While some states maintain rules that ban real estate rebates to consumers or “undermine online brokerage models,” last year several states took action “to enhance competition to the benefit of consumers,” a U.S Justice Department antitrust official stated in testimony to a Senate subcommittee this week.
Thomas O. Barnett, assistant attorney general for the Justice Department’s Antitrust Division, noted that legislators in Delaware, Ohio, Tennessee and Wisconsin “passed bills that included a waiver provision to enable individual consumers to choose not to purchase unwanted types of real estate brokerage services.” Barnett testified Wednesday before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.
Those legislative efforts buck a trend that the Justice Department and FTC have opposed — so-called minimum-service legislation backed by Realtor trade groups that creates new mandatory service requirements for real estate licensees while outlawing business models that provide lesser services such as offering a flat fee to list a home in a multiple listing service while providing no other services. Such laws, the agencies have stated, could limit the types of real estate business models and service plans that consumers can choose from and force consumers to choose service they may not need or want.
But state legislation is largely immune from federal antitrust actions, and states in several instances have passed minimum-service legislation despite the agencies’ opposition to these measures, citing a need to protect consumers by ensuring they receive an adequate level of representation in a real estate transaction. Proponents have also said such laws can prevent confusion by full-service agents who participate in transactions with sellers who choose limited-service representation.
“Anticompetitive constraints imposed by government action can have a much broader negative impact on consumers than any single cartel or merger … but are generally exempt from direct challenge under the antitrust laws,” Barnett stated in testimony.
Last week, the U.S. Justice Department issued a statement opposing a legislative proposal in Idaho that would require real estate licensees “to be available to the customer to receive and timely present all written offers and counteroffers” in any compensation agreement with consumers. This proposal, House Bill 135, “would be likely to reduce choice and raise the prices Idaho home buyers and sellers pay for brokerage services. Further, we have not seen evidence of consumer harm that HB 135 would prohibit,” the Justice Department said in a statement.
That legislation, put forward by the Idaho Association of Realtors, was unanimously approved by the state House of Representatives and is under Senate review.
He also stated that several states have lifted bans on consumer rebates related to real estate transactions. The Justice Department has in several cases pursued legal actions in an effort to change state rules related to real estate rebates. While some real estate companies and agents offer to rebate a portion of the cost of real estate services to consumers as an incentive to work with them in transactions, some states do not allow this practice.
“The West Virginia Real Estate Commission, the Tennessee Real Estate Commission, the Kentucky Real Estate Commission, the South Dakota Real Estate Commission and the state of South Carolina all lifted bans on consumer rebates and other inducements to consumers in real estate transactions,” Barnett stated. “The result is that consumers in these states now have the potential to save thousands of dollars on the purchase of a home.”
A federal antitrust lawsuit is continuing against the National Association of Realtors trade group, Barnett also noted. This case relates to policies that the association had adopted for the Internet display and sharing of property listings information. “The lawsuit alleges that NAR’s policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting,” according to the testimony. This lawsuit is still in the pre-trial phase and a status hearing has been scheduled for March 29.
Barnett also charged in testimony that real estate commissions “have increased by over 50 percent in recent years.” Commissions charged by real estate agents and brokers are based on the selling price of homes and typically range from about 5 percent to 7 percent.
The National Association of Realtors does not compile data on commissions, said Steve Cook, an association spokesman, though he said the typical gross income of a Realtor “has hardly changed since 2001.” Industry data source RealTrends has reported that the percentage rate of commissions has declined about 16 percent from 1991 to 2004, Cook also noted.
Meanwhile, the median price of existing homes doubled in that time, according to association statistics — from $96,200 in 1991 to $195,400 in 2004. This has brought up the cost of real estate services up even considering a percentage decline in the commission rate. For example, a 7 percent commission for a home at the 1991 median price of $96,200 is $6,734 and the 6 percent commission rate would be $5,772, while a 5 percent commission for a home at the 2004 median price of $195,400 is $9,770.
Barnett stated that the Justice Department has “devoted substantial efforts to … the real estate market” and “will continue to maintain its enforcement and advocacy efforts in this area to ensure that consumers enjoy the benefits of better service, increased choice and lower prices resulting from competition.”
Deborah Platt Majoras, chairman of the Federal Trade Commission, said in her prepared testimony to the subcommittee that the FTC brought eight enforcement actions against Realtor associations or brokers “who adopted rules that allegedly withheld the value benefits of the multiple listing services they control from consumers who chose to enter into non-traditional listing contracts with real estate brokers.”
The FTC has, for example, targeted MLS rules that place restrictions on the distribution of MLS-entered property information based on the types of listing agreements that consumers enter into with real estate agents. The FTC is engaged in a lawsuit with the Realcomp II MLS in Michigan related to this issue, for example.