236. The MLS is a local or regional joint venture of real estate brokers, typically operated by a local group of brokers affiliated with NAR, who pool and disseminate information on homes available for sale in their particular geographic areas.41 The MLS combines its members' home listings information into a database, usually in electronic form. at 225-26. C-3300 (1990). See TexasDiscountRealty.com, Home Sellers, http://www.texasdiscountrealty.com/sellers1.htm (last visited April 20, 2007). Founded as the National Association of Real Estate Exchanges in 1908. Just as the 1983 FTC study provided valuable information about how real estate brokers competed in the late 1970s and early 1980s, a new study examining how transaction-level commission rates and fees vary based on such factors as market conditions, housing prices, and regulation would provide a better understanding of the current state of competition in the real estate brokerage industry. Panelists representing traditional brokers acknowledged that the listings information provided via an IDX datafeed is limited. ON LEGIS. 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. 475.278, OHIO CODE 4735.621, OKLA. STAT. Usually, the cooperating broker is the (selling) broker who found the buyer who offers to buy a piece of property listed with another (listing) broker. at 81-82; Lewis, Tr. 154. ; NAR, Public Comment 208, at 3 (comment). Several Workshop panelists expressed a similar view. REAL ESTATE & URBAN ECON. Illustrative of the continued changes is a court's description of a local MLS as it progressed from distribution of an index card for each property listing to computerized downloads of digitized photographs. Perriello, Tr. See MiRealSource, Inc., FTC Dkt. 320. "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. Other referral websites do not display aggregated listings, but use Internet marketing to advertise their referral services and rebates to consumers. See also id. For example, within the Washington, DC metropolitan area, there is little or no competition among buyers, sellers, and real estate agents across the micro-markets of Montgomery County, MD, Fairfax County, VA, and southwest Washington, DC). Contact the Webmaster to submit comments. 53,362 (Sept. 8, 2005). 19. "155, The requirements for becoming a real estate licensee (i.e. However, in many cases, individual brokerage firms exist under common ownership or as part of a franchise system. 117. Including Legal, Agent & Broker, and Property Rights Issues. Geoffrey K. Turnbull, Real Estate Brokers, Nonprice Competition and the Housing Market, 24 REAL ESTATE ECONOMICS 293, 295 (1996). 54 As previously noted, brokers using the MLS reduce the costs of matching buyers and sellers and can market their service to a large set of potential clients. They instinctively start with the [I]nternet before they search to buy anything. See also Hahn, Tr. MLSs are the primary source of home listings information because they contain real time information on virtually every home listed for sale in a given area, except FSBO homes. B. Given that under minimum-service requirements choice is reduced and in many cases prices go up, those who favor minimum-service provisions should bear the burden of demonstrating that consumers affirmatively benefit from them. One commenter, the owner of a discount brokerage franchise, reported that he has "not experienced any discrimination by agents in the showing or selling of our properties"333. Georgia salespersons pre license level 08 chapter 4 - Course Hero 13. The authors performed regressions analyzing how the contract commission rate was affected by various market conditions and housing variables. 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. Paulsen, Public Comment 364, at 1. of Realtors v. E-Realty, Inc., No. See Hsieh & Moretti, supra note 139, at 1089 ("prospecting" and "farming" are not "entirely socially wasteful," rather "society's gain from free pumpkins for Halloween and from free notepads with the realtor's picture is far less than their cost to the realtor, in terms of the direct cost of these freebies, but particularly in terms of the opportunity cost of the time the realtor puts into such activities. Some national Internet websites aggregate some of the MLS data from across the country and allow potential home buyers to search the databases. Because consumers tend to know the prices of additional services before entering contracts with fee-for-service brokers, they are not likely to suffer from the "hold-up" that minimum- service advocates have asserted as a reason for such provisions.288, Further, the origins of these laws suggest that the asserted public interest justifications are not genuine. Royce de R. Barondes & V. Carlos Slawson, Jr., Examining Compliance With Fiduciary Duties: A Study of Real Estate Agents, 84 OR. This code comprehension resource, distributed during the November 2019 REALTORS Conference & Expo, sets forth two FAQs that clarify the right of cooperating brokers to negotiate commissions with listing brokers. NAR, HANDBOOK ON MULTIPLE LISTING POLICY 50 (2006). Fixed Commissions and Social Waste in the Real Estate Industry, 111 JOURNAL OF POLITICAL ECONOMY 1076, 1088 n.17 (2003) (suggesting that it is a "puzzle" why brokerage contracts are not "non-linear," where the agent receives a fixed fee and a commission for any price above some minimum value); Levitt & Syverson, supra note 16, at 20-21 (suggesting a non-linear compensation scheme, but noting that it may be difficult to implement because the homeowner is less informed than the agent about the home's market value); see also Nadel, supra note 25, at 43-60 (suggesting a fee-for-service rate structure). 