Residential Real Estate Newsroom

Competition in the Real Estate Brokerage Industry

Competition provides American consumers lower prices, better quality services, and greater choice. In the residential real estate industry, competition is vitally important because buying or selling a home is one of the most important financial transactions a consumer will ever undertake. Given the size of the real estate industry, any restraints on competition in real estate brokerage will have significant adverse consequences for consumers. Moreover, because real estate broker commissions are typically a percentage of the home sales price, the dollar amount charged by real estate brokers has increased significantly in recent years as home sales prices have escalated. And, because the amount home sellers pay their real estate broker is built into the home sales price, both home buyers and sellers bear this expense.

The residential real estate industry has undergone a number of substantial changes in recent years. Today, real estate agents and brokers are changing the way they operate and are increasingly incorporating the Internet into their business models in a variety of ways, such as offering potential buyers the option to view full, detailed multiple listing services ("MLSs") online, using websites to gather "lead" information on potential customers, and using the Internet to match home buyers and sellers. The increased ease with which home buyers and sellers can perform tasks that once were the exclusive domain of real estate agents and brokers likely has been an important factor in the increased demand for innovative, non-traditional real estate brokerage services. In fact, the Internet has surpassed the yard sign as the most important marketing tool to reach consumers.

While there have been many positive developments in the residential real estate industry, there are some indications that consumers are not enjoying all of the possible benefits of competition in the real estate brokerage industry. A number of developments have raised competitive concerns, particularly laws and regulations in some states that limit consumer choice of real estate brokerage service offerings and that prohibit rebates to consumers, anticompetitive agreements among brokers, and industry practices that impede competition. These practices can lead to substantial consumer harm through reduced choice of real estate brokerage services, higher fees, and limitations on the ability to access information about real estate listings.

Given how important competition is to consumers in this industry, the Federal Trade Commission ("FTC") and the Department of Justice Antitrust Division ("DOJ") held a public workshop ("Workshop") to address issues affecting competition in the residential real estate brokerage industry. Panelists at the Workshop included traditional real estate brokers, brokers offering nontraditional business models, state regulators, and academics.

This Report presents an overview of the information provided and opinions expressed at the Workshop, as well as existing literature and studies, and examines some of the competitive issues raised at the Workshop and in other proceedings. Chapter I provides background information on the real estate brokerage industry, including the roles that real estate agents and brokers play in a typical real estate transaction; considers the importance of MLSs; and examines some of the alternative business models used by real estate brokerages. Chapter II discusses the impact of the Internet on the real estate brokerage industry and information asymmetries. Chapter III explores the competitive structure of the real estate brokerage industry and publicly available evidence concerning brokerage commission rates and fees. Chapter IV addresses obstacles to a more competitive market environment, including government-imposed impediments, MLS rules that can cause anticompetitive effects, and the importance of broker interdependence. The final part of the Report offers conclusions and recommendations.

This Chapter provides an overview of the traditional real estate transaction and the participants involved in the process, discusses the important role of the MLS, and examines how the Internet has affected residential real estate brokerage-related services. It also identifies and describes certain types of nontraditional real estate business models, including: (1) full-service discount brokers; (2) fee-for-service brokers; (3) Virtual Office Website ("VOW") operators; (4) for-sale-by-owner ("FSBO") facilitators; and (5) broker referral networks.

The full chapter can be found at http://www.usdoj.gov/atr/public/reports/223094.htm