Kunz, Tr. See U.S. Census Bureau, Median Sales Price of Existing One-Family Homes by Selected Metropolitan Areas, available at http://www.allcountries.org/uscensus/1202_median_sales_price_of_existing_one.html. See id. A Report by the "181 Another agent at a full-service firm reported that "since we go up against limited service firms all the time, we are having to reduce our commission rate to keep the client. 1983 FTC STAFF REPORT, supra note 9, at 45. See, e.g., Lord, Public Comment 254, at 1 ("The competition is fierce the majority of time that an agent has a listing appointment . . As a result, there has been a dramatic number of new agents and new entrants into the industry in recent years. "A subagent is a cooperating agent who works for a listing broker-salesperson in the sale of a property. It is a standard question now. 272. Figure 3 illustrates annual percent changes in real housing prices and commission fees from 1992 through 2005, and provides additional illustration of how fees tend to move in tandem. Subsequent decisions largely have followed this approach. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice. 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. In short, changes in home sales prices have relatively small effects on commission rates. 151. While it is not possible to quantify the relative inflexibility based on information reported by the authors, supplemental information can be used to compute a rough approximation. 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. 62-13-403, WI. In addition, in response to an FTC questionnaire, respondents from Colorado, North Dakota, Vermont, and Washington noted that complaints against limited service brokers were minimal or nonexistent. ForSaleByOwner.com Corp. v. Zinnemann, 347 F. Supp. Consumers differ in their willingness, ability and opportunity to use the Internet to perform functions traditionally provided by brokers. Establishing such name recognition could be aided by affiliating with a national franchise (e.g., Prudential or Re/Max). and Levitt & Syverson find empirical evidence consistent with a principal-agent conflict between sellers and agents. Broker marketing can include paid advertisements in television, radio, print, or online media; informal networking to meet potential buyers and sellers; and giving away pumpkins at Halloween. "285, The evidence, however, does not suggest that consumers who choose to use fee- for-service brokers are harmed by performing certain aspects of the real estate transaction themselves or misunderstand the nature of the contractual relationships into which they enter. at 27. See, e.g., Mortgage101.com, http://www.mortgage101.com (last visited April 20, 2007). 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. '"60 Second, sellers benefit from wider exposure of their listings, while buyers benefit from reduced search costs.61 Finally, the court noted that "[t]he broker is particularly benefited by having immediate access to a large number of listings and at the same time by being furnished with a method for quickly and expansively exposing his own listings to a broader market. MLSs do not allow FSBO homes to be listed in the local MLS because a listing broker member is not involved. 72. 219. 54. See Lawrence J. Access to the MLS is one of the most important services that real estate brokers traditionally have offered. See Turnbull, supra note 162, at 293. At the time of publication of this Report, the Rhode Island legislature is considering minimum-service requirements. For example, 1% Realty offers buyers a rebate of approximately 1 percent of the purchase price in states that have not prohibited rebates.68 Brokers sometimes also pay rebates to home sellers. Although there is no legal impediment to consumers buying and selling homes on their own, the large majority of consumers choose to work with a real estate broker. One of the primary motivations for the FTC's 1983 investigation was "complaints from sources within the brokerage industry claiming harassment and boycotting of brokers who charge lower than 'customary' commission rates . CA Real Estate Practice, 7th Edition -- Final Exam. - Chegg.com To view PDF files on this website you need the free Adobe Reader. 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). 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. "179 Another commenter observed that "[t]he 6% commission of long ago has decreased to 4 or 5% on the majority of deals. (Amended 1/02) . Where steering behavior appears to be merely the result of a single firm's unilateral decision not to cooperate with a particular competitor, the Agencies have not pursued enforcement actions. 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. 3:05CV188-H, available at http://www.usdoj.gov/atr/cases/f210100/210142.htm. Higher profits may accrue to participants in the industry not subject to intense entry and profit dissipation. "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. 25. 268. * (Revised 11/04). Id. The importance of the MLS as the primary source of information about homes currently for sale and prices at which comparable homes have sold is discussed in Chapter I.B. See Farmer, Tr. 27, 2007). C-3449, 116 F.T.C. at 29-30; AEI-Brookings Paper, supra note 3, at 13 n.49; Nadel, supra note 25, at 4-5. A broker who brings the buyer to the listing agent is a subagent of the listing broker. 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. 179. 205. 