During a congressional hearing Tuesday, representatives for real estate companies with unconventional business models described a climate of discrimination, blackballing, targeting and harassment by industry competitors and rule-makers.
Meanwhile, the president for the National Association of Realtors trade group and RE/MAX International, a major real estate franchise company, told members of Congress that competition is healthy and robust in the real estate marketplace and that there is plenty of room for all types of companies.
The Subcommittee on Housing and Community Opportunity, which operates under the U.S. House Financial Services Committee, heard 3 1/2 hours of testimony from federal antitrust officials and real estate company representatives at the hearing, titled, “The Changing Real Estate Market.”
U.S. Rep. Michael Oxley, R-Ohio, the chairman of the Financial Services Committee who last year ordered a U.S. Government Accountability Office investigation of price competition in the real estate industry, said the pricing structure in the real estate industry appears to have remained stagnant even though there are more than 1 million Realtors in the country. Typically, home sellers pay a commission ranging from 4 percent to 6 percent of the sale price of a home — and that has remained largely unchanged, he said.
“Why has that remained the same? Wouldn’t real competition produce varying services and varying prices?” he asked during the hearing.
Oxley also called attention to an active Justice Department lawsuit filed last year against the Realtor trade group, which charges that Realtor-established rules for the online display and sharing of property listings information are overly restrictive and anticompetitive. Meanwhile, the Realtor group has attempted to dismiss the lawsuit and has countered that its members share a large amount of property listings information and should be able to decide how to share their listings.
Congress, Oxley stated, has “an obligation to ensure markets are fair and open and to protect consumers. This should be the first step in our inquiry — not the last.”
Representatives for the U.S. Department of Justice and U.S. Federal Trade Commission described their actions related to antitrust issues in the real estate industry. Both agencies have publicly expressed opposition to several state measures that prevent real estate professionals from offering rebates to clients, for example, or that establish minimum-service requirements for real estate professionals while banning some forms of real estate business models that offer less than this range of services.
J. Bruce McDonald, deputy assistant attorney general for the U.S. Justice Department’s Antitrust Division, testified during the hearing that while commission rates for real estate services have reportedly declined somewhat, home prices have risen more quickly so that consumers are actually paying more for real estate services, on average. “This is not how one would expect a competitive market to behave,” he said.
Maxine Waters, D-Calif., challenged the need for the Justice Department lawsuit and said it appears as though the Justice Department is “the only one unhappy” with the rule that is the subject of the lawsuit.
Aaron Farmer, who operates a real estate company in Texas that offers low-cost limited-service options for clients, told subcommittee members that he has experienced a range of bullying tactics because of his business model.
“We recently had a whole billboard ripped out of the ground,” he said, adding that an agent affiliated with his company was asked to stop advertising in a real estate magazine because other real estate professionals had threatened to pull their business out of that magazine.
Farmer also told subcommittee members about a minimum-service measure passed in Texas that forced him to alter his company’s business model, “despite the fact there has never been a complaint in Texas about limited-service listings,” he said.
Farmer also represents the American Real Estate Broker Alliance, a group of flat-fee real estate companies.
Geoffrey D. Lewis, senior vice president and chief legal officer for RE/MAX International Inc., said it’s important to note that real estate professionals do not always get paid for the services they perform, as their commission income is based on completed real estate transactions.
A reason for the generally sustained level of commissions may be that “Realtors would not be able to survive at anything less than current market rates,” he said, as the total number of agents has blossomed during the prolonged housing boom.
Stephen Brobeck, executive director for the Consumer Federation of America, called for more independent regulation of the real estate industry and for alternatives to the current system of multiple listing services, which now number in the hundreds.
If there is not more effective state regulation of the real estate industry, Brobeck said there “needs to be a federal role.”
He also called for a study of prices and the way that MLSs function “so that this committee would have adequate information” to make decisions.
Lewis said he doesn’t think that such a study would be “relevant.”
Glenn Kelman, CEO for Redfin, a technology-reliant real estate business model that offers discount to sellers and rebates to buyers, testified that there are a number of states where the company cannot do business because its business model is not allowed by state law.
Kelman said, “A federal law that provides open, unfettered access to the MLS would really be important if you want to have a truly fair market.”
Some MLS rules make it difficult for the company’s business model, Kelman also said, and he said it appears as though his company may not be receiving fair treatment.
Waters countered, “People talk … they threaten. So what? They haven’t stopped you.”
Rep. Artur Davis, D-Ala., said, “I don’t see a strong case for Congress to intervene.”
Kelman said that the discussion during the hearing seemed focused on “how the real estate industry would be affected as opposed to how the consumer would be affected. It seems like Congress isn’t sensitive to the amount of blackballing that is going on,” adding that his company and others have received “hostile messages” from other industry players.
A representative for LendingTree also pointed out that some markets do not make room for alternative business models. “There are some MLSs who would block our access,” said Kimberly Gorsuch-Bradbury, senior vice president for real estate networks at LendingTree LLC.
Pat Vredevoogd Combs, president of the National Association of Realtors and a real estate broker in Michigan, said that “every conceivable type of brokerage is out there” in the marketplace today.
She also said that the MLS market “is much more open than it ever has been. All of the MLSs are independent. Our arms are open.” Commission rates, she said, are negotiable in the industry.
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