agent can obtain a broker's license, usually after having been in business for several years, and passing a broker's license exam. As a result, there has been a dramatic number of new agents and new entrants into the industry in recent years. "97, According to NAR's 2006 Profile of Home Buyers and Sellers, 83 percent of home sellers who retained a broker used one who provided the traditional "full" array of services; 8 percent hired a broker who listed the seller's home in the MLS and performed few, if any, additional services; and 9 percent hired a broker to provide a broader array of services, but short of full-service.98, NAR data show that the number of FSBOs consumers who sell their homes without the assistance of a real estate professional has been declining. 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. Since the consent decree was entered, consumers in Kentucky have benefited from new reduced price business models. The present law keeps it under control. See also AEI- Brookings Paper, supra note 3, at 12 (access to the MLS is a "potential bottleneck" in the large positive impact that the Internet could have for home buyers and sellers). REV. 236. 219. 972 (1993); American Industrial Real Estate Ass'n, Dkt. 273. See, e.g., Information and Real Estate Services, LLC, FTC File No. 37:1455 (West 2006). 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. Kunz, Tr. Mid-America Real Estate Co. v. Iowa Realty Co., No. American Bankers Association, Public Comment 10, at 3 (comment). White, supra note 47, at 4. He anticipated that some firms would specialize in specific parts of real estate transactions allowing consumers to choose what fits their needs. 29 During the 1990s, most states revised their laws to allow buyer representation, and at the same time NAR revised its policies, eliminating seller-subagency as a condition of participation in the MLS. Panelists representing the gamut of real estate business models remarked that they do not see a need for minimum-service laws. As illustrated in Figure 1, commission rates have fallen gradually over this time period, from 6.1 percent to just over 5 percent. In effect, real estate becomes by virtue of the multiple listing service 'a more liquid commodity. 45:15-3.1 (West 2006). As discussed in Chapter I of this Report, the commission "rate" is the percentage of the home sales price that the broker retains as a commission, and commission "fees" are the total dollar amount paid by consumers for real estate brokerage services. See Hearing, supra note 1, at 5 (testimony of David G. Wood), available at http://financialservices.house.gov/media/pdf/072506dgw.pdf. 268. NAR 2006 SURVEY, supra note 4, at 34. See U.S. Department of Housing and Urban Development, U.S. Housing Market Conditions 73 (Nov. 2006) [hereinafter "HUD REPORT"], available at http://www.huduser.org/periodicals/ushmc/fall06/USHMC_Q306.pdf. NAR has cautioned against comparing U.S. and foreign commission rates, claiming that there are too many country-specific factors involved to permit simple comparisons across countries, and the authors of the 2002 study concede that "[d]ata on such differences is not readily available and beyond the scope of this study." 214. 41. 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. at 27-28. If a home buyer finds a discounter's listing on his or her own that appears to be a good match, a broker likely will either have to show the home buyer the discounter's listing or explain why he or she will not.135, In addition, consumers also may be unaware that when they pay their broker a commission based solely on a percentage of the sales price at closing (as most do today),136 the broker's financial incentives are not necessarily aligned with the consumer's. It's a tragic story where nobody wins, especially the consumer."). See Thorburn, Tr. 325. 130. 710(16). Use the data to improve your business through knowledge of the latest trends and statistics. One panelist noted that, in her experience as a broker, lenders' increased use of technology has streamlined the mortgage process, causing the average time from contract to closing to fall from forty- five to sixty days, to thirty days.37 The HUD-1 form required by the Real Estate Settlement Protection Act ("RESPA") is a centerpiece of the closing and requires a detailed listing of the flow of funds from buyer to seller and the use of funds, including selling and buying expenses associated with the transaction and the amount of commission paid to each broker. While many consumers may be willing to perform search tasks themselves, they may be more likely to continue to rely on brokers for assistance related to the transaction process because it involves expertise derived from broker experience.125 For buyers, this may mean performing much of their early search by themselves online and contacting a broker only after they have become familiar with market offerings and are ready to start placing offers on homes. See 1% Realty, Buying a New Home, http://www.onepercentusa.com/buy.htm (last visited Mar. The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. 137. A-00-CA-154 JN, 2000 WL 34239114, at *4 (W.D. 1983 FTC STAFF REPORT, supra note 9, at 102. It is clear, however, that rebate prohibitions harm consumers by preventing price competition.258, Over the last two years, several states have imposed so-called minimum-service requirements on brokers. 16. 186. See Robert W. Hahn et al., Paying Less for Real Estate Brokerage: What Will Make It Happen? While many buyers may see this as a benefit that allows them greater control over their home-buying process, brokers may also benefit. 332. From 1989 to 1992, despite a home sales price increase of about 15.5%, the average commission rate decreased about 2%. 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. Fee-for-service brokers offer home sellers the option to purchase less than the full bundle of services traditional brokers provide. at 223-24 (describing how the MLS puts small and large brokers "on equal footing"). 182. 157. 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. A form of alternative dispute resolution whereby a neutral third party listens to each party's position and makes a final decision. Id. In such instances, entitlement to cooperative compensation offered through MLS would be a question to be determined by an arbitration hearing panel based on all relevant facts and circumstances including, but not limited to, why it was impossible or financially unfeasible for the listing broker to collect some or all of the commission established in the listing agreement; at what point in the transaction did the listing broker know (or should have known) that some or all of the commission established in the listing agreement might not be paid; and how promptly had the listing broker communicated to cooperating brokers that the commission established in the listing agreement might not be paid. See Michael Carney, Costs and Pricing of Home Brokerage Services, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 331 (1982). 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.

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