With Internet-based and discount real estate brokerages proliferating, a fierce turf war has broken out between real estate trade groups and federal antitrust regulators over industry rules, with both sides asserting their goal is to protect consumers.
An estimated $60 billion changed hands last year in real estate commissions, much of it coming from the traditional 6 percent brokerage fee homeowners pay after their houses are sold. But some of the emerging companies are charging customers lower fees and providing more limited services, such as listing homes on a multiple listing service but doing little else.
The trade groups say that some of these newcomers, lured by what they see as easy money in the hot real estate market, are providing poor service and leaving consumers unrepresented. These groups are moving aggressively to change state laws to require real estate firms to provide more complete services, such as accepting sales contracts and negotiating counteroffers, things that traditional firms do but that some lower-cost nontraditional firms do not.
In the past six months, more than a half-dozen states -- Alabama, Illinois, Iowa, Texas, Missouri, Oklahoma and Utah -- have passed "minimum service" laws sought by the established real estate industry. These laws require sales agents to offer certain services to customers when they list their homes, whether consumers have requested the services or not. Other states have imposed limits on rebates offered to consumers, a way that some companies cut fees. The District, Maryland and Virginia don't have such laws.
Some state legislatures enacted the laws despite warnings by the Department of Justice and Federal Trade Commission that restricting competition by industry newcomers would result in consumers paying more money. Consumer activists and free-market advocates have echoed regulators' concerns, while some of the new discount firms have lobbied government agencies for antitrust protection, fearful they will be squeezed out of the business.
Discount brokerages "are a threat to the existing order, so it's not all that surprising that Realtors would circle the wagons to protect their turf," said Robert H. Lande, a director of the American Antitrust Institute and a law professor at the University of Baltimore School of Law.
On the federal level, the battle has moved into the courts. The Justice Department's antitrust division announced this week that it is suing the National Association of Realtors over its Internet multiple listing service policy, established in 2003, that has allowed brokers to block other brokers from access to sales listing information. The Justice Department said the policy was anti-competitive because it blocked new kinds of companies from entering the market.
On the day the lawsuit was filed, association officials said they were changing the policy so that listings would be available to almost all brokers, but Justice Department officials said the changes were not enough to remedy the problem.
The Justice Department has had victories in two states, however. The South Dakota Real Estate Commission last month rescinded two rulings restricting brokers from offering rebates or other discounts to consumers after the Justice Department began investigating the decisions as possible violations of antitrust laws. Last month, the Justice Department announced a settlement of a lawsuit it had brought against the Kentucky Real Estate Commission that will require that panel to cease enforcement of rules prohibiting rebates and discounts.
Alabama is one of several states that decided to overlook the antitrust regulators' entreaties. Early last month, Alabama became the latest state to enact minimum service rules. Alabama's law requires listing agents to present and accept delivery of sales agreements, offers and counteroffers; assist consumers in negotiating deals; and make themselves personally available to answer questions regarding transactions.
Federal antitrust regulators at the Department of Justice and the Federal Trade Commission had sent a joint letter to Alabama legislators in May urging them not to pass the law, saying it would "decrease competition" among real estate agents and result in Alabama home buyers and sellers "paying higher real estate commissions." Antitrust officials had sent similar letters to legislators in other states, including Texas, Oklahoma and Missouri, telling them they thought the new laws would harm consumers. Legislatures in those states approved the laws nonetheless.
"Our position is that competition -- unless there is evidence that consumers are being harmed -- is best," said Maureen Ohlhausen, director of the FTC's office of policy planning. She said federal antitrust regulators had sought to "weigh in on the issues before they were enshrined in law," but she conceded that once states act there is little federal antitrust regulators can do, because courts consider state law the deciding factor.
Some consumer activists agree with the federal regulators. The Consumer Federation of America, for example, wrote to Missouri and Kentucky officials, asking them to reconsider planned minimum service rules, saying consumers would prefer to have some lower-cost options.
Similarly, in a recent report, free-market advocates at the American Enterprise Institute-Brookings Center for Regulatory Studies cited "discrimination against new brokerage models" by the industry as a reason that U.S. real estate commissions exceed those in many other developed nations.
