The average commission rate on home sales is declining, there is no collusion to fix the cost of real estate brokerage services, and consumers can choose from a “full spectrum of options” for real estate services, the National Association of Realtors contends in comments submitted to antitrust officials at the U.S. Justice Department and U.S. Federal Trade Commission.
In a 30-page document submitted last week during a comment period for an Oct. 25 federal workshop on “Competition Policy and the Real Estate Industry,” the association presents an image of an industry that is highly competitive, with millions of real estate licensees, hundreds of thousands of locally owned real estate brokerage offices and few barriers to entry. In its comments, NAR states that the real estate brokerage industry “is one of the few industries that comes close to meeting all of the criteria of a perfectly competitive industry.”
“We believe that the real estate industry is extremely competitive, and that this fact is not seriously in dispute,” states Thomas M. Stevens, association president and senior vice president of NRT Inc., in a six-page letter included in the group’s comments. “Some policymakers, analysts and media observers have alleged, however, that the industry lacks vigorous price competition and that there are significant barriers to additional competition from non-traditional real estate firms. We strongly disagree.”
Federal antitrust agencies have taken several actions this year in an effort to stamp out alleged anticompetitive practices in the real estate industry. The FTC and DOJ have protested state laws that require all real estate brokerages to offer specific minimum levels of service, for example, and DOJ actions have led two states to withdraw bans on real estate rebates to consumers. And the DOJ in September filed a lawsuit against NAR, alleging that the association has adopted policies for the online display and sharing of property listings that are too restrictive.
In addition, NAR and its state and local association and Realtor-owned MLSs have been under fire from regulators this year for a range of industry practices.
NAR defends its Internet listings policies — including a controversial ”opt-out” provision that enables brokers to keep listings from being displayed online — stating in its workshop comments that consumers “will have more points of access to that information than ever before” under a newly adopted policy that is on hold pending the federal lawsuit. This Internet Listings Display policy, the association states, “respects the rights of listing brokers to market a property as they and their clients see fit. Brokers invest time, effort and money to obtain listings from sellers. That earns them the right to determine whether or not to allow their listings to appear on other brokers’ Web sites.”
The association does not believe its now-defunct Virtual Office Web site policy for online property listings and the new ILD policy have an anti-competitive effect on the industry, the association also commented, adding that the policies have “many effects that promote competition, the most important of which is maintaining the effective functioning of the MLS.”
While NAR reported that an estimated 95 percent of all homes for sale can now be viewed on the Internet — whether the listings appear on a real estate firm’s Web site, an aggregator site such as Realtor.com, or other Internet sites — the association stated that the MLS system “is not a public utility” and “there could be a significant and harmful disruption to the way real estate is marketed to the widest possible pool of sellers” if MLS opt-out or access rules are altered.
“One possibility is that large (brokers) could pull out and create their own systems,” the group stated. “Competition could be significantly reduced because it would be extremely difficult for small, independent brokers to succeed if they lose access to the large inventory of listings currently made available to them through the MLS.”
In other comments, NAR states that sales commission rates appear to be falling. The association cites Real Trends data that indicates the average commission rate for real estate brokerage services decreased 16 percent from 1991 to 2004. Many real estate agents receive a percentage of the home’s purchase price as payment for their services, and agents who list the properties for sale typically share a portion of this amount with any agent who brought a buyer into the transaction. Brokers also typically receive a portion of this commission from agents.
Based on the total earnings of the real estate brokerage industry and the volume of existing home sales business excluding for-sale-by-owner properties, the association calculates that average commission rates range from 4.3 percent to 5.4 percent. But NAR “does not conduct research on commission rates out of concerns that the research results have the effect of setting a ‘focal point’ for practitioners to set their commissions,” and might raise antitrust issues, according to the group’s comments.
Stevens noted in his letter, “Everyone involved in this debate looks forward to someone conducting comprehensive research on a wide range of markets and reporting on price competition in the industry. NAR is confident that this research will confirm that real estate markets are competitive in every dimension, including price.”
The association also commented that the more than 900 multiple listing services across the country do not represent a “closed club” with restricted membership, that state-imposed requirements for real estate brokers and agents to perform a minimum range of services for consumers “are quite basic” and “the goal of these laws is to protect consumers,” and that the Internet has not lead to a lowering of real estate transaction costs on par with some other industries because “real estate is not a commodity” and the process is “extremely complex and time-consuming.”
Among the statistics that the association compiled to support its stance that the industry is highly competitive: there are about 2.5 million real estate licensees, of which about 1.25 million are Realtors; there are about 98,000 real estate brokerages and a total of 236,000 locally owned real estate brokerage offices and branches of those firms; the association saw its membership increase about 26 percent from 2002 to 2004; and the typical income of Realtors dropped from $52,000 in 2002 to $49,300 in 2004.
“The income of the typical Realtor at less than $50,000 in 2004 certainly would not qualify as a monopoly profit,” NAR contends in its comments.
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