The MLS is a local or regional joint venture of real estate brokers, typically operated by a local group of brokers affiliated with NAR, who pool and disseminate information on homes available for sale in their particular geographic areas.41 The MLS combines its members' home listings information into a database, usually in electronic form. This line of argument typically focuses on three types of risks to the cooperating broker. Note 1: The compensation specified on listings filed with the multiple listing service by the participants of the service shall be expressed as a percentage of the gross sales price or as a definite dollar amount. VOW brokerages typically maintain physical offices in the markets in which they operate, staff those offices with licensed brokers who participate in their local MLSs, and represent both buyers and sellers.82. If you owe a fiduciary duty to someone, you must act in the. See also NAR, Public Comment 208, at 12 (comment) ("[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."). * (Revised 11/04). 281. "); Salinger, Tr. & ECON. See Amended Complaint, United States v. Nat'l Ass'n of Realtors (Oct. 4, 2005), available at http://www.usdoj.gov/atr/cases/f211700/211751.htm. 77. Specifically, these panelists pointed to rules that keep exclusive agency listings from being uploaded to national real estate websites like Reator.com.310 Recent NAR data show that 77 percent of home buyers search the Internet for homes, and that 24 percent of home buyers first found online the home they ultimately purchased.311 Thus, online exposure appears to be crucial to marketing a home, and, to the extent that successful marketing tends to lead to a higher selling price and shorter time on the market, it is reasonable to assume that homes without such exposure are likely to take longer to sell or sell at lower prices. "256, One panelist noted that, given the clear benefits of rebates to consumers, it is "hard to find a good articulated defense" of rebate prohibitions.257 Proponents of such provisions claim that they protect consumers from false and misleading offers of rebates and help ensure that consumers choose brokers on the basis of the quality of the service, rather than price. The sample data (provided by a local MLS) consisted of 15,608 single-family home sales in the Baton Rouge, Louisiana metropolitan area from 1985 through 1992.210 Similar to the two studies described above, the authors found that the listing broker commission rate varied statistically significantly with a variety of home characteristics.211 For example, commission rates declined, albeit at a decreasing rate, with the list price of the home.212 However, despite a lower commission rate, the authors' estimates showed that the actual commission fee paid rose with housing prices. See, e.g., Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1579-80 (11th Cir. FSBOs often offer payment to a broker representing a buyer. Acknowledging experience and expertise in various real estate specialties, awarded by NAR and its affiliates. See Turnbull, supra note 162, at 293. The resistance of some traditional brokers to dealing with firms that more fully or innovatively use the Internet is one factor that could limit realization of the Internet's full potential.127 Restrictions on the availability of real estate listing information can also limit the economic benefits that Internet use provides.128. See Hahn, Tr. Commenters and participants in the real estate brokerage industry report steering behavior. NAR argued that its VOW policies do not violate the Sherman Act because they merely empower individual brokers to opt out and therefore "restrain" nothing. "174 NAR rests its conclusion in large part on particular attributes of the industry, which, according to NAR, "resemble[] a perfectly competitive industry structure with production at the lowest possible cost and consumers benefiting from competitively determined prices. REAL ESTATE FIN. Typically, agents solicit listings, work with homeowners to sell their homes, and show buyers homes that are likely to match their preferences. While cooperation among brokers through a multiple listing service can provide consumers with important efficiencies, cooperation used to adopt rules that hinder rivals can be anticompetitive and, as recent Agency actions indicate, may violate the antitrust laws. (Revised 11/96), This shall not preclude the listing broker from offering any MLS participant compensation other than the compensation indicated on his listings as published by the MLS, provided the listing broker informs the other broker in writing in advance of their submitting an offer to purchase and provided that the modification in the specified compensation is not the result of any agreement among all or any other participants in the service. Many brokers market listings online through their own websites and give their MLSs permission to place their listings on Realtor.com.102 Consumers can view these listings before contacting or forming a relationship with a particular broker. Two other companies together operate a program that rebates up to $3,000 for the sale or purchase of a home, which can yield a combined maximum rebate of $6,000 when a customer buys one property and sells another through the program when he or she moves. Rebates are an important form of price competition under the traditional structure of real estate transactions because the seller and seller's broker, not the buyer's broker, determine the amount of the buyer's broker's commission via the listing agreement. 30. a. the price range of property the agent is most likely to list and sell. A buyer who is rebated half of this would receive $3,459. 33. A 2002 study analyzing commission rates in the United States and several other countries concluded that U.S. commission rates "should equal something closer to 3.0% versus the common 6% or 7% fee." It is clearly beneficial in providing them access to a large amount of information at a minimal cost, but at the same time it permits brokers to coordinate their efforts, possibly at the expense of sellers' interests. Amber Buycks, Paralegal, Litigation III Section a cooperating agent from a brokerage firm not affiliated with the listing or buyer broker but who is assisting that broker by finding a buyer or a property for that broker's client; has fiduciary obligations to the client but does not operate as a subagent of the client One author has described the service that brokers provide as not merely a completed match of buyer and seller, but rather "a completed transaction at some level of service provided to the parties involved." John H. Crockett, Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 209, 211 (1982). Another type of restraint that is likely to reduce competition and consumer choice in real estate brokerage-related services is overly broad licensing requirements, particularly those applicable to firms that advertise FSBO homes. 24. "); John C. Weicher, The Price of Residential Real Estate Brokerage Services: A Review of the Evidence, Such At It Is 1 (presented at AAI Conference on Competition in the Residential Real Estate Brokerage Industry Nov. 8, 2005) (noting "a fairly widespread view that brokerage is not a competitive industry" based several perceptions, including: (1) excessive commission rates that are "sticky downward" even as technology reduces brokers' costs; (2) commission rates are higher in the United States than in many other developed countries; (3) lobbying efforts by NAR and state Realtor associations in favor of state laws restricting competition; (4) NAR's successful lobbying of Congress to prohibit banks from entering the real estate brokerage business; and (5) NAR-imposed restrictions on discount and Internet brokers' access to the MLS). Given the size of the real estate industry,1 any restraints on competition in real estate brokerage will have significant adverse consequences for consumers. They should also avoid enacting such laws, rules, and regulations in the future. Goolsby & Childs, supra note 205, at 85. See TexasDiscountRealty.com, Home Sellers, http://www.texasdiscountrealty.com/sellers1.htm (last visited April 20, 2007). . 2004). 193. 321. Section D reports one panelist's attempt to make sense of the evidence presented in Sections A through C. A. In other words, commission rates are relatively inflexible. Yun showed evidence of entry as a result of the recent housing market boom, as well as evidence that NAR membership has varied directly with housing prices for at least the past 20 years. at 82-83. A consumer who lived in a state with a minimum- service requirement, however, would not have that option available. See infra Chapter IV. 164. c. the . Approximately half of the public comments submitted to the Agencies in response to their request for public comments were some variation of a form letter that NAR composed, posted on its website, and encouraged its 1.2 million members to send. The 1983 FTC Report traces the evolution of the exchange of home information by brokers, from the weekly in-person "exchanges" of the Nineteenth Century to the formation of the modern MLS.39 The MLS has evolved still further since 1983, reflecting the rapid pace of technological developments during this period.40 The following two sections describe the present-day MLS and discuss its importance to home sellers, buyers, and brokers. In the most common of the three, an "exclusive right to sell" contract, the listing broker receives a payment if the home is sold during the listing period, regardless of who finds a buyer for the home.20 In an "exclusive agency" agreement, the listing broker receives payment if any broker finds the buyer, but does not receive payment if the seller finds the buyer.21 In an "open listing," a broker has a nonexclusive right to sell the home and receive payment, but other brokers or the seller may also sell the home without any payment to the listing broker.22, The broker who works with the buyer is often referred to as the "cooperating broker" "or "buyer's broker. Nina B. Hale, Assistant Chief, Litigation III Section Growth in home prices was relatively flat through most of the 1990s and real commission fees did not surpass their 1991 levels until 2002. See supra Chapter I.C.3. The data are usually proprietary and not readily available to the public or to academic analysts. (Amended 5/10), Multiple listing services shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships. Therefore, a real estate broker must keep confidential any information that may weaken a principal's bargaining position. MO. For example, before the introduction of the Internet, consumers had to learn about homes for sale through real estate brokers, or through various offline marketing vehicles, such as yard signs, newspaper advertisements, or real estate magazines. A comprehensive review of the empirical research conducted in the real estate brokerage industry is beyond the scope of this Report. Practice all cards. For example, if a cooperating broker secures a buyer for a transaction and can establish through arbitration that he or she was the "procuring cause" of the sale, then the listing broker is liable for the cooperative compensation.45, One panelist who is a real estate broker and past president of NAR described the MLS as "a broker-to-broker information exchange that provides an opportunity for cooperation and compensation. The authors report that interviews with industry members suggest that the cooperative split was almost uniformly 60/40, in favor of the listing broker. at 26. The complaint against Realcomp alleges that it engaged in anticompetitive conduct by prohibiting information on exclusive agency listings and other forms of nontraditional listings from being transmitted from the MLS to public real estate websites. See NAR, Public Comment 208, at 15-16; Delcoure & Miller, supra, at 15. (Amended 1/02) . 136. 125. Repairs may be ordered by the lender as a condition for financing or requested by the home buyer after the results of inspection. In the case of the Austin Board of Realtors, for example, the data showed that three months after the MLS implemented its exclusive agency listing policy, the percentage of all listings that were exclusive agency listings fell from 18 percent to 2.5 percent.314 The complaints also alleged that the exclusive agency listing policy did not give rise to any plausible or cognizable efficiencies, and was "not reasonably ancillary to the legitimate and beneficial objectives of the MLS. The authors use a sample of 669 single family home transactions covering the first nine months of 1986 obtained from the Lincoln, Nebraska MLS.
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