Congress Is Also On The Case - NARs Troubles, Continued
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And so to continue the saga of the current bedevilment of real estate agents in
general and the National Association of Realtors in particular.
(First of all, thanks to Lew Sichelman, a nationally syndicated writer on housing,
for correcting us on Part
One of this short series. It was not the General Services Administration,
a totally independent government agency which functions as the national fiscal
watchdog, to whom Oxley and Frank were addressing their questions, but the Government
Accountability Office (formerly known as the Government Accounting Office) an
office within and accountable to the Legislative Branch of government. We had
attributed this correctly in earlier articles.)
The current lawsuit filed by the Department of Justice against NAR, accusing
the organization of anti-competitive practices under the Sherman Act,
and discussed in this space earlier, is merely the latest real estate related
legal action by DOJ this year. The Department has criticized thirteen states
(actually suing some and warning others of the possibility of a suit) which
have either proposed or enacted rules to curtail limited-service real
estate business models by requiring specified "levels of
service" or have outlawed payments to non-licensed individuals or
corporations under so-called affinity programs. (For an explanation of affinity
programs please see Affinity
Programs - With Some, Charity Begins at Home, April 6, 2005.)
But the other party nipping at the heels of the residential real estate industry
is the U.S. House of Representatives' Committee on Financial Oversight.
As reported here in November,
2004, the committee's chairman, Michael Oxley (R-Ohio) contacted the
Government Accountability Office and asked for information on the real estate
industry including the following specific requests:
- Do legal or regulatory barriers hinder innovation/modernization of residential
real estate transactions?
- Do Multiple Listing Services (MLS) function as the marketplaces
for residential real estate?
- To clarify governance structure/oversight or regulation of MLS?
- Do NAR rules regarding VOW and IDX block
legitimate commerce, particularly against certain licensed real estate brokers?
(NAR VOW rules have recently been suspended).
- What do states require of real estate agents and brokers in their role
of promoting homes for sale, and how are these obligations consistent with restrictions
on display of information over the Internet?
- Has the Internet facilitated the custom of agents representing both
the buyer and the seller in the same transaction, and, if so, is this good for
the consumer.
This was followed in March
by another letter to GAO from Oxley and ranking committee member Barney Frank
(D-Massachusetts) asking GAO to survey price competition in the marketplace
for real estate services. Oxley and Frank, incidentally, have introduced HR
2660, (The Fair Choice and Competition in Real Estate Act of 2005)
which would permit banks to engage in their long sought goal of participating
in real estate brokerage.
GAO has now provided answers to Oxley and Frank in a report
titled "Real Estate Brokerage: Factors That May Affect Price Competition"
provided to the Congressmen in late August but only released to the public last
week.
The GAO said that, in compiling its report, it reviewed academic literature
on the structure and competitiveness of the residential real estate industry
and interviewed and obtained relevant documents from industry analysts and officials
of real estate brokerage and banking trade associations and government regulatory
agencies. It also interviewed officials of ten residential brokerage firms and/or
franchisers including two national franchise operations, one full-service real
estate company and two Internet-oriented full service firms and three Internet-oriented
information and referral companies. And, to fulfill the Oxley/Frank request
to investigate the role that banks might play if allowed into real estate, GAO
reviewed activities in two states, Iowa and Wisconsin, where banks
are, to a limited extent, active in residential real estate brokerage.
The report found that competition was active within the industry. As evidence
it cited the large number of relatively small firms that are active throughout
the country and the ease of entry into the profession. The report, however,
goes on to say that real estate brokerage has "displayed more evidence
of competition on the basis of non-price factors, such as reputation (of the
brokers/agents) or level of service, than on price. The GAO states that there
is no comprehensive data on brokerage fees (which, as an editorial aside, would
seem easy enough to obtain; MLS is, after all, a live database); anecdotal information
"suggest(s) that commission rates have persisted in the same range -
roughly 5 percent to 7 percent of a property's selling price - over
long periods, regardless of local market conditions, housing prices, or the
cost or effort required to sell different properties."
GAO said that their review of the literature and independent research led them
to suggest several causes of this "lack of price variation."
First, that multiple listing services (MLS) encouraged conformity by publishing
the commissions that agents were offering to share with others. This could lead
to buyer's agents being less willing to show homes where they would collect
lower commissions. Second, agents sometimes offer lesser commissions to those
agents who offer reduced services, and third, a move by some states to prohibit
rebates on commissions (affinity fees) or
to prohibit agents from offering a proscribed level of service.
Didn't we say that this all would come full circle?
More on the GAO report and other problems faced by the residential real estate
industry is coming up. It would seem that, at the end of the day, it is all
about real estate commissions, but you can be the judge.
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