{"id":190,"date":"2006-10-12T20:27:58","date_gmt":"2006-10-13T00:27:58","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/shlep\/2006\/10\/12\/real-estate-broker-updates\/"},"modified":"2006-10-13T15:22:14","modified_gmt":"2006-10-13T19:22:14","slug":"real-estate-broker-updates","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/shlep\/2006\/10\/12\/real-estate-broker-updates\/","title":{"rendered":"real estate “broker” updates"},"content":{"rendered":"
Here are two new items that relate to last night’s post <\/font>realtors fight unbundling<\/font><\/a>,\u00a0and to the theme that real estate brokers are trying to keep home buyers and sellers “broker” than should happen in a truly competitive marketplace:<\/font><\/div>\n
1]\u00a0 The Federal Trade Commission announced a real estate broker enforcement sweep<\/a> today, explaining that it would litigate against two real estate groups and accept consent agreements from five others: According to the press release (dated Oct. 12, 2006):<\/font>\u00a0\u00a0<\/p>\n
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The Federal Trade Commission today charged two real estate groups operating multiple listing services in the Detroit, Michigan, area with illegally restraining competition by limiting consumers\u2019 ability to obtain low-cost real estate brokerage services. The Commission also announced consent agreements with five other groups operating multiple listing services in parts of Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, that have discontinued the challenged conduct. <\/font>\u00a0\u00a0\u00a0<\/p>\n

According to the FTC, all seven groups adopted rules that withheld valuable benefits of the Multiple Listing Services (MLSs) they control from consumers who chose to enter into non-traditional listing contracts with real estate brokers. Six of the seven blocked non-traditional, less-than-full-service listings from being transmitted by the MLS to popular Internet Web sites. The seventh went further, adopting policies that include blocking such non-traditional brokerage contracts from the MLS entirely. <\/font><\/p>\n

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\"RealtorSign\"\u00a0 The FTC has an updated website – Competition in the Real Estate Industry<\/a>, and an 18-page online Glossary of Real Estate terminology, that should be helpful to do-it-yourselfers and other home buyers and sellers.\u00a0\u00a0\u00a0 update<\/em>: (Oct. 13, 2006)\u00a0 The Washington Post<\/a><\/em> has an article on the FTC actions, with comments from some of the respondents and the National Association of Realtors; via Antitrust Review<\/a><\/em> weblog. <\/font><\/p>\n

<\/font>2]\u00a0 Attorney and public policy analyst Mark S. Nadel has released a for-comment report at the AEI-Brookings Joint Center website, entitled “A Critical Assessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure<\/a>,” October 2006,\u00a0\u00a0Click for the <\/font>Abstract<\/font><\/a>\u00a0or the full, 77-page\u00a0PDF report<\/font><\/a>.\u00a0Nadel’s\u00a0Executive Summary starts:\u00a0“While real estate brokers have long set their fee as a straight percentage of a home\u2019s sale price, this formula is an anomaly and a primary reason why such fees may be inflated by more than $30 billion annually.”\u00a0 After this criticism [of the traditional fee structure], the article “suggests that consumers would benefit most from a fee-for-service approach \u2013 combining flat fees, hourly fees, and bonuses, including percentages of extra value created \u2013 and it identifies currently available examples of some of these options.\u00a0<\/font>\u00a0After reviewing eight reasons why incumbents are able to protect the current structure, the article “suggests six new disclosures that might undermine the industry\u2019s protectionist practices.”\u00a0 <\/font><\/font><\/font><\/p>\n

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\u00a0\"BillCollector\"\u00a0 The Report has a good discussion of why unbundling can benefit consumers and of the harms from requiring bundled services.\u00a0 Traditional brokers, who\u00a0contend “that the public expects an ‘agent’ to provide some minimum set of services, such as delivering offers, have successfully helped to pass laws in at least 17 states that require brokers to provide some minimum set of services.” [footnote 139 lists the statutes and regulations requiring the bundled minimum services]\u00a0 The seventeen states with such laws are: Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Missouri, Ohio, Oklahoma, Pennylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin.\u00a0\u00a0 Debunking the need for such bundling, Nadel notes:<\/font><\/div>\n
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“If policy makers were truly concerned that consumers might be denied a service they expected, an effective disclosure and\/or a waiver option would be the appropriate response to this, as noted by the DOJ, the FTC, and the Wall Street Journal, among others, but only about five of the 17 states now permit sellers to waive state minimum service requirements. If the laws were really intended to ensure that consumers received all the services that they expected, they would explicitly require listing brokers to support the widest dissemination of the seller\u2019s listing, and brokers engaged to show buyers homes to disclose all the homes meeting the buyer\u2019s search criteria. These are services that consumers are now often being denied, without their knowledge, and to their detriment!” <\/font><\/p>\n<\/blockquote>\n

There is much more in this study, but I will leave you with Nadel’s explanation for the continuation of anti-consumer laws.\u00a0 In a section captioned, State Real Estate Commissions Protect Traditional Business Models, Nadel states:\u00a0<\/font><\/p>\n

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“Most regulation of real estate brokerage is a result of state law and state real estate commissions created by state legislatures. Although the laws and commissions are presumed to be intended to protect consumers, a 2006 Consumer Federation of America (CFA) survey of real estate regulatory agencies in 47 of the 50 states found that more than 70 percent of commissioners were real estate brokers or salespeople. Given the presence of real estate agents in every state legislative district and the availability of state affiliates of the NAR to manage industry lobbying and campaign contributions, it is not surprising that states have generally protected traditional brokers from entrants with new business models.”<\/font><\/p>\n<\/blockquote>\n

The Nadel Study has\u00a0quickly received quite a bit of attention: E.g<\/em>., from Jonathan Miller at the Matrix<\/em><\/a> real estate weblog (Oct. 10, 2006); \u00a0RealtyTimes<\/a><\/em> (Oct. 10, 2006) and The RealDeal<\/a><\/em> (Oct. 11, 2006). Stephen Dubner of Freakonomics<\/em> approves<\/font><\/font><\/a>.\u00a0\u00a0 Similar to the defense given by lawyers to\u00a0the standard contingency fee, realtors note that most agents are not making very much money and that\u00a0they only get paid if they sell the home.\u00a0\u00a0 Of course, the opportunity of making a large commission for relatively little work (like making a large legal fee in a personal injury case) is what attracts far more agents to real estate sales than is efficient or economically rational.\u00a0 Far from proving that commission rates must be reasonable, the assertion that so many agents are struggling points to the human desire, and willingness to take an irrational\u00a0risk, for a big score.\u00a0 Having a lot of hungry colleagues does not justify bloated fees for the successful brokers and agents (or p\/i lawyers), and does not disprove that the commission structure is a racket that overcharges the consumer.<\/font><\/div>\n

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Here are two new items that relate to last night’s post realtors fight unbundling,\u00a0and to the theme that real estate brokers are trying to keep home buyers and sellers “broker” than should happen in a truly competitive marketplace: 1]\u00a0 The Federal Trade Commission announced a real estate broker enforcement sweep today, explaining that it would […]<\/p>\n","protected":false},"author":437,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[991,898],"tags":[],"class_list":["post-190","post","type-post","status-publish","format-standard","hentry","category-news-items","category-studies-reports"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/posts\/190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/users\/437"}],"replies":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/comments?post=190"}],"version-history":[{"count":0,"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/posts\/190\/revisions"}],"wp:attachment":[{"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/media?parent=190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/categories?post=190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/shlep\/wp-json\/wp\/v2\/tags?post=190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}