State laws and realtor business practices are preventing consumers from getting the full benefit of the competition that the Internet was expected to bring to the real estate industry, federal regulators said Tuesday.
In a new report from the Federal Trade Commission and the Department of Justice, regulators said that discount brokers and other rivals to traditional realtors have been constrained in their ability to use the Internet to reduce fees and improve service.
The Internet is now more important tool than yard signs for advertising homes for sale, the report said. In 2006, 80 percent of home buyers used the Internet while looking for a house vs. 63 percent who said they looked for yard signs, according to a study cited in the report.
Yet the report says the “sweeping benefits to consumers as cost savings and service enhancements that the Internet and other technology advances has brought to other industries” has not occurred in real estate. The report cited outdated state laws and realtor practices that hamper consumers from saving more money and time while looking for a home to buy.
A sharp increase in realtor fees — brokers earned $60 billion in commissions in 2005 — reflect the run-up in residential property values and underscore the importance of competition, the report said.
The median realtor’s commission increased 25.5 percent to $11,549 between 1998 to 2005, the report said. The FTC and DOJ called for more study of commission rates and fees and how they are affected by housing market conditions and regulation.
Technological innovations that would improve competition are available, the report concluded. For example, fee-for-service brokers offer specific services, such as listing a house on an online multiple listing service, for a flat fee. Discount brokers provide start-to-finish services but offer rebates or price reductions on some services.
Yet some states still ban rebates in real estate, whether by law or regulation. In addition, some realtor groups discriminate against fee-for-service listings by keeping them off national real estate Web sites.
“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,” the FTC/DOJ report said.
Ten states still prohibit rebates, by law, including Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, New Jersey, North Dakota, Oklahoma, and Oregon. Eight states have laws requiring brokers to perform a minimum level of services: Alabama, Idaho, Illinois, Indiana, Iowa, Missouri, Texas and Utah.
FTC and DOJ recommend that states repeal the laws and regulations that limit competition and both agencies are doing what they can to counteract anticompetitive behavior in the business.
In an e-mailed response, Pat Combs, president of the National Association of Realtors, said the real estate industry is “dynamic, entrepreneurial and fiercely competitive.”
The Justice Department sued state real estate commissions in Kentucky, South Dakota, West Virginia and Tennessee, charging that rebate bans limited competition. The states agreed to lift the bans.
And the FTC last October ordered realtor trade groups in five states to allow fee-for-service and other discount brokers full access to their online multiple listing services, warning that refusal to do was a violation of antitrust law.
“For the past 25 years, the association has conducted membership education and training programs to ensure compliance with antitrust law,” the NAR’s Combs said. “The report released today is based on a government workshop on competition in the real estate industry that was held nearly two years ago.”
The report’s finding were initiated by a workshop the agencies conducted in October 2005 but more recent data were added before its release.