The Department of Justice has two blunt warnings for the American home real estate establishment:
Do not block efforts to save consumers money through rebates of real estate commissions.
Do not stand in the way of discount “fee-for-service” firms who will list sellers’ properties for a fixed-dollar amount, but not perform all the traditional brokerage services such as holding open houses or advising on buyers’ offers.
Ignore that advice, according to Justice, and you will find yourself in big trouble. Lawyers for the department already have begun following through on those warnings. On April 8, the department sent a highly unusual message to the Oklahoma Legislature urging it not to pass a state Realtor association-supported bill that effectively would squeeze low-cost fee-for-service realty brokers out of the state by redefining the service requirements for holding a brokerage license.
A week earlier, the Justice Department sued the Kentucky Real Estate Commission, a regulatory body dominated by state realty association board members, for prohibiting brokers from giving customers rebates on sales commissions. The department also has stepped up the pace of its investigation of the National Association of Realtors’ rules covering online access to Multiple Listing Service (MLS) databases for possible federal antitrust violations.
In an interview, Assistant Attorney General R. Hewitt Pate, the Bush administration’s antitrust litigation chief, confirmed that the recent moves are part of a broader, nationwide effort to promote unfettered competition – and consumer cost savings – in the booming home real estate market.
“We are concerned not only in Oklahoma and Kentucky but in other states as well,” said Hewitt. “We think the consumer gets a better choice” when a variety of realty brokerage options are available in local marketplaces – traditional full-service options for consumers who prefer them, and lower-cost, reduced-service and rebate-driven alternatives.
In the suit he led against Kentucky, Hewitt accused the real estate commission board members of conspiring with themselves “and others” to “unreasonably restrain competition” in the state by banning brokers from offering commission rebates to clients. Among the best known of these firms are ZipRealty, a Web-oriented full-service brokerage that rebates 20 percent of its commission to home buyers, and RealEstate.com, an affiliate of LendingTree.com, that offers $1,000 rebates in the form of gift cards redeemable for merchandise at Home Depot and other stores.
Hewitt quoted comments made to Justice Department investigators by Kentucky Realtors who opposed competitors offering commission rebates: “I think this would just take money right out of our pocket,” said one. “We work too hard to give it away,” said another. “I am for the (rebate ban) as it stands now. If inducements were allowed, they could lead to competitive behavior.”
According to real estate industry estimates, between 11 and 16 states already either prohibit rebates of realty commissions or place restrictions on firms that wish to offer them. State realty associations are pressuring other state realty commissions or legislatures to erect anti-competition roadblocks. For example, Texas is on the verge of adopting new rules restricting fee-for-service firms, according to Texas Real Estate Commission administrator Wayne Thorburn.
“The state association (of Realtors) came to us and said we think you should do this,” according to Thorburn. Setting minimum standards for services – including requiring brokers to assist clients with offers and negotiation – would help ensure that home sellers would have competent representation during a sales transaction, said Thorburn. It would, for instance, eliminate the possibility that discount brokers could simply “charge $500 up front and tell (sellers) that ‘I’ll list your property, I’ll put you on the MLS, I’ll give you a sign for the front yard and then say, you’re on your own, good luck.'”
Some sellers might find themselves confronting a well-trained buyer’s agent in negotiations, said Thorburn, and might not make smart decisions – a result that would not be in the seller’s best interest.
Steve Murray, a Colorado-based real estate brokerage consultant and publisher of Real Trends, an industry newsletter, summarized what the emerging clash between traditional Realtors and the federal trust-busters is all about: On the one hand, the establishment “feels threatened by what they see as barbarians” trying to bust through the gates with high-tech, lower-cost business models that appeal to key client groups, especially younger, Web-savvy shoppers.
The Justice Department, on the other hand, “sees the savings potentials and market efficiencies” offered by these innovative models and is now pledged – along with the Federal Trade Commission – to make certain they are not killed off by anti-competitive rules pushed by established brokers.
What’s ahead? Count on more legislatures and realty commissions being asked to get involved on the traditional brokers’ side. And count on Justice’s trustbusters to go after any restrictions that frustrate free market competition.
–
Ken Harney is a real estate columnist for the Washington Post.