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. at 29-30; AEI-Brookings Paper, supra note 3, at 13 n.49; Nadel, supra note 25, at 4-5. 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. 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. AEI-Brookings Paper, supra note 3, at 12. . See supra Chapter I.C.3. at 146. . See Glenn Roberts Jr., Flat-fee brokers adapt to new real estate law Texas' new minimum-service law enacted Sept. 1, INMAN NEWS (Oct. 12, 2005), available at http://www.inman.com/inmannews.aspx?ID=48325; see also http://www.texasdiscountrealty.com/laws.htm (website of Texas Discount Realty explaining that "because of the added responsibilities forced on to you, the seller and us the broker, by [the Texas minimum-service law], we are forced, as most brokers to adjust our prices"); Tracy Donhardt, New Law Provides Realtors and Edge, INDIANAPOLIS BUSINESS JOURNAL (July 10, 2006), available at http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=07&issueday=10&page=1 &article=Ar00101 (noting that Indiana's minimum-service law has caused at least one limited-service broker to exit the market). Several panelists and commenters cited Real Trends estimates of commission rates. While there have been many positive developments in the residential real estate industry, there are some indications that consumers are not enjoying all of the possible benefits of competition in the real estate brokerage industry. 225. 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. What is split Agency? Therefore, a real estate broker must keep confidential any information that may weaken a principal's bargaining position. 226. 65. 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. . See NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers contacted only one agent; 74% of sellers found their agent through either a referral or a prior relationship with the agent). See Chang-Tai Hsieh & Enrico Moretti, Can Free Entry Be Inefficient? The ability to buy individual brokerage services, without purchasing the full package offered by full- service brokers, is increasingly important to consumers. NAR 2005 SURVEY, supra note 38, at 59. 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. The Nevada legislature is considering a bill to allow consumers to waive the minimum- service requirements established by the Nevada Real Estate Commission, all of which is part of a package recommended by a minimum-service task force the Commission established. Where participants are permitted to communicate to other participants how any reduction in the gross commission established in the listing contract required by the lender as a condition of approving the sale will be apportioned between the listing and cooperating participants, multiple listing services may, as a matter of local discretion, require listing participants to disclose to cooperating participants in writing the total reduction in the gross commission and the amount by which the compensation payable to the cooperating broker will be reduced within ______ hours of receipt of notification from the lender. For example, if a cooperating broker were to earn half of a 5.1 percent commission and offer a 50 or 33.3 percent rebate, a consumer would save $3,459 or $2,306 in commission payments, respectively, on the sale of a $271,263 home.241 Consumers in states with rebate bans could enjoy a similar level of savings only if such bans were eliminated. See Whatley, Tr. Id. 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. See 1% Realty, Buying a New Home, http://www.onepercentusa.com/buy.htm (last visited Mar. At the same time, as housing price growth accelerated from 2001 through 2005, real commission fees rose about 25 percent. He explained that his company had received letters from states demanding that it stop doing business until it became licensed as an agent because "the services that you offer rise to the level of an agent."305. 36. 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). "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. On the service dimension, they can offer more assistance or convenience to customers. 