257, 257 (1998) ("Much of the literature argues that there is . 30, 2000). 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. "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. However, just because members of a MLS have a pre-existing agreement in place does not mean that all listing agents will play ball. 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. LA. For example, NAR data show that the Internet was second only to real estate agents as the most commonly used information source for home buyers.13. CA Real Estate Practice, 7th Edition -- Final Exam. - Chegg.com . MLS-only packages are packages where, for a flat fee, the fee-for-service broker agrees to list the seller's home on the MLS by making a unilateral offer of compensation and cooperation to all of the other brokers within the MLS. "113 Another commenter observed: One panelist opined that "a generation of Americans are now comfortably and constantly connected to the [I]nternet and to [eC]ommerce. Practice all cards. Each survey participant who had sold through a broker was asked the commission rate that had been quoted by the broker. The Internet has had a significant impact on the real estate industry, leading to a diversification of business models to serve consumers. White, supra note 47, at 4. 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. ; NAR, Public Comment 208, at 3 (comment). An official website of the United States government. State commissions, frequently composed of real estate brokers, oversee drafting of and compliance with these laws and regulations.14. A NAR economist explained at the workshop that any average commission rate reported by a prominent entity such as NAR could be used by industry participants as a focal point for collusion on commission rates. The latter reading would ultimately seem to leave the choice up to the client as to who receives or presents the offers and counteroffers. See Kunz, Tr. In any instance where a participant discloses a potential short sale, they must also be 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. In most states, there exists a single licensing board. on Financial Services), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:31541.pdf. 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. The aim of antitrust law is to preserve competitive markets. 226. 7. Park, Non-Uniform Percentage Brokerage Commissions and Real Estate Market Performance," 17 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 422, 428-29 (1989). Austin Bd. NAR is widely considered one of the most effective advocacy organizations in the country. 317. First, it appears that many consumers are not fully apprised of their marketplace options. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice. The primary evidence presented is the near-uniformity of commission rates in a given market. 268. See Nadel, supra note 25 at 23. 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. 329. at 27-28. State laws and state real estate commission regulations prohibiting rebates are referred to generally as "rebate prohibitions" or "rebate bans." 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. Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved. The ability of novice entrants to attract clients relative to more experienced agents was not discussed at the Workshop and, likewise, is not addressed in this Report. This can occur if the broker fails to disclose such information to the client as legally required. at 178-79; Sambrotto, Tr. See supra note 26. Fialkowski, Public Comment 113, at 1. The referral website may then rebate a portion of its referral fee to the consumer, if state law or regulations do not prohibit rebates. This contract often specifies the commission the homeowner will pay the listing broker if the home is sold within a specified period of time, how the home is to be listed in the MLS, and, as discussed below, the share of the commission to be offered by the listing broker to a so-called "cooperating broker," who works with the buyer.19 The listing broker typically markets the home, both within his or her brokerage firm and to other brokers in the community, by uploading the listing data, including the offer of compensation to cooperating brokers, into the MLS database so that the information can be disseminated to cooperating brokers, who in turn can inform potential buyers of the listing. Without rebates, if the buyer's broker were simply to reduce his or her commission, the savings would go to the seller's broker, not to the home buyer. 284. Even with the significant amount of information currently available on the Internet, there may be gaps in knowledge by some consumers in several important areas that may result in real estate brokerage markets functioning less efficiently. 265, 269 (2000) ("In recent years it has become more common for buyers to employ a buyer's agent, rather than a traditional seller's agent"). See FEDERAL TRADE COMMISSION, THE RESIDENTIAL REAL ESTATE AND BROKERAGE INDUSTRY: LOS ANGELES REGIONAL OFFICE STAFF REPORT VOLUMES I AND II AND THE BUTTERS REPORT 9 (1983) [hereinafter 1983 FTC STAFF REPORT], available at http://www.ftc.gov/bc/realestate/workshop/index.htm. See Hsieh, Tr. ON LEGIS. 41. at 32. In this Section we discuss the following non-traditional business models: (1) full-service discount brokers; (2) fee-for service brokers; (3) VOW brokers; (4) websites that provide advertising and other assistance to sellers who choose not to use a broker; and (5) referral networks.65, Discount brokers offer buyers and sellers full-service real estate brokerage services at a price lower than the prevailing commission fees.66 For example, a discount broker may offer all of the services provided by a traditional broker for a 3 or 4 percent commission in an area where 6 to 7 percent is the prevailing rate. One broker observed: "Rebates will increase competition and give consumers more choices in service." "87 eRealty gave a 1 percent rebate to buyers and also took listings from home sellers.88, The panelist emphasized that this business model took the MLS "a step beyond" cooperation and compensation in a business-to-business exchange and used the "power of the information in [the MLS] to better serve consumers. 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. There are a variety of options available to buyers and sellers from full service agents to very limited service agents with a wide variety of fee structures. These techniques are still important and commonly used, but consumers now have access to listing information from a variety of online sources as well. In its complaint, DOJ alleged that NAR's policy was the product of collective action by NAR's members and offers no procompetitive benefit. 205. In terms of branding, the broker may invest in and create a brand or affiliate with a national or regional franchisor that provides a brand with certain reputational value and an advertising campaign. See Lewis, Tr. 260. Id. 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. Chapter II discusses the impact of the Internet on the real estate brokerage industry and information asymmetries. 191. One panelist who is a fee-for-service broker describes this as his "flat-fee plus" option, where, in addition to listing the home in the MLS and placing it on several websites, he provides the seller assistance once the buyer is found. 98. Lydia B. Parnes, Director, Bureau of Consumer Protection Action No. 303. For example, brokers may reduce the time they spend servicing each customer face-to-face because customers conduct a portion of the time-consuming listings searches on their own.81 Although brokers offering VOWs differ from other brokerages in their innovative uses of the Internet, in other respects they operate like other brokers. The complaint against Realcomp alleges that it engaged in anticompetitive conduct by prohibiting information on exclusive agency listings and other forms of nontraditional listings from being transmitted from the MLS to public real estate websites. Although the specific data fields on each listing are determined by the individual MLS, they typically include detailed descriptions of the homes for sale, the asking price, the offer of compensation that will be paid to a cooperating broker who finds a suitable buyer,43 and the name of the listing broker. some collusion between brokers through the [MLS] . MLSs do not allow FSBO homes to be listed in the local MLS because a listing broker member is not involved. . Some consumers choose to sell their homes without any assistance from a real estate broker. 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 . See Rutherford et al., supra note 16, at 629 ("Given that the agent receives a small portion of the transaction price as commission, the agent's goal of maximizing the expected commission may diverge from the seller's goal of maximizing the selling price. Mar. 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. 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. 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. 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.