Real estate industry officials see it differently. They say they are the ones protecting consumers.
Federal regulators "tried to interject themselves into state jurisdictions," said Utah State Sen. Al Mansell (R-Salt Lake City), president of the National Association of Realtors and the sponsor of Utah's minimum service law, which went into effect in May. "It's the first time I've seen the Justice Department send letters to legislatures, and in every case the legislature rejected their arguments in favor of the argument" presented by the industry.
Others say the dispute says more about the strength of state Realtor associations than anything else. "State real estate commissioners and state legislators, when it comes to real-estate-related issues, pretty much take their cues -- lock, stock and barrel -- from the real estate industry," said Chicago-based antitrust lawyer Robert D. Butters, a former deputy general counsel with the Realtors association. The near-unanimous votes, he said, "are a demonstration of the power of the Realtor lobby."
The flurry of state-level activity followed an e-mailed memorandum sent in April by Laurie Janik, the National Association of Realtors' general counsel, to executives of state associations of Realtors, explaining that state legislators are "exempt from scrutiny under the federal antitrust laws," and that once such laws are enacted, "neither the DOJ or FTC can successfully challenge that law."
The memo added that Americans have a First Amendment right "to seek action from state legislatures and state regulatory agencies even if that action would have anticompetitive effects."
Steve Cook, a spokesman for the National Association of Realtors in Washington, said the letter was intended to clarify the law for state association executives.
"The National Association of Realtors has no position on minimum service rules," Cook said. "We don't support them or oppose them. We don't endorse any business models. We support all business models. These are all separate and independent organizations that set their own policies."
The week that Janik sent her memo, the Texas Association of Realtors issued a press statement that blasted federal regulators' intervention as contrary to "all principles of federalism." Texas legislators subsequently passed a minimum service measure that went into effect Sept. 1.
"It seems like there's a big difference of opinion on how consumers of real estate services are best served," said John Gormley, a spokesman for the Texas Association of Realtors. "We have a very different view from the FTC and Department of Justice."
Aaron Farmer, a real estate broker with Texas Discount Realty, had urged federal regulators to try to stop the rule change because he fears it will hurt his business. He offers a package to home sellers that costs $595. It places the seller's home on the multiple listing service, which Farmer says is all some sellers want. A traditional broker would charge a 6 percent commission, or $13,200, for a $220,000 home in Austin, where he is based, he said.
"The Texas Association of Realtors has a ton of clout in the Texas legislature," Farmer said. "Realtors . . . are getting states to do it, hiding behind state law."
Letters from the FTC and Justice Department were similarly ineffective in Missouri, where minimum service legislation passed unanimously in the spring, was signed by Gov. Matt Blunt (R) in July and went into effect in August. The Missouri Association hired Washington lobbyist Gregg L. Hartley, former chief of staff to U.S. Rep. Roy Blunt (R-Mo.). Blunt is also the governor's father.
"When the FTC and Justice Department got involved, the association's leaders felt it was inappropriate to do that, and we wanted them to back off," said Sam Licklider, lobbyist for the Missouri Association of Realtors.
Utah also enacted a minimum service law, sponsored by Mansell, the National Association of Realtors president, who is also a Utah state senator. It went into effect in May.
Alabama State Rep. Ronald G. Johnson (R-Talladega) said he sponsored the legislation because of complaints he had heard from real estate agents about "Internet companies" taking sales listings but doing little to help home sellers. He said Alabama pushed ahead with the change because it often takes the federal government a long time to act when threats to consumers emerge.
State Rep. Arthur Payne (R-Jefferson), the only Alabama legislator who voted against the measure, said that he didn't vote against it because of the minimum service issue but because it raised some fees on real estate agents, which some of his friends in the industry didn't like. He said the minimum service issue was never debated.
"I guarantee you the majority of the members like me were not even aware the issue was contained in there," Payne said. "I'm not sure how many people even read the bill. It was presented as a housekeeping bill for the real estate board."