163. The latter reading would ultimately seem to leave the choice up to the client as to who receives or presents the offers and counteroffers. "218 The "tragedy" of relatively inflexible commission rates, according to Hsieh, is not just that consumers receive more services and fewer commission fee reductions than many consumers might prefer, but that the agents themselves are no better off.219 Because the ratio of agents to buyers and sellers has increased, agents have to work harder to find clients and consequently spend less time actually closing transactions.220 In this manner, a larger number of agents dissipates the increased profit opportunities by incurring additional expenses to close transactions. E.g., ForSaleByOwner.com, http://www.forsalebyowner.com (last visited April 20, 2007); FSBO.com, http://www.fsbo.com (last visited April 20, 2007); and HomesByOwner.com, http://www.homesbyowner.com (last visited April 20, 2007). See also Whatley, Tr. Designated sales agent Technique in which in-house dual agency can be handled. Id. According to REAL Trends data, the number of transaction sides per agent declined from 12.7 in 2000 to 10.2 in 2005. 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. Bringing you savings and unique offers on products and services just for REALTORS. Id. NAR, Public Comment 208, at 1 (comment). As discussed in Chapter I, rebates can be powerful tools for price competition among brokers. 297. 303. 93. "Procuring cause" refers to the efforts of the primary broker, who brings a buyer to the listing and causes the transaction to be completed. "); Bourgoin, Public Comment 30 at 1 ("[T]he FTC did a study which was completed and published in 1983. 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. As a member, you are the voice for NAR it is your association and it exists to help you succeed. Resources to foster and harness the grassroots strength of the REALTOR Party. Some MLSs also withhold such datafields as the detailed description of the home or the property disclosures. 187, 187 (2001) ("A number of studies have argued that the uniformity of the commission rate across different properties and regions is an indication of collusive behavior. 280. 2004) (providing a general description of the ForSaleByOwner.com business model). In states without minimum-service requirements, a consumer typically can choose an MLS-only package as the lowest price/lowest service level option.275 Minimum- service provisions eliminate the option of buying an MLS-only package, or any other individual service.276 Fee-for-service brokers in minimum-service states must include the enumerated additional tasks in any package of listing services they provide, which often requires the broker to charge a higher price due to the increased costs and time commitments associated with each transaction.277, To illustrate how minimum-service requirements eliminate choice, consider the example of a consumer who is selling his or her home for $271,263 (the average sales price of a home in 2005).278 A consumer who lived in a state without a minimum-service requirement could choose to purchase a basic MLS-only package from a flat-fee broker for about $7,282 ($500 for the MLS-only brokerage package listing fee plus a 2.5 percent commission for a cooperating broker). 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."). See infra Chapter IV. 279. Competition among brokers based on service to consumers includes a wide range of possibilities. See id. 2023 National Association of REALTORS. This Chapter provides an overview of the traditional real estate transaction and the participants involved in the process, discusses the important role of the MLS, and examines how the Internet has affected residential real estate brokerage-related services. and Levitt & Syverson find empirical evidence consistent with a principal-agent conflict between sellers and agents. 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. Reppert, Public Comment 294, at 1. In the majority of transactions, the commission fee is determined by multiplying the commission rate negotiated in the listing contract by the home's actual selling price. Press accounts indicate that fee-for-service brokers have raised their prices or exited the market altogether in response to minimum-service laws. 144. 5 (American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Working Paper 05-11, 2005) [hereinafter AEI-Brookings Paper]; GAO, REAL ESTATE BROKERAGE: FACTORS THAT MAY AFFECT PRICE COMPETITION (GAO-05-947) 15 n.33 (2005) [hereinafter GAO REPORT]. In addition, they claimed that the tens of thousands of brokerages, more than two million licensed real estate professionals, and various business models across the country provide consumers with a great deal of choice. at 160- 61 (although the Internet provides useful information to buyers and sellers of real estate, by the time properties are advertised on the Internet, they may be gone already; thus, the MLS is crucial). 159. 258. AM. at 223-24 (describing how the MLS puts small and large brokers "on equal footing"). This Chapter also discusses the Internet as a means of providing real estate brokerage and related services to consumers. 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. Tex. Upon execution of this Lease by both parties, Lessor shall pay to said brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate agreement between Lessor and said broker(s). 