. The sample data (provided by a local MLS) consisted of 15,608 single-family home sales in the Baton Rouge, Louisiana metropolitan area from 1985 through 1992.210 Similar to the two studies described above, the authors found that the listing broker commission rate varied statistically significantly with a variety of home characteristics.211 For example, commission rates declined, albeit at a decreasing rate, with the list price of the home.212 However, despite a lower commission rate, the authors' estimates showed that the actual commission fee paid rose with housing prices. In situations where the cooperating full-service broker is an agent of the buyer, but provides assistance to a seller to help close the sale, they claim that the broker risks becoming an undisclosed dual agent. See id. See Hsieh & Moretti, supra note 139, at 1089 ("as long as the commission rate is fixed, the amount of time that realtors devote to prospecting and farming relative to actually selling a house or finding an appropriate house for a buyer increases as the market becomes more and more competitive, that is, as more realtors are chasing after the same number of customers"). Code of Ethics, NAR's Constitution & Bylaws, and model bylaws for state & local associations. 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. Ohio,302 Virginia,303 and Wisconsin304 recently have adopted this approach. Advocates for minimum-service requirements also claim that when one side of the transaction is a home seller who is a party to a limited-service listing agreement rather than a traditional full-service broker, cooperating brokers who represent buyers may face special risks. Finally, IDX-based websites often will be missing some homes that recently have been listed for sale and include some that are no longer for sale because there often is a delay between an update of MLS data and when those changes are reflected in the IDX datafeed. MLSs do not allow FSBO homes to be listed in the local MLS because a listing broker member is not involved. Reg. 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. Iowa 2004), rev'd on other grounds, 406 F.3d 969 (8th Cir. 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. See also Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. 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. On the service dimension, they can offer more assistance or convenience to customers. Commenters and participants in the real estate brokerage industry report steering behavior. 2d 868, 872 (E.D. at 26-27. Including home buying and selling, commercial, international, NAR member information, and technology. 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. . The subagent, because of this extension of the agent's authority, is also an agent of the principal. Lawrence Yun, Ph.D., Senior Economist, National Association of Realtors, Presentation at the Federal Trade Commission & Department of Justice Public Workshop: Competition Policy and the Real Estate Industry, Real Estate Brokerage Industry: Structure-Conduct-Performance, at 9 (Oct. 25, 2005) [hereinafter Yun Presentation], available at http://www.ftc.gov/opp/workshops/comprealestate/yun.pdf. See infra Chapter IV. 167. 59 858-353, TENN. CODE tit. See also Perriello, Tr. at 81-82; Lewis, Tr. at 90. One reason is that, if one firm refuses to cooperate with rivals for self- serving reasons when cooperation would have benefited customers, those customers ordinarily would punish the uncooperative firm by taking their business elsewhere. In addition to the MLS-only package, many fee-for-service brokers offer other services. In the residential real estate industry, competition is vitally important because buying or selling a home is one of the most important financial transactions a consumer will ever undertake. 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. According to REAL Trends data, the number of transaction sides per agent declined from 12.7 in 2000 to 10.2 in 2005. These authors also considered whether commission rates within the Baton Rouge market responded to market-wide changes akin to housing booms and busts. with housing prices. 195. On the morning the lawsuit was filed, NAR announced a revised policy that contained a blanket opt-out under which the listings of brokers who withheld their listings from a VOW could appear on no brokers' website, except for NAR's website, Realtor.com. White, supra note 47, at 4. The studies have focused on, among other things, the distribution of commission rates within certain geographic areas and the relationship between commission rates and various property characteristics (such as the age of the home or the list price), market conditions, and the amount of time that the home spends on the market.192, In late 1979 and early 1980, the FTC staff conducted a national survey of recent home buyers and sellers. 44. 