a cooperating broker would be a subagent

See NAR, THE 2005 NATIONAL ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS AND SELLERS 58 (2006) [hereinafter NAR 2005 SURVEY] (71% of sellers report that their agent attended the closing). See Yun, Tr. "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. See Nadel, supra note 25 at 23. NAR's rules allowed brokers to direct that their clients' listings not be displayed on any VOW or on particular VOWs designated by the broker.318 The complaint charges that the rules restrain competition. . See Lewis, Tr. . 1983 FTC STAFF REPORT, supra note 9, at 1. Daniel S. Hosken, Deputy Assistant Director, Bureau of Economics On its face, the law is ambiguous as to whether it requires brokers actually to perform the service of receiving and presenting offers and counteroffers or simply requires them to make themselves "available" to their client to do so. The MLS also operates an arbitration mechanism to resolve compensation disputes between listing and cooperating brokers. "); Paulsen, Public Comment 364, at 1 ("If the public felt there was a set fee I would not be asked what my rate is to sell a house. Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved. Additionally, fee-for-service brokers typically provide the client additional selling aids, such as yard signs, online advertisements, and a lock-box to allow buyers' agents to show the home when the seller is not present. REV. 103. "158 He noted that between 1998 and 2005, while the number of home sales increased about 50 percent, the number of NAR members increased about 67 percent.159, Some commenters stressed the ease with which one can become an agent. See TexasDiscountRealty.com, Home Sellers, http://www.texasdiscountrealty.com/sellers1.htm (last visited April 20, 2007). In the majority of transactions, the commission fee is determined by multiplying the commission rate negotiated in the listing contract by the home's actual selling price. A cooperating broker does not assume compensation from the listing firm. 53,362 (Sept. 8, 2005). . See infra Chapter IV. The MLS is a local or regional joint venture of real estate brokers, typically operated by a local group of brokers affiliated with NAR, who pool and disseminate information on homes available for sale in their particular geographic areas.41 The MLS combines its members' home listings information into a database, usually in electronic form. Get the latest top line research, news, and popular reports. at 113-14. NAR, Public Comment 208, at 6 ("In a few markets, some firms may have a larger than usual market share, but market shares are known to change measurably from one year to the next."). An exclusive brokerage agreement is defined as "a written brokerage agreement which provides that the broker has the sole right, through the broker or through one or more affiliated licensees, to act as the exclusive limited agent, representative, or transaction broker of the client or customer that meets the requirements of section 339.780." Fees, measured in constant 2006 dollars, are based on median home prices so as to represent what a typical consumer would pay in real estate commissions to sell his or her home. In an address at the beginning of the Workshop, (then Acting) Assistant Attorney General Thomas Barnett observed that minimum-service laws and regulations can be viewed as no different from states passing a regulation that says: "When I walk into McDonald's and order a hamburger, I'm told that I also have to buy some french fries, because the state has decided that it might be deceptive or misleading or bad if I only got the hamburger, paid for it and didn't realize I wasn't going to get the french fries." . For example, one Workshop participant who operates a flat- fee brokerage stated that about 30 percent of his clients who sign up for a flat-fee listing eventually purchase additional brokerage services.74 This panelist's website offers the flat-fee listing at $595, but also offers two other packages: "flat-fee plus," which costs an additional $1,500 and includes negotiation and post-contractual assistance, and full- service brokerage for a discounted percentage fee.75 Further, many fee-for-service brokers allow their clients to cancel their listing agreement at any time, leaving consumers free to pursue other brokerage or non-brokerage options if they become dissatisfied with the broker's service. 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"). See, e.g., Paul Anglin & Richard Arnott, Are Brokers' Commission Rates on Home Sales Too High? STATUTES 339.780(7)(1)-(3). United States v. Realty Multi-List, 629 F.2d 1351, 1374 (5th Cir. Mississippi S.B. Realty Multi-List, 629 F.2d 1351 (5th Cir. Id. Overall, the evidence suggests that while commission rates may vary modestly with housing prices and overall market conditions, they do not tend to vary in proportion to changing home prices. 270. at 14. The essential and appropriate requirement by a multiple listing service is that the information to be published shall clearly inform the participants as to the compensation they will receive in cooperative transactions unless advised otherwise by the listing broker in writing in advance of their submitting an offer to purchase. As explained in Chapter I, brokers must have access to the MLS in order to compete effectively. See William C. Goolsby & Barbara J. Childs, Brokerage Firm Competition in Real Estate Commission Rates, 3 JOURNAL OF REAL ESTATE RESEARCH 79 (1988). A fee-for-service broker in Texas, who was a panelist at the Workshop, has complied with the Texas minimum-service law by providing clients with an electronic "frequently asked questions" sheet, offering to answer questions by fax or email, and communicating with buyers' brokers during negotiations. Brokers can provide varying degrees of assistance to buyers, such as performing MLS searches for homes for the buyer or allowing a buyer on-line access to MLS data to perform such searches on his or her own. at 97-98 (noting the variety of tools available to FSBOs). Commission Issues - Texas REALTORS FINANCIAL ECON. 269. Press accounts indicate that fee-for-service