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Real estate competition and antitrust actions | Inman News
Real estate competition and antitrust actions
Discounters down, but not out: Part 2
By Matt Carter, Friday, April 29, 2011.
Editor’s note: This is the second part in a multipart series highlighting the history and current state of low-fee real estate brokerage models.
If discount and limited-service real estate brokerages have yet to take off as spectacularly as their most enthusiastic boosters had anticipated, one reason could be that in some markets, the rules have been stacked against them, regulators say.
One obstacle nontraditional brokers have had to overcome is full and equal access to multiple listing services.
Sellers expect any broker they do business with will have the ability to place listings in the multiple listing service — and that those listings will be seen not only by other brokers, but by consumers.
Buyers are attracted to websites that offer them access to a comprehensive and rich set of listings data in their market — a fact that technology-based brokerages like ZipRealty and Redfin have built their businesses around.
Read Part 1 If traditional brokers are able to deny nontraditional brokers the ability to publicize their clients’ listings in public-facing MLS sites — or to display the listings represented by all brokers in a given market to prospective buyers — they can limit competition, regulators maintain.
At the state level, Realtor associations have prodded some lawmakers and real estate commissions to institute so-called minimum service requirements stipulating that real estate licensees must be able to perform some basic services, such as show properties, receive and present offers to clients, and advise them on negotiations and closings.
Regulators say such requirements can make it difficult for limited-service brokers to employ a business model in which they charge homeowners a flat fee for menu-based services, including "MLS entry only" listings.
In 2005, the U.S. Department of Justice and Federal Trade Commission voiced opposition to Realtor-backed legislation enacting minimum-service requirements in Alabama, Missouri, Oklahoma and Texas. Lawmakers in all four states passed the bills anyway (federal antitrust law gives states some leeway to adopt regulations that ostensibly protect consumers, even if they have anti-competitive effects).
Although several states have since repealed minimum-service requirements, the Justice Department’s "Competition and Real Estate" website lists 11 states that still have laws on the books that restrict the ability of consumers to choose only the services they want: Oregon, Washington, Idaho, Utah, Texas, Kansas, Iowa, Missouri, Indiana, Illinois, and West Virginia.
When Illinois’ minimum service law took effect in 2004, supporters said new requirements were intended to aid consumers and agents alike.
Brokers entering into "exclusive agency" listing agreements often employed by limited-service and flat-fee brokers were required to present offers from buyers to their clients — precluding a true "MLS entry only" listing where the broker provides no other service than listing a property in the MLS.
A spokeswoman with the Illinois Department of Financial and Professional Regulation told Inman News at the time that the law "really is a consumer protection bill," heightening continuing education requirements for real estate brokers and agents while also preventing consumers from getting "scammed" by a limited-service brokerage.
One flat-fee MLS listing broker told Inman News that while the public policy intent of the law was "legitimate in terms of consumer protection," he was concerned that the law could be used by Realtor or MLS associations to restrict the practice of