Discount Firms Blast Realtors

James Cooper of the Federal Trade Commission moderates a panel during a hearing with real estate industry executives.
James Cooper of the Federal Trade Commission moderates a panel during a hearing with real estate industry executives. (By Jahi Chikwendiu -- The Washington Post)
By Kirstin Downey
Washington Post Staff Writer
Wednesday, October 26, 2005

Discount and nontraditional real estate firms vented their frustration and rage at the powerful National Association of Realtors yesterday at an all-day hearing held by federal antitrust regulators.

Many long-standing grievances bubbled to the surface as panelists representing new kinds of real estate businesses spoke about ways they said the trade group had blocked them from full participation in the market. Several derisively called the Realtors group a "club" that excludes members who won't play by their rules, such as adherence to the traditional 6 percent commission charged on home sales.

"Don't be chicken. . . . Let us innovate within the 'club,' " said Steve DelBianco, a financial backer of eRealty, a cut-rate online brokerage that he said had looked like a "slam-dunk success" until traditional brokers "slammed the door" on it.

Industry leaders rebutted the charges, saying the real estate market is highly competitive, with many new people entering the field. They said average real estate commissions have dipped, to a bit above 5 percent nationally, because of new kinds of brokerage services and price negotiation.

"I'm puzzled as to their statement that the real estate industry shuns competition," said Alexander Perriello, president and chief executive of Cendant Real Estate Franchise Group, which includes the chains Century 21 Real Estate LLC, Coldwell Banker Real Estate Corp., ERA Franchise Systems Inc. and Sotheby's International Realty Affiliates Inc.

The forum was the latest volley in a tough match between the trade group and antitrust regulators at the Federal Trade Commission and the Justice Department. In September, the Justice Department filed suit against the National Association of Realtors, alleging the trade group used its online multiple-listing-service policies to restrict competition from discount brokers offering lower prices.

The two federal agencies have also tried to block legislation in several states, sponsored by Realtors associations, to require agents to do more things for consumers than many discount brokers want to do, including delivering purchase offers by hand and making themselves personally available to negotiate deals. In most cases, the local associations of Realtors, who have substantial political clout, have easily won.

A lot of money is at stake: About $60 billion traded hands in real estate commissions in 2004, according to Real Trends Inc., a Denver-based real estate information firm, much of it coming from the traditional 6 percent commission. Consumer advocates and discount brokers say the industry is profiteering off the dramatic rise in housing prices.

"Home prices doubled, but the level of effort to sell a home has not doubled," DelBianco said.

Aaron Farmer, a broker with Texas Discount Realty, whose firm offers home-sales assistance for as little as $595, said traditional brokers told his clients that no one would show their homes if they listed with him. He said the brokers sent him "hateful e-mails" and "ridiculed" his employees at industry events. He said state real estate boards are dominated by traditional agents who try to keep new competitors out of the market.

"I don't call this competition; I call it discrimination and harassment," Farmer said. "They must stop the lies and discrimination against brokers who are different."

Broker Tom Early said he got his "brains beat out for three years" when he tried to develop a business that represented only buyers. Despite what many home buyers believe, in the traditional real estate system, their agent may not be bound to represent their interests exclusively. "We were not welcomed. . . . I'm sorry. It's nice to say we're all playing nice, but we're not playing nice," he said.

Industry executives countered that the traditional system serves consumers best.

"Simply put, the process works and works well," said Thomas R. Kunz, president and chief executive of Century 21. He said buyers who turn to discount or Internet-based real estate services could get hurt if they find themselves stuck with a real estate agent "operating out of a call center two states away."

Geoff Lewis, senior vice president of RE/MAX International Inc., suggested that the firms criticizing the trade group were running to federal regulators for help because they were not doing well in the market.

"We welcome competition . . . from any competition . . . that can stand on its own feet," Lewis said.

His introductory comments added a light moment to the day. Lewis started by thanking the FTC and Justice Department for inviting him. "And thank you for not including us in your lawsuit," he said, drawing a laugh. A voice in the room piped up: "There's still time."

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