Officials from the National Association of Realtors plan to meet with U.S. Justice Department officials in Washington, D.C., on Wednesday in a bid to stave off a federal lawsuit that could increase competition in the online real estate market and potentially lower the soaring cost of home prices.
The Wall Street Journal broke the story on Monday, saying that the Justice Department plans to accuse the nation's primary realty association of trying to "stifle Internet-based rivals and discounters" through a bylaw -- set to go into effect this July -- that would allow its members to withhold their property listings from online brokers. Such a move would not only put those brokers at a competitive disadvantage, but it would keep the properties' sellers from taking advantage of their often discounted commissions, the Journal reported.
This development adds real estate to the list of businesses reeling from the perpetually increasing popularity of the Internet. Newspapers and magazines, music and movie companies -- each is scrabbling for ways to score a profit online as the Internet stimulates the public's already ravenous appetite for information and entertainment by transforming it from a premium into a commodity.
Here's more from the Journal's Monday article: "The federal investigation of the association's rules has been under way for more than a year. When it was first disclosed in October 2003, the group said it would cooperate with the inquiry and that its proposed rules regarding access to Internet listings wouldn't violate antitrust law. Late Friday, a lawyer for the group acknowledged that government officials and the association have so far been unable to resolve their differences and that a federal antitrust challenge was likely soon. Justice Department spokeswoman Gina Talamona said antitrust enforcers are 'investigating the potential competitive impact of certain rules involving the display of residential-real-estate listing data over the Internet.' She declined to comment on the timing of any legal action. Laurie Janik, general counsel for the NAR, said the residential-real-estate industry 'is already highly competitive' and that 'a broker who works long and hard to get listings should not be forced to share them with all of his competitors.'"
At stake, according to several news sources, is a hot home market that industry publication Real Trends says racked up $61 billion in sales and commissions in 2004, compared to $42.6 billion in 2000.
The Journal in a report today said that federal action could accelerate change in the real estate business, which so far has skirted some of the changes that the Internet has visited upon other industries: "In recent years, commissions on everything from trading stocks to airline tickets have fallen significantly as the Internet reduces the role of middlemen. But the biggest single commission many consumers will ever pay -- for selling their home -- on average has declined only modestly from the traditional 6% or so, despite initial expectations of a revolution in the way homes are sold. That is largely because consumers often value a trusted name more than the lowest price available, and selling houses is much more complicated than selling stocks or airline tickets."
Now, the article said, smart shoppers can find commissions at half that rate or take advantage of thousands of dollars in rebates that they aren't getting from traditional realtors. "Still others offer fixed prices for a la carte services such as listing homes on Web sites or negotiating contracts, or help for do-it-yourself sellers including yard signs and how-to manuals," the paper said.
The Washington Post reported that the feds have targeted several states with laws that prevent such competition: "The Justice Department recently sued the state of Kentucky, arguing that its rules prohibiting real estate brokers from offering rebates to customers violate antitrust law. Kentucky is one of several states that prohibit agents from offering cash rebates or other incentives to home sellers to list with them. The Justice Department lawsuit argued that the practice limits free-market competition."
NAR's Janik told The Post that the Justice Dept. and the association are "180 degrees apart on that issue." The "issue boils down to whether a listing agent can effectively claim ownership rights to a home listing, deciding where and when it can be displayed on the Internet, for the duration of the listing contract, which usually runs between 60 and 90 days," The Post reported. "The Realtors' group argues that agents work hard to get listings and so should be entitled to choose whether a home can also be displayed on a competitor's Web site. 'In the past, another broker would never have been able to run a classified ad in the newspaper advertising my listing,' Janik said. 'You couldn't come put your yard sign in front of my listing. It's the same thing.'" Janik also told the paper that it wasn't about targeting online brokerages specifically.
Newspapers across the country reported that Internet-based listings are transforming the business, like it or not. Several quoted Pat Lashinsky, vice president of marketing for Zip Realty. Lashinsky "said consumers pay nothing to peruse its listings on ziprealty.com and they receive a rebate if they use his firm to negotiate the purchase of the home. Typically, commissions amount to about 5 percent of a house's sale price, with half the commission paid to the seller's broker and half to the buyer's broker, or 2.5 percent each," the Boston Globe reported . "'If we get 2.5 percent, we'd give [the buyer] 0.5,' said Lashinsky, whose firm now employs 124 agents in Massachusetts, up from 47 a year ago. His business is thriving in the state, because 'consumers are finding it's much easier to use our site to find homes that are available' than to use traditional brokers' sites.'"
The Austin American-Statesman reported that the Justice Department last month warned the Texas Real Estate Commission against passing rules requiring discount brokers to offer a minimum level of service, while the San Diego Union-Tribune carried a story quoting realtors who worry that federal action essentially will rob them blind: "'Anything that helps discount brokers just picks my pocket,' said Sylvia Starbird, broker-owner of Century 21-Carole Realty in Mission Valley. 'I just would like discount brokers to go away.'"
Not all discount brokers use the Internet, and plenty of traditional realtors applaud cyberspace for a number of reasons. Starbird, however, echoes a refrain often thought but little spoken by the captains of 20th-century industry (including quite a few newspaper publishers). Things would be much simpler for them if the Internet had never come along, if only because our choices would remain limited. The Internet, in the hands of an educated consumer, is a powerful tool for finding the best deal. When it comes to the largest purchase that many of us will ever make, seeking that competitive edge is imperative. Realtors need to recognize that fact and compete, using the Internet to its best advantage -- if they can.
How They Do It Up North
The Minneapolis Star-Tribune reported that Minnesota's realtors allow other companies to post their listings, which has kept Internet-based realtors from gaining significant marketshare in the state. "Since 2000, most brokers and sales agents in Minnesota have signed reciprocity agreements that give participating companies within the Regional Multiple Listing Service permission to share those listings. Select information can be withheld," the paper reported.
Also, check out this excerpt quoting Dana Strandmo, general counsel for HomeServices of America Inc.: "Strandmo said competition is a good thing for the marketplace, but because Edina Realty and Coldwell Banker Burnet have dominated the Twin Cities market for several years, virtual realty offices have yet to make significant inroads into this market. 'They have gained some market share,' he said. 'But the position we've taken is that it's competition, and at the end of the day, the broker that provides the best service is the one that's going to be left standing.'"
Google, France Do a Déjeuner
Google's people met with France's people last week in the ongoing fracas over whose worldview will dominate the presentation of literature on the Internet. The Associated Press reported that representatives from the search engine met with officials from the Bibliotheque Nationale de France (the National Library). Details remain undisclosed, but the library's chief, Jean-Noel Jeanneney, raised the possibility that Google might work with Europe on its project to digitize the continent's literature.
That possibility would mark a big shift from Jeanneney's previously stated fear that Google's Print project -- a $150 million (so far) enterprise to put the world's literature on a Google-searchable database -- would lead to a future in which the heritage of cultures across the globe would be presented through an American lens. See my previous columns here and here for background on the whole affair. And stay tuned; we will bring you more developments on this fascinating controversy.
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