a cooperating broker would be a subagent a cooperating broker would be a subagent

Section D reports one panelist's attempt to make sense of the evidence presented in Sections A through C. A. . See Glenn Roberts Jr., Flat-fee brokers adapt to new real estate law Texas' new minimum-service law enacted Sept. 1, INMAN NEWS (Oct. 12, 2005), available at http://www.inman.com/inmannews.aspx?ID=48325; see also http://www.texasdiscountrealty.com/laws.htm (website of Texas Discount Realty explaining that "because of the added responsibilities forced on to you, the seller and us the broker, by [the Texas minimum-service law], we are forced, as most brokers to adjust our prices"); Tracy Donhardt, New Law Provides Realtors and Edge, INDIANAPOLIS BUSINESS JOURNAL (July 10, 2006), available at http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=07&issueday=10&page=1 &article=Ar00101 (noting that Indiana's minimum-service law has caused at least one limited-service broker to exit the market). . On the morning the lawsuit was filed, NAR announced a revised policy that contained a blanket opt-out under which the listings of brokers who withheld their listings from a VOW could appear on no brokers' website, except for NAR's website, Realtor.com. Civ. Detailed discussion of the ancillary services often provided in connection with real estate transactions was beyond the scope of the Workshop and, likewise, is beyond the scope of this Report. 237. For example, Realogy through its franchises and wholly-owned brokerages claims to have "participated in approximately one of every four domestic homes sold through a brokerage in 2005. Paulsen, Public Comment 364, at 1. The referral website may then rebate a portion of its referral fee to the consumer, if state law or regulations do not prohibit rebates. See NAR, Public Comment 208, at 5 (comment) ("Brokerages of different sizes and business models are able to compete on a level playing field because most real estate professionals and firms share their detailed property listing information . See also id. 233. In short, changes in home sales prices have relatively small effects on commission rates. Barnett, Tr. A Conceptual Analysis, 27 REAL ESTATE ECONOMICS 719, 721 (1999) ("Another factor in sustaining a collusive commission rate is that many sellers do not realize that the commission rate is negotiable. A powerful alliance working to protect and promote homeownership and property investment. For example, one industry participant stated: "Becoming a real estate agent is far too easy and too fast for what the service contemplates: The sale of what for many people is both their most important asset, and the one thing that physically binds their family together: a home."160. For example, a recent National Association of Realtors ("NAR") survey found that 84 percent of consumers employ a real estate broker to help them sell their home, and the vast majority of these home sellers appear to be contracting with real estate brokers to provide assistance on all aspects of the transaction.11 Another NAR survey found that nine out of ten buyers use a real estate professional during their home searches.12 The Internet also appears to be playing an increasingly important role in the real estate transaction. This document is available in two formats: this web page (for browsing content), and PDF (comparable to original document formatting). "204, A 1988 study analyzed the relationship between the commission rate offered to cooperating brokers and the selling price of the home.205 The sample data were comprised of 532 home sales drawn from 1983 and 1987 sales data in the Knoxville, Tennessee, Board of Realtors' MLS.206 The study found that the cooperative commission rate was negatively related to the sales price of the home and positively related to the percent of the list price achieved by the seller.207 The authors concluded, "[t]hese results provide strong evidence that the presumption by previous researchers that real estate brokerage firms are unwilling to negotiate differential rates is inaccurate."208. Between 1998 and 2005, the real median real estate broker commission per transaction grew by 25.5% to $11,549. When implemented by each of the respondents, this "Web Site Policy" prevented homes with exclusive agency or other non-traditional listing contracts from being displayed on a broad range of public real estate websites, including Realtor.com. This experience builds expertise in gauging market conditions and knowledge of the details involved in completing a real estate transaction. In addition, in states that do not prohibit them, brokers may offer rebates (i.e. 321. 129. 217. So, at that point, if it was say a 6 percent commission, I might take 2 percent and offer 4 percent."). One broker described the competition that he faces as follows: "In about 95 percent of the leads I get, I have competition from at least one other Real Estate Agent, and on listing appointments, I am often competing against [two] to [three] other Agents, and I lose quite a few [to] those who list with lower commission rates. 275. 11, 2006, available at http://realtytimes.com/rtcpages/20060411_hirebroker.htm ("[Government agencies] argue that with disclosures and waivers consumers should be able to refuse any brokerage service or obligation. A few brokers surveyed supported eliminating the rebate ban, recognizing some of the procompetitive benefits that repeal of the ban would foster. One commenter, the owner of a discount brokerage franchise, reported that he has "not experienced any discrimination by agents in the showing or selling of our properties"333. REV. For a discussion of exclusive agency contracts and other types of listing agreements, see supra Chapter I.A.2. 