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The Nation's Housing

A Crusade For Competition

By Kenneth R. Harney
Saturday, April 23, 2005; Page F01

The Department of Justice has two blunt warnings for the American home real estate establishment:

• Do not block efforts to save consumers money through rebates of real estate commissions.

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• Do not stand in the way of discount "fee-for-service" firms that will list sellers' properties for a fixed-dollar amount but not perform all the traditional brokerage services, such as holding open houses or advising on buyers' offers.

On April 8, the department sent a highly unusual message to the Oklahoma legislature urging it not to pass a state Realtor association-supported bill that effectively would squeeze low-cost, fee-for-service real estate brokers out of the state by redefining the service requirements for holding a brokerage license.

A week earlier, the department sued the Kentucky Real Estate Commission, a regulatory body dominated by state realty association board members, for prohibiting brokers from giving customers rebates on sales commissions. The department also has stepped up the pace of its investigation of the National Association of Realtors' rules covering online access to Multiple Listing Service (MLS) databases for possible federal antitrust violations.

In an interview, Assistant Attorney General R. Hewitt Pate, the Bush administration's antitrust litigation chief, confirmed that the recent moves are part of a nationwide effort to promote unfettered competition -- and consumer savings -- in the booming home real estate market.

"We are concerned not only in Oklahoma and Kentucky but in other states as well," said Hewitt. Consumers get a better choice when a variety of realty brokerage options are available in local markets, Hewitt said. Options include traditional, full-service options for consumers who prefer them, and lower-cost, reduced-service and rebate-driven alternatives.

In the suit he filed against Kentucky, Hewitt accused the real estate commission board members of conspiring to "unreasonably restrain competition" in the state by banning brokers from offering commission rebates to clients. Among the most well known of these firms are ZipRealty, a full-service, Internet-based brokerage that rebates 20 percent of its commission to home buyers; and RealEstate.com, an affiliate of LendingTree.com that offers $1,000 rebates in the form of gift cards for Home Depot and other stores.

Hewitt quoted comments made to Justice Department investigators by Kentucky Realtors who oppose competitors' offering commission rebates: "I think this would just take money right out of our pocket," one said. "We work too hard to give it away," said another. "I am for the [rebate ban] as it stands now. If inducements were allowed, they could lead to competitive behavior."

According to real estate industry estimates, between 11 and 16 states already either prohibit rebates of realty commissions or put restrictions on firms that wish to offer them. State realty associations are putting pressure on other state realty commissions or legislatures to erect anti-competition roadblocks. For example, Texas is about to adopt new rules restricting fee-for-service firms, according to Texas Real Estate Commission Administrator Wayne Thorburn.

"The state association [of Realtors] came to us and said, 'We think you should do this,' " Thorburn said. Setting minimum standards for services -- including requiring brokers to assist clients with offers and negotiations -- would help ensure that home sellers would have competent representation during a sales transaction, Thorburn said. It would, for instance, eliminate the possibility that discount brokers could simply "charge $500 up front and tell [sellers] that 'I'll list your property, I'll put you on the MLS, I'll give you a sign for the front yard and then say, you're on your own, good luck.' " Some sellers might find themselves confronting a well-trained buyer's agent in negotiations, said Thorburn, and might not make smart decisions -- a result that would not be in the seller's best interest.

Steve Murray, a Colorado real estate brokerage consultant and publisher of Real Trends, an industry newsletter, summarized what the emerging clash between traditional Realtors and the federal trust-busters is all about: On the one hand, the establishment "feels threatened by what they see as barbarians" trying to bust through the gates with high-tech, lower-cost business models that appeal to key client groups, especially younger, Web-savvy shoppers.

The Justice Department, on the other hand, "sees the savings potentials and market efficiencies" offered by these innovative models and is now pledged -- along with the Federal Trade Commission -- to make certain they are not killed off by anti-competitive rules pushed by established brokers.

What's ahead? Count on more legislatures and realty commissions being asked to get involved on the traditional brokers' side. And count on Justice's trust-busters to go after any restrictions that frustrate free-market competition.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.

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