231. See, e.g., FSBOAdvertisingService.com, Houston Texas Realtor Flat Fee MLS, http://www.fsboadvertisingservice.com/flat-fee-mls-MLSTX3.asp (last visited April 20, 2007) (2-3 percent commission for broker that finds a buyer); ifoundahome.net, http://www.ifoundahome.net/Listingwork/SBasicListing.htm (last visited April 20, 2007) (allowing home sellers to offer "a 3% commission or more" to buyers' brokers); TexasDiscountRealty.com, Flat Fee Listing, http://www.texasdiscountrealty.com/flatfee.htm (last visited April 20, 2007) (3 percent commission for a broker that finds a buyer). The typical real estate transaction involves several steps. The FTC challenged similar conduct in the past. In the most common of the three, an "exclusive right to sell" contract, the listing broker receives a payment if the home is sold during the listing period, regardless of who finds a buyer for the home.20 In an "exclusive agency" agreement, the listing broker receives payment if any broker finds the buyer, but does not receive payment if the seller finds the buyer.21 In an "open listing," a broker has a nonexclusive right to sell the home and receive payment, but other brokers or the seller may also sell the home without any payment to the listing broker.22, The broker who works with the buyer is often referred to as the "cooperating broker" "or "buyer's broker. 177. 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. at 199 ("[W]hen I was in a market that was very, very slow, it was not uncommon to actually have a disproportionate share going to the buyer . 202. Share sensitive information only on official, secure websites. 270. Whatley, Tr. at 233-46. Subsequent decisions largely have followed this approach. PDF INTRODUCTION - McKissock Learning Further, if commission rates are relatively inflexible, such that agents do not seek to attract customers by offering lower rates, agents will compete along other dimensions to gain clients.214 For instance, agents may expend resources "prospecting" for listings by, for example, door-to-door canvassing, mailings, providing potential clients with free pumpkins at Halloween, and calling on FSBO sellers.215, Marketing is often beneficial to consumers and competition,216 and some consumers may benefit from the enhanced service competition in this market. Meet the continuing education (CE) requirement in state(s) where you hold a license. See, e.g., Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1579-80 (11th Cir. 283. A-00-CA-154 JN, 2000 WL 34239114, at *4 (W.D. Although the terms may vary by state, there are two principal categories of real estate brokerage professionals: "agents" and "brokers." 207. 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. See also Hsieh & Moretti, supra note 139, at 1078; Hsieh, Tr. VOW brokerages typically maintain physical offices in the markets in which they operate, staff those offices with licensed brokers who participate in their local MLSs, and represent both buyers and sellers.82. Daniel S. Hosken, Deputy Assistant Director, Bureau of Economics (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. C-4167, at 17 (2006) (complaint), available at http://www.ftc.gov/os/caselist/0510219/0510219AustinBoardofRealtorsComplaint.pdf. 228. Id. At that price, the study's statistical results predict a corresponding commission rate of 6.25%, leading to a commission fee of $4,550. No. Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF URBAN ECONOMICS 102 (1997). 168. 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. of Realtors v. E-Realty, Inc., No. Some states protect parties' interests in this situation through "designated agency," under which different agents within the brokerage firm are "designated" separately to represent the buyer's and seller's interests in the transaction. For a discussion of the positive network effects associated with MLSs, see 13 HERBERT HOVENKAMP, ANTITRUST LAW 2220b4, 2223b3 (2d ed. A decrease in commission rates does not necessarily imply a decrease in fees. 475.278, OHIO CODE 4735.621, OKLA. STAT. 162. 282. at 150 n.430. 2. "112 A panelist described the Internet as "a very highly effective marketing tool as well as a tremendous information resource and communication tool. See infra Chapter IV. 2 of the MLS antitrust compliance policy. In the next Chapter, we turn to obstacles innovators may be encountering. When exercised, the opt-out provision prevents Internet-based brokers from providing all MLS listings that respond to a customer's search, effectively inhibiting the new technology. 704 (1993); Puget Sound Multiple Listing Ass'n, FTC Dkt. 16. 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. One agent claimed that, due to the prevalence of discount brokers, real estate agents "are confronted with the question how much can you reduce your commission? 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. Realty Multi-List, 629 F.2d at 1373-74 (citing A. Austin, Real Estate Boards and Multiple Listing Systems as Restraints of Trade, 70 COLUMBIA L. REV. Namely, a broker's success typically depends on securing significant cooperation from direct competitors. . See discussion in Hsieh & Moretti, supra note 139, at 1116 (estimating $1.1 billion to $8.2 billion social waste resulting from excess entry in 1990). NAR's President-Elect has stated: Hearing, supra note 1, at 18-19 (testimony of Pat Vredevoogd-Combs, President-Elect, NAR), available at http://financialservices.house.gov/media/pdf/072506pvc.pdf. One author has described the service that brokers provide as not merely a completed match of buyer and seller, but rather "a completed transaction at some level of service provided to the parties involved." Specifically, by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from VOW brokers by means of an "opt out,"319 it enables traditional brokers to block their competitors' customers from having full on-line access to all of the MLS's listings. 