78. 54.1-2131(E) (2007). National, state & local leadership, staff directories, leadership opportunities, and more. Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF URBAN ECONOMICS 102 (1997). Through a cooperating broker agreement, the cooperating broker earns a share of the commission paid at the close of the sale. "185 Consistent with this observation, none of the Workshop participants or commenters provided data on commission rates or fees.186 To our knowledge, REAL Trends is the only source that publishes commission rate data. MO. Lawrence Yun, Ph.D., Senior Economist, National Association of Realtors, Presentation at the Federal Trade Commission & Department of Justice Public Workshop: Competition Policy and the Real Estate Industry, Real Estate Brokerage Industry: Structure-Conduct-Performance, at 9 (Oct. 25, 2005) [hereinafter Yun Presentation], available at http://www.ftc.gov/opp/workshops/comprealestate/yun.pdf. Since the consent decree was entered, consumers in Kentucky have benefited from new reduced price business models. "291 Further, a discount broker also noted that requiring minimum services runs contrary to the concept of fiduciary duty: Consistent with these panelists' comments, the Consumer Federation of America issued a report in June 2006 addressing competition in the real estate industry.293 This report criticized minimum-service laws, contending that they "discourage competition" by "making it difficult for internet-based or other limited service firms to function."294. See Montgomery County Ass'n of Realtors, Inc. v. Realty Photo Master Corp., 783 F. Supp. There are three principal types of listing agreements. No. (1) Accepting delivery of and presenting to the client or customer offers and counteroffers to buy, sell, or lease the client's or customer's property or the property the client or customer seeks to purchase or lease; (2) Assisting the client or customer in developing, communicating, negotiating, and presenting offers, counteroffers, and notices that relate to the offers and the counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived; and, (3) Answering the client's or customer's questions relating to the offers, counteroffers, notices, and contingencies.260, Currently, Alabama,261 Idaho,262 Illinois,263 Indiana,264 Iowa,265 Texas,266 and Utah267 have minimum-service laws that require licensees to perform tasks similar to those specified in Missouri's law.268 Further, Kentucky,269 Michigan,270 Mississippi,271 and New Mexico272 recently have considered but not adopted minimum-service requirements.273. In addition, there is no indication that the marketplace is incapable of addressing situations where cooperating brokers may face additional work to close a transaction.299 Cooperating brokers can make unilateral choices as to whether or not the compensation offered by the home seller through the MLS, as well as that offered directly by their buyer, is sufficient payment for the effort that may prove necessary to close a transaction. Until the 1990s it was common for the cooperating broker to be a subagent of the listing broker, working on the seller's behalf.29 During the 1990s, most states revised their laws to allow buyer representation, and at the same time NAR revised its policies, eliminating seller-subagency as a condition of participation in the MLS.30 Today, after a decade of agency law reform across the country, it is more common for the cooperating broker to owe fiduciary duties solely to the buyer.31 In some states, however, a cooperating broker may be a "transaction" broker who has limited fiduciary duties to both the buyer and seller and whose role is to assure that the transaction proceeds smoothly.32 In all states, brokers are required to disclose to buyers the type of relationship that exists so buyers know whom the cooperating broker represents, although the timing of this disclosure varies by state.33, Once a buyer makes an offer on a home, the listing broker may help the seller evaluate offers and formulate counteroffers and may negotiate directly with the buyer or buyer's broker. How the cost of such repairs is split is often the subject of additional negotiation. Broker IDX websites enable home sellers to get greater exposure for their listings, and enable home buyers to search listings, both on national IDX websites (e.g., Remax.com), and on broker websites focused in a local area. Although they typically do not play an active role at this stage, brokers often accompany their clients to the closing.38 The brokers are paid their commission at closing. Civ. 168. 20, 2005), available at http://www.usdoj.gov/atr/public/comments/209229.htm; Letter from DOJ to the New Mexico Real Estate Commission (Nov. 2, 2005), available at http://www.usdoj.gov/atr/public/comments/212656.htm. On the sell side of the transaction, the consumer's interest is to sell the home at the highest possible price. Further, if limited-service transactions do impose additional costs on cooperating brokers, sellers represented by fee-for-service brokers might find that they must offer cooperating brokers a higher commission to induce them to show their homes, and we are aware of no impediments to them doing so. 151. No. . Id. 15. White, supra note 47, at 4. 265, 269 (2000) ("In recent years it has become more common for buyers to employ a buyer's agent, rather than a traditional seller's agent"). 3. These techniques are still important and commonly used, but consumers now have access to listing information from a variety of online sources as well. 1980) ("[W]hen broker participation in the [MLS] is high, the service itself is economically successful and competition from other listing services is lacking, rules which invite the unjustified exclusion of any broker should be found unreasonable."). Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved. Steering refers to any action taken by a broker or agent to avoid cooperating with a particular competitor. . 53,362 (Sept. 8, 2005). See GAO REPORT, supra note 3, at 7-8. 45. 259. . 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. "A subagent is a cooperating agent who works for a listing broker-salesperson in the sale of a property. A Workshop panelist, Chang-Tai Hsieh, an academic economist, offered one possible explanation of how, in the presence of relatively inflexible commission rates, the increased entry and non-price competition by brokers can reflect an inefficient constraint on price competition. See, e.g., GAO REPORT, supra note 3, at 16. Id. In terms of branding, the broker may invest in and create a brand or affiliate with a national or regional franchisor that provides a brand with certain reputational value and an advertising campaign. at 1369. Id. 144. As noted above, 80 percent of consumers use the Internet to search for homes in 2006.134 To the extent that consumers have greater knowledge of the stock of housing for sale than they used to, brokers will be less able to exclude a particular listing from home buyers' searches without their knowledge. 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. Share sensitive information only on official, secure websites. 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. 132. The authors report that interviews with industry members suggest that the cooperative split was almost uniformly 60/40, in favor of the listing broker. . 23, 27-28 (1995). 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. These are the 'normal' modes for virtually all markets, regardless of how they might vary from one another, and nationwide a very high percentage of real estate brokerage transactions occurred at a commission rate of one or the other. See Ann Morales Olazabal, Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses, 40 HARV. But when competition occurs primarily along such dimensions, brokers may expend more resources providing additional services than the value of those services to consumers.217, According to Hsieh, real estate agents may be competing intensely but do so primarily by expending resources to gain listings rather than competing by lowering their commission fees, a phenomenon Hsieh calls the "tragedy of the commission. Some consumers choose to sell their homes without any assistance from a real estate broker. Second, consumers may be unaware of the possibility that their brokers may have conflicting interests that lead them not to provide the consumer with the best possible advice. 6. Another gap in consumers' knowledge albeit one that does not necessarily affect competition in the real estate brokerage industry may be that consumers are not fully informed as to what, if any, duties they are owed by their broker. Stay informed on the most important real estate business news and business specialty updates. See Realogy Corporation 10-K for fiscal year ending Dec. 31, 2006, available at http://www.sec.gov/Archives/edgar/data/1355001/000095012307003335/e31090e10vk.htm#tocpage. The typical real estate transaction involves several steps. Mar. . 65, 75 (2003). See Hearing, supra note 1, at 5 (testimony of David G. Wood), available at http://financialservices.house.gov/media/pdf/072506dgw.pdf. He anticipated that some firms would specialize in specific parts of real estate transactions allowing consumers to choose what fits their needs. Competition among brokers on price primarily occurs through lower commission fees and rebates. 314. Different fee-for-service brokers may offer different arrays of services, and home sellers can pick and choose the services they wish to procure from the provider or providers of their choice. Cooperating Agent - A real estate agent who sells a property. E.g., ForSaleByOwner.com, http://www.forsalebyowner.com (last visited April 20, 2007); FSBO.com, http://www.fsbo.com (last visited April 20, 2007); and HomesByOwner.com, http://www.homesbyowner.com (last visited April 20, 2007). If you owe a fiduciary duty to someone, you must act in the. 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. 258. See Whatley, Tr. Park, Non-Uniform Percentage Brokerage Commissions and Real Estate Market Performance," 17 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 422, 428-29 (1989). Cooperating broker who is an agent of the listing broker but not strictly a subagent of the seller. Some MLSs also withhold such datafields as the detailed description of the home or the property disclosures. Although this section reports a variety of statistics that purport to measure "market share," this Report makes no attempt to define a relevant antitrust market for this, or any other, analysis.