Competition among residential brokerages — or, rather, the alleged lack of it — has triggered a flurry of negative reports and recent lawsuits as critics contend that traditional brokering is a rigged game.
In the past year, the national debate over the competitiveness of the real estate brokerage market has caught the attention of the Department of Justice, the Government Accountability Office and the Federal Trade Commission. Beyond regulators, the Brookings Institute and a variety of consumer advocacy groups are also taking up the cause.
The Consumer Federation of America, a consumer advocacy group, called the real estate brokerage market a “price setting cartel” in a June report, one of the strongest public statements in the increasingly fiery debate over market reform.
The FTC has also stepped up its efforts to combat anticompetitive practices. New York State has so far been largely spared from any inquiries. Most recently, in mid-July, the federal agency announced that it was taking action against the Austin [Texas] Board of Realtors for barring discount brokerages from the local multiple listing service, or MLS.
By barring discount brokerages from listing on the MLS, the FTC claims, listings from those brokerages are discriminated against and the ability of discount brokers to get exposure for their clients is impeded.
As part of a settlement in July with the FTC, the Austin Board of Realtors is prohibited from enacting any rule that “treats one type of real estate listing agreement more advantageously than any other listing type.”
Many accepted industry practices draw criticism for creating uncompetitive environments, reports contend. In addition to being shut out of MLS, discount brokerages battle some state bylaws that bar brokerages from rebating commissions to buyers. Discounters often use these to increase market share, but prohibitions keep them from using these incentives in some places.
In 2005, the Department of Justice filed an antitrust suit against the Kentucky Real Estate Commission for banning brokerages from offering rebates on commissions to buyers.
A proposed final judgment filed in late 2005 prohibits the Kentucky commission from enforcing a rebate ban or engaging in any kind of price fixing.
Similar in effect to rebate bans, some say that minimum service requirements, which limit a brokerage’s ability to offer a menu of services at different prices, create an unfair environment by preventing new business models from making it to the market.
In some markets, it is illegal for a brokerage to offer a la carte services from which consumers can chose, paying less than they would for a full-service operation. This model allows consumers to pay for individual services such as open houses, MLS exposure, advertising or showings — not the whole shebang, which some sellers may believe is unnecessary for their properties.
“Minimum service requirements are vehicles for inhibiting competition,” wrote multiple authors in a Brookings Institute paper published last November.
Some groups, like the Consumer Federation of America, claim this is effectively price fixing. Although there are no concrete numbers to back this claim up, CFA asserts that because of anti-rebate laws and discrimination by multiple listing services the current “cockamamie brokerage system” is preserved.
The Brookings Institute report supports the issues pursued by the FTC and the Justice Department, saying rebate bans, MLS access issues and minimum service requirements wind up working together to create barriers to entry for nontraditional brokerages.
“We believe that there are numerous barriers to entry that are slowing the emergence of new models for serving consumers. Some of these barriers are likely to be anti-competitive,” according to the report.
The Department of Justice’s Antitrust Division filed suit against the approximately 1 million-member National Association of Realtors in 2005, seeking to enjoin them “from maintaining or enforcing a policy that restrains competition from brokers who use the Internet to more efficiently and cost effectively serve home sellers and buyers.”
Towards the end of 2005, NAR filed a motion to dismiss the case, and the Justice Department replied in opposition to that motion in February of this year. Despite filing to dismiss the case, NAR has no expectation that it will go away soon, writing on its Web site that it is preparing for a “long antitrust fight.”
NAR says that there is sufficient competition in the real estate marketplace.
“Consumers looking to buy or sell a home today can select from a broad spectrum of brokerage options that best meet their needs,” according to NAR’s official position on competition in the industry.
NAR responds to critics who allege that they discriminate against discount brokerages by noting that some nontraditional brokerages are NAR members. NAR points out that, according to its numbers, commission has decreased over the past decade.
New York has not been totally immune to inquiries regarding antitrust issues.
In October 2005, the New York Times reported that the FTC and the New York State attorney general’s office subpoenaed the Real Estate Board of New York for “any and all” data and records relating to the standardization of commissions and the establishment of a multiple listing service in New York City.
REBNY president Steven Spinola told The Real Deal in March that the group submitted a response to the attorney general’s office. No official action appears to have been taken following that submission, and REBNY and the FTC did not answer requests for comment on the matter last month. The state attorney general’s office refused to answer earlier requests for comment.