2023 Code of Ethics & Standards of Practice - North Carolina Workshop panelists reported how some MLS rules discriminate against brokers who enter into exclusive agency listing agreements, which provide that the broker is entitled to compensation only when the home is sold by an agent, and not in the event the home seller sells the home on his or her own.309 This is the type of agreement used in most fee-for-service transactions. 220. Continuing education and specialty knowledge can help boost your salary and client base. However, in many cases, individual brokerage firms exist under common ownership or as part of a franchise system. at 233 ("[T]he real puzzle in the real estate business is why does there seem to be this relatively fixed commission structure? See supra notes 117-118 and accompanying text. 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. According to one survey, 80 percent of home buyers used the Internet during their home search in 2006, and 24 percent of recent home buyers first located the home they bought on the Internet. "); Paulsen, Public Comment 364, at 1 ("If the public felt there was a set fee I would not be asked what my rate is to sell a house. Brokers can use this database to provide their clients with information on sales of comparable homes so that the clients can more accurately value their homes or determine the amount to bid on a home. Each of the next four largest firms enjoyed less than 10% of the listings and sales. 44. c. Both a and b. d. Neither a nor b. b. their broker. 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. Patrick J. Roach, Deputy Assistant Director, Bureau of Competition 2006 (discussing various theoretical and empirical reasons why the hold-up theory does not appear to apply to fee-for-service brokerage). Listing brokers may verify the pre-qualification letter. Weicher, supra note 167, at 124. The number of new agents entering the market in the past couple of years has outpaced the home sales growth and even the home price growth. No. Multiple listing services may, as a matter of local discretion, allow participants to offer cooperative compensation as a percentage of the net sales price, with net sales price defined as the gross sales price minus buyer upgrades (new construction) and seller concessions (as defined by the MLS unless otherwise defined by state law or regulation). The Agencies and industry regulators should assess the feasibility of an empirical study of the real estate brokerage industry. . The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. Commenters and participants in the real estate brokerage industry report steering behavior. 30, 2000). Practice all cards. . 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. What Is A Subagent In Real Estate? (TOP 5 Tips) The latter reading would ultimately seem to leave the choice up to the client as to who receives or presents the offers and counteroffers. State legislators and industry regulators should consider repealing existing laws, rules and regulations, such as minimum-service and anti-rebate provisions, that limit choice and reduce the ability of new brokerage models (e.g., fee-for-service brokers, discount full-service brokers, virtual office website brokers, and broker referral networks) to compete and that do not appear to provide any consumer benefits that would justify such restrictions. ."). Search Handbook on Multiple Listing Policy, REALTORS Political Action Committee (RPAC), Mission, Vision, and Diversity & Inclusion, Chronological Listing of Multiple Listing Policy Statements, Additional Resources for Members & the Public. 43. This letter praised the competitive nature of the real estate industry. "); Hsieh, Tr. Cal. 179, 184-185 (1981); Crockett, supra note 51, at 211. 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). 209. See The Changing Real Estate Market: Hearing Before the House Financial Services Subcommittee on Housing and Community Opportunity, 109th Cong. b. the number of sales the agent will likely close in that price range during their first year. The commission "rate" is the percentage of the home sales price that the broker retains as a commission. For example, a VOW operator may or may not also be a discount broker. 327. See Kunz, Tr. 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. Based on the 1992 median price, home sales price indices from the Office of Federal Housing Enterprise Oversight (see http://www.ofheo.gov/HPI.asp) imply median home sales prices of $71,920 in 1985, $63,620 in 1989, and $73,600 in 1992. 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. tit. Analysis of commercial market sectors and commercial-focused issues and trends. For sellers, this may mean setting their own sales price and relying on the wide online exposure of MLS listings rather than broker effort to market their home, and hiring an agent only to list their home in the MLS and for assistance in closing the transaction. Legislative and Regulatory Restrictions on Competition. 16, 2007). "155, The requirements for becoming a real estate licensee (i.e.
