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.