130. See AEI-Brookings Paper, supra note 3, at 5. Further, NAR membership is required for all agents and brokers that belong to the vast majority of MLSs in the United States. 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. "330 A Workshop panelist who owns a fee-for-service brokerage recounted his experiences: Brokers also filed public comments alleging that competing brokers have withheld cooperation with, or engaged in harassment of, discounters. "46 Another panelist, however, described the MLS as a "club" that can limit membership and access to MLS listings to firms that conduct business in a particular manner, thereby limiting consumer choice.47 This panelist, an economist, stressed that when competitors cooperate, as in an MLS, the rules governing that cooperation and the conditions under which the cooperation occurs must be examined closely.48, As the primary source of information about homes currently for sale and the prices at which other, comparable homes have been sold, the MLS is an extraordinarily important resource for sellers, buyers and brokers.49 Home sellers benefit from exposure of their listings to a wide audience of potential buyers, increasing the probability of selling their homes quickly and at an optimal price for those sellers.50 In addition, sellers, through their brokers, can use the MLS information on comparable homes to decide whether to sell their homes and, if so, at what price.51 According to NAR's 2006 survey of home buyers and sellers, 88 percent of sellers reported that their home was listed in the MLS.52, Buyers also benefit from the MLS because they can go to a single source (that is, a single broker) for information regarding the vast majority of homes for sale within a given area, instead of visiting multiple brokerages to obtain such information. See Glenn Roberts, Jr., New Mexico Rescinds Controversial Real Estate Rules, INMAN NEWS (July 17, 2006), available at http://www.inman.com/InmanNews.aspx?ID=54526. 31. 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." AEI-Brookings Paper, supra note 3 at 8-10. Since cooperating brokers do not directly participate in negotiating listing contracts, rebates offer a way for them to compete on price.164. In response to DOJ's investigation, the Tennessee Real Estate Commission voted to suspend enforcement of its rebate ban on July 13, 2006, and subsequently voted to repeal the offending regulation. The MLS allows broker- members to search and filter homes based on detailed criteria, including property and neighborhood information, offers made on the home, prior sales history, and days on the market.44 In addition to the database of currently available homes, an MLS maintains a database of homes sold through the MLS. See Ann Morales Olazabal, Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses, 40 HARV. Mar. Although a subagent cannot assist the buyer in any way that would be . at 149 (listing several features of real estate websites, including property photos, virtual tours, rich text, mapping functionality, and neighborhood information); Sambrotto, Tr. If that cooperation cannot be obtained, it is possible that an entrant might fail even if it is more efficient and provides a more attractive combination of price and service to consumers. Panelists representing the gamut of real estate business models remarked that they do not see a need for minimum-service laws. 250. 56. 108. 209. 44. As in other TREC contracts, this simply authorizes the escrow agent to pay the cooperating broker from the listing broker's fee at closing. The only exception to this is in the case of the appointment of designated agents, as outlined in paragraph 10. Dawn Miller, Paralegal, Litigation III Section Federal Trade Commission and The degree of rate uniformity we found clearly is inconsistent with a market characterized by the particular kind of vigorous competition common in many other markets."). . See Hahn, Tr. 135, 2007 Leg., 59th Sess. Regardless of which alternative the consumer chooses, the consumer would be worse off because he or she cannot choose the preferred combination of price and service, which brokers would be able to provide in a state without minimum-service requirements.280. 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. 276. at 150. The Agencies should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances. 309. In subagency, the agent bringing the buyer is actually working for the seller as a subagent of the listing broker. 3 (Mar. In the next Chapter, we turn to obstacles innovators may be encountering. 260. Stay current on industry issues with daily news from NAR. Rebates currently are prohibited by law, however, in ten states: Alabama;230 Alaska;231 Kansas;232 Louisiana;233 Mississippi;234 Missouri;235 New Jersey;236 North Dakota;237 Oklahoma;238 and Oregon.239 In addition, Iowa240 prohibits rebates when the customer uses the services of two or more brokers during a real estate transaction. . See GAO Report, supra note 3, at 19-20. PDF Consultant's Legislative Report on Agency Relationships - Hawaii This experience builds expertise in gauging market conditions and knowledge of the details involved in completing a real estate transaction.