67. We refer to brokers and agents collectively as "brokers" throughout this Report, except when a distinction between the two is necessary to the meaning or when quoting a panelist or author. In a 1997 study, the authors tested a theoretical model relating commission rates to changes in a local housing market.209 This study addressed both how the distribution of commission rates varied across home prices within a geographic area and with changes in economic conditions across an entire area over time. "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. 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). See Katherine A. Pancak et al., Real Estate Agency Reform: Meeting the Needs of Buyers, Sellers, and Brokers, 25 REAL ESTATE L.J. Learn how to properly use the logo and terms. What is a subagency relationship? Peter Taylor, Bureau of Competition. 213. 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. See also FTC OFFICE OF POLICY PLANNING, REPORT OF THE STATE ACTION TASK FORCE (Sept. 2003), available at http://www.ftc.gov/os/2003/09/stateactionreport.pdf (analyzing state action immunity doctrine). Weicher, supra note 167, at 124. at 4. Further, this theory suggests that because agents compete profits away by incurring additional expenses to provide these services, rather than lowering their commission rates, they operate at inefficiently high cost levels.221, Hsieh provided empirical evidence at the Workshop consistent with competition in the brokerage industry occurring primarily in non-price dimensions. First, the full-service broker can disclose his or her responsibilities to both parties in the transaction to make clear the scope of the broker's services. Gregory P. Luib, Assistant Director, Office of Policy Planning See, e.g., Hoover v. Ronwin, 466 U.S. 558, 568 (1984) ("Closer analysis is required when the activity at issue is not directly that of the legislature or supreme court, but is carried out by others pursuant to state authorizations. "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. From 1985 to 1989, despite a home sales price drop of about 11.5%, the average commission rate increased about 4.5%. As explained in Chapter I, brokers must have access to the MLS in order to compete effectively. Of the alternative brokers providing MLS access, 84% reported that they either frequently or occasionally experienced "refusals by other brokers to show homes listed by [their] business," with 49% reporting this as a frequent problem. 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. Kentucky S.B. The evidence also suggests that rising per-sale profits for brokers induce entry by new brokers so that the average number of sales per broker declines. NAR's policy permits traditional brokers to discriminate against other brokers based on their business models, denying them the full benefits of MLS participation. Hsieh & Moretti, supra note 139, at 1088-89 (2003) (cataloging the importance of prospecting in "self- help" books for real estate agents). "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. NAR 2006 SURVEY, supra note 4, at 67, 68. Some photos, graphics, and other materials used on this website are copyrighted and used with permission or licensed for use on this website, but may not be copied and distributed without the copyright holders permission. 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. 229. For example, for each additional agent entering the industry a licensing fee is paid. 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. See id. Real estate study .docx - The purpose of a liscense Article at 81 n.1. The Internet has had a significant impact on the real estate industry, leading to a diversification of business models to serve consumers. See H.B. 475.278, OHIO CODE 4735.621, OKLA. STAT. 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? How Does Co-Broking Work in NYC? - Medium 165. Nina B. Hale, Assistant Chief, Litigation III Section Civ. VA CODE 54.1-2132(C) (effective July 1, 2007) ("A licensee engaged by a seller in a real estate transaction may, unless prohibited by law or the brokerage relationship, provide assistance to a buyer or potential buyer by performing ministerial acts. at 146. 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. See Whatley, Tr. No. 51. Chapter III explores the competitive structure of the real estate brokerage industry and publicly available evidence concerning brokerage commission rates and fees. 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. that's exactly what we observed in the airline industry before Fred Kahn, Steve Breyer, Ted Kennedy deregulated airlines, got rid of the Civil Aeronautics Board. 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 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. 136. Structural Features of the Real Estate Brokerage Industry. 549 (1988). The aim of antitrust law is to preserve competitive markets. United States v. Realty Multi-List, 629 F.2d 1351, 1374 (5th Cir. Texas Real Estate Agency Flashcards | Quizlet However, the cooperating broker finds a buyer for the listed property.