brokers have raised their prices or exited the market altogether in response to minimum-service laws. NAR, Public Comment 208, at 7 (comment). "285, The evidence, however, does not suggest that consumers who choose to use fee- for-service brokers are harmed by performing certain aspects of the real estate transaction themselves or misunderstand the nature of the contractual relationships into which they enter. Promoting the election of pro-REALTOR candidates across the United States. To view PDF files on this website you need the free Adobe Reader. The recent run-up in housing prices illustrates this phenomenon: from 1998 to 2005, housing prices rose 37 percent in real terms and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period.140 At the same time, the efficiencies generated by the Internet and other technological advances suggest that broker costs should be falling. See Turnbull, supra note 162, at 293. Another type of restraint that is likely to reduce competition and consumer choice in real estate brokerage-related services is overly broad licensing requirements, particularly those applicable to firms that advertise FSBO homes. "); Turnbull, supra note 162, at 296 ("[S]ince no direct pricing of service levels is allowed, the housing market and broker market lose an important channel normally responsible for ensuring that the services are provided to the point where the marginal value to clients equals the marginal cost to brokers."). According to a Workshop panelist, there are approximately 98,000 brokerage firms operating over 200,000 local offices in the United States.143 These offices provide potential employment for approximately 2.5 million real estate licensees (of which more than 1.2 million are members of NAR).144 In 2004, 96 percent of brokerage offices in the United States employed ten or fewer agents.145 From 1983 to 1999, the portion of brokerage offices with five or fewer agents increased from 51 percent to 60 percent.146 In contrast, the portion of offices with a sales force of more than 50 agents never exceeded 5 percent during that time period.147, There is conflicting information regarding the percentage of home sales nationwide accounted for by the largest real estate firms. Each survey participant who had sold through a broker was asked the commission rate that had been quoted by the broker. See also Hahn, Tr. . Buyer's broker The broker is employed as the buyer's agent. Specific legal requirements to offer subagency to cooperating brokers are: Written informed consent must be obtained from seller client to offer subagency, the consent must state the following: That the broker may cooperate with another broker who is then a subagent of the seller. 2d 868, 872 (E.D. 178. OKLA. STAT. Broker marketing can include paid advertisements in television, radio, print, or online media; informal networking to meet potential buyers and sellers; and giving away pumpkins at Halloween. No. A home selling for $100,000 more, or $172,000, would pay a commission rate of 5.73%, for a commission fee of $9,901. 198. Perriello, Tr. 167. View the guidelines for preparation and use for specific uses. "97, According to NAR's 2006 Profile of Home Buyers and Sellers, 83 percent of home sellers who retained a broker used one who provided the traditional "full" array of services; 8 percent hired a broker who listed the seller's home in the MLS and performed few, if any, additional services; and 9 percent hired a broker to provide a broader array of services, but short of full-service.98, NAR data show that the number of FSBOs consumers who sell their homes without the assistance of a real estate professional has been declining. Realty Multi-List, 629 F.2d at 1373-74 (citing A. Austin, Real Estate Boards and Multiple Listing Systems as Restraints of Trade, 70 COLUMBIA L. REV. See Levitt & Syverson, supra note 16, at 6 (noting that if an agent receives 1.5 percent of the sales price and incurred weekly costs of $200 to keep a home on the market, "the agent would be indifferent between selling the house today or waiting one more week and receiving an offer $13,333 higher with certainty."). 299. Id. There is some overlap between the categories because certain business models fit into more than one category. 257, 257 (1998) ("Much of the literature argues that there is . Some have suggested, however, that the industry has not yet experienced the sort of sweeping benefits to consumers in the form of cost savings and service enhancements that have been seen in other industries from the use of the Internet and other technology.101 This Chapter examines how the Internet has increased consumer access to information about real estate and how this increased access has in turn affected consumer behavior. 314. 5 (American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Working Paper 05-11, 2005) [hereinafter AEI-Brookings Paper]; GAO, REAL ESTATE BROKERAGE: FACTORS THAT MAY AFFECT PRICE COMPETITION (GAO-05-947) 15 n.33 (2005) [hereinafter GAO REPORT]. a cooperating agent from a brokerage firm not affiliated with the listing or buyer broker but who is assisting that broker by finding a buyer or a property for that broker's client; has fiduciary obligations to the client but does not operate as a subagent of the client 952, 955 (D. Md. 101. 113. Most brokers have agents working for them and they collect a portion of those commissions in exchange for providing office space, marketing, and other overhead. See NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers contacted only one agent; 74% of sellers found their agent through either a referral or a prior relationship with the agent). As the FTC and DOJ have explained in letters to several states, minimum-service requirements harm consumers in two ways.274 First, minimum-service requirements frustrate consumer choice by reducing the options available to consumers in the marketplace; consumers who would otherwise choose a lower-cost fee-for-service option are harmed if they can no longer choose their preferred option because it does not comply with state minimum-service requirements. Split Agent (noun): a licensee assigned by a broker to represent a buyer or seller in a transaction, usually in an in-company dual agency situation. Specifically, by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from VOW brokers by means of an "opt out,"319 it enables traditional brokers to block their competitors' customers from having full on-line access to all of the MLS's listings. See U.S. Census Bureau, Median Sales Price of Existing One-Family Homes by Selected Metropolitan Areas, available at http://www.allcountries.org/uscensus/1202_median_sales_price_of_existing_one.html. DOJ's lawsuit is pending in the federal court in Chicago, Illinois. 177. The FTC challenged similar conduct in the past. See also Lewis, Tr. The broker typically would retain the flat fee whether or not the home ultimately sells. These websites often will also provide potential home buyers with general information on neighborhoods, such as demographics, crime rates, and school quality. 15. 7. NARs operating values, long-term goals, and DEI strategic plan. Complete listing of state and local associations, MLSs, members, and more. Given the size of the real estate industry,1 any restraints on competition in real estate brokerage will have significant adverse consequences for consumers. The examples of relatively high local market shares for brokerages described above suggest that agent entry is more common than brokerage entry. NAR's 2006 Survey estimated that FSBOs account for about 12 percent of home sellers, with an additional 5 percent of sellers first trying the FSBO route, but then retaining a broker to complete the sale.99 NAR's 2005 data estimated FSBOs at approximately 13 to 14 percent, and noted that this number has been steady since 2001, and is lower than it was for the 1990s: 19 percent in 1991; 17 percent in 1993; 15 percent in 1995; 18 percent in 1997; and 16 percent in 1999.100, II. A-00-CA- 154 JN, 2000 WL 34239114, at *4 (W.D. In response to DOJ's investigation, the Tennessee Real Estate Commission voted to suspend enforcement of its rebate ban on July 13, 2006, and subsequently voted to repeal the offending regulation. Whether youre a new agent or an experienced broker you have access to a wide array of resources designed to help you succeed in today's market. States require real estate brokers and agents to be licensed. . This Chapter also discusses the Internet as a means of providing real estate brokerage and related services to consumers. LA. MLSs are the primary source of home listings information because they contain real time information on virtually every home listed for sale in a given area, except FSBO homes. at 68 (describing the option). Subagency | Study Guide for NY Real Estate Salesperson License 64. 54.1-2131(E) (2007). STAT. 325. RE57R07: Brokerage Relationships | Mass.gov at 27. 330. See VA. CODE 54.1-2138.1. 164. A. Overview of the Typical Real Estate Transaction, At its most basic, real estate brokerage is about matching a home seller with a home buyer.9 As one panelist, who represents a major brokerage franchise, remarked, a home seller wants to "negotiate the best possible price in the quickest possible time. "46 Another panelist, however, described the MLS as a "club" that can limit membership and access to MLS listings to firms that conduct business in a particular manner, thereby limiting consumer choice.47 This panelist, an economist, stressed that when competitors cooperate, as in an MLS, the rules governing that cooperation and the conditions under which the cooperation occurs must be examined closely.48, As the primary source of information about homes currently for sale and the prices at which other, comparable homes have been sold, the MLS is an extraordinarily important resource for sellers, buyers and brokers.49 Home sellers benefit from exposure of their listings to a wide audience of potential buyers, increasing the probability of selling their homes quickly and at an optimal price for those sellers.50 In addition, sellers, through their brokers, can use the MLS information on comparable homes to decide whether to sell their homes and, if so, at what price.51 According to NAR's 2006 survey of home buyers and sellers, 88 percent of sellers reported that their home was listed in the MLS.52, Buyers also benefit from the MLS because they can go to a single source (that is, a single broker) for information regarding the vast majority of homes for sale within a given area, instead of visiting multiple brokerages to obtain such information. 06 Law of Agency (10) Chapter 10: Agency and Brokerage See Hsieh & Moretti, supra note 139, at 1089 ("prospecting" and "farming" are not "entirely socially wasteful," rather "society's gain from free pumpkins for Halloween and from free notepads with the realtor's picture is far less than their cost to the realtor, in terms of the direct cost of these freebies, but particularly in terms of the opportunity cost of the time the realtor puts into such activities. 34. 30, 2000). Id. William Blumenthal, General Counsel In my own experience, I have already lost listings to brokers who have offered to take the listing at a lower brokerage fee. DOJ, South Dakota Real Estate Commission Permits Real Estate Brokers To Offer Rebates And Inducements (Aug. 17, 2005), available at http://www.usdoj.gov/atr/public/press_releases/2005/210637.htm; DOJ, West Virginia Real Estate Commission Permits Real Estate Brokers To Offer Rebates And Other Discounts (May 4, 2006), available at http://www.usdoj.gov/atr/public/press_releases/2006/215961.htm. A discussion of the various private litigation involving alleged MLS-related restraints is beyond the scope of this Report. at 174 (noting that all traditional companies "have a significant online presence"). Brokers can use this database to provide their clients with information on sales of comparable homes so that the clients can more accurately value their homes or determine the amount to bid on a home. at 103. To the extent that fee-for-service options cost more, full-service brokers will have less need to offer these incentives. at 150 n.430. 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.
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