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This residential real estate industry is not nearly ascompetitive as it could and should be. Most of the participants areoffering the same basic product: a "full service" listing costing 4-6%at closing; very few participants offer total commission rates lowerthan 4%, very few offer variable commission rates, very few offerlimited service, very few agents have gained economies of scale byexpanding into multiple MLS areas, very few offer exclusive agency ortransaction brokerage, very few have developed efficiencies throughlabor reduction or outsourcing, very few utilize auction-based pricing,and very few have engaged in unbundled services. Internet-onlybusiness models have not flourished as they have in other industries(for instance, travel agencies, stock brokerage, banking, auctions, orinsurance). While listing commissions have been reduced over theyears, buyer's agency commissions have been reduced very little if any.
There are forces at work to make the industry more competitive, forinstance, the rise of flat fee MLS listing services and fee-for-servicebrokers, reductions (and in some cases elimination of) buy-sidecommissions paid to buyer's brokers by homebuilders, and requiringdisclosure of all commissions offered or paid in a real estatetransaction. Rightly or wrongly, NAR (of which I am a member), stateassociations of REALTORS(R) and other industry participants haveattempted to limit these competitive forces either by their action orinaction. For instance, Oklahoma and Texas Assoc.'s of REALTORS(R)supported laws to require "minimum services" to be provided by ALLlicensees on ALL transactions, effectively preventing unbunding ofcertain services such as MLS listing and negotiation assistance. NAR'spresident, a State Senator in Utah, personally sponsored a similar billin his state. Some websites such as the "New Home Ultimate InformationSystem" which is the new home database affiliated with the ArizonaRegional MLS, do not display builders inventory or models when nocommission is being offered, effectively limiting agent's exposure tothese homes. Despite their desire for "consumer protection",REALTOR(R) organizations have worked to keep mention of commissions outof the purchase contract and have not policed members that advertisebuyer representation as being "free."
While there are many agents that work part-time or conduct very littlebusiness whatsover; gross margins for full time, professional realestate agents can approach 80-90% in many cases. Additionally, throughlocal associations and multiple listing services, agents are encouragedand offered many opportunities to fraternize with, cooperate with, andjudge the behavior of their competitors, leading to some anti-trustconcerns. Arbitration panels are particularly troubling, allowing forcommission disputes to be settled not by a court of law, but instead bya panel of competing agents, sometimes rewarding commissions to agentswhose names never appeared on a purchase contract, who neverparticipated in pre-settlement activities, and who never obtained asigned exclusive representation agreement from the buyer. The threatof arbitration has significantly increased liability for agents, whichis passed through to consumers in the form of higher prices and fewervariable commission agreements.
NAR UrgesMembers toWrite to DOJ, FTC on Competitiveness
(October 18, 2005) -- OnOct. 25, the U.S. Department of Justice's Antitrust Division and theFederal Trade Commission will host a public workshop in Washington, D.C.,on the topic of competitiveness in the real estate industry. Inconjunctionwith the workshop, the two federal agencies are inviting public commenton theissue of competitiveness.
The NATIONAL ASSOCIATION OF REALTORS® is planning to participate in theworkshop and is urging its members to write letters to voice theiropinions andshare personal experiences about how competitive the real estateindustry is.The letters need to be sent to boththe FTC and the DOJ and can be sent either by mail or by e-mail. NAR isurgingmembers to write letters prior to the Oct. 25 workshop, but the twofederalagencies will be accepting public comments after the workshop throughNov. 28.
The workshop, titled "Competition Policy and the Real EstateIndustry," will be held at the FTC's Satellite Building ConferenceCenter located at 601 New Jersey Ave., N.W., Washington, D.C., and willcovertopics such as MLSs, virtual office Web sites, discount andlimited-servicebrokers, and minimum service requirements.
To learn where to send the letters to the FTC and the DOJ and obtainsomeprewritten key point to include in your letters, see the Tell Federal Regulators That Real Estate Is Competitivepageat REALTOR.org. NAR would like to receive copies of any letters memberssubmit.E-mail a copy to FTCDOJworkshop@realtors.org.
To learn more about competitiveness of the real estate industry, go tothe About Industry Competitiveness page at REALTOR.org.
-REALTOR® Magazine Online