Wednesday, October 10, 2007

DOJ launches real estate competition Web site

Real Estate Articles from Inman News

Site features commission charts, maps, agency reports
Wednesday, October 10, 2007

Inman News

The U.S. Justice Department's Antitrust Division today unveiled a Web site focusing on competition in the real estate industry that features a chart detailing commission trends and maps of states that have adopted policies that can restrict consumer rebates and some forms of brokerage services.

The site is intended "to educate consumers and policymakers about the potential benefits that competition can bring to consumers of real estate brokerage services and the barriers that inhibit that competition," according to a Department of Justice announcement today.

Another federal antitrust enforcement agency, the U.S. Federal Trade Commission, last year launched a Web site focusing on competition in the real estate industry.

The Justice Department is no stranger to research about real estate competition -- two years ago the agency filed a lawsuit against the National Association of Realtors trade group, charging that association-adopted policies for the online display and sharing of property information were overly restrictive. That litigation is ongoing.

Lucien Salvant, a National Association of Realtors spokesman, said today in response to the DOJ Web site, "The real estate market is competitive. Real estate is probably the most competitive industry in the world." He pointed out that the real estate industry is unique in that industry participants share vital information with their competitors.

Many of the comments at the Justice Department's Web site appear to be focused on state-level issues, he said.

Both the DOJ and FTC have engaged in actions targeting Realtor-backed state measures that restrict rebates or mandate minimum levels of service for real estate licensees, for example, and the FTC last year took action against a group of MLSs that placed restrictions on the online dissemination of property information based on the type of listing contract chosen by the sellers.

The estimated median commission paid by home sellers in 2006 was $11,672, and that amount has risen every year since it was $9,110 in 2001, according to the DOJ site.

"Unless broker costs were also rising sharply during this period of time, competition among brokers should also have held commissions in check even as home prices were rising," according to the Web site. Real estate commission rates are typically a percentage of the home's selling price.

"Over the past decade the average commission rate has remained relatively steady between 5 and 5.5 percent," the Web site states. "As a result, the actual median commission paid by consumers rose sharply along with the run-up in home prices."

In 2007, the median commission paid by consumers dropped to $11,302 from the 2006 level, while the median sales price of homes dropped from $230,059 in 2005 to $225,334 in 2006 and dropped to $218,184 in the first half of 2007.

According to the preliminary results of an annual profile of home buyers and sellers prepared by the National Association of Realtors, 70 percent of sellers say they negotiated their real estate commissions, Salvant said, adding that in 39 percent of cases the agent brought up the negotiability of commissions while in 31 percent of the cases the seller brought it up.

A map at the DOJ site lists 13 states that forbid buyers' brokers from rebating a portion of the sales commission to consumers, and a separate map displays eight states that require consumers "to buy more services form sellers' brokers than they may want, with no option to waive the extra items," according to text at the site.

The list of states with anti-rebate measures includes: Alaska, Oregon, Montana, North Dakota, Kansas, Oklahoma, Iowa, Missouri, Louisiana, Tennessee, Mississippi, Alabama and New Jersey. The list of states with so-called minimum-service measures includes: Idaho, Utah, Texas, Iowa, Missouri, Illinois, Indiana and Alabama -- Iowa, Missouri and Alabama appear on both lists.

A chart at the site compares the cost of full-service real estate companies that charge about a 5 percent commission to alternative business models that offer a buyer's broker rebate and/or offer a fee-for-service model.

"Consumers who live in states permitting them the option to choose innovative brokerage options, such as rebates or fee-for-service MLS-only packages, can potentially save thousands of dollars on commission payments," the Web site states.

The Web site notes that closing costs related to real estate transactions "are another area where robust competition is needed to protect consumers," and the DOJ's Antitrust Division "advises states to reject laws that prohibit nonlawyers from providing real estate closing services" to preserve competition between lawyers and nonlawyers.

Additional resources at the Web site include links to reports and hearings on the topic of real estate competition in the brokerage industry, as well as a list of DOJ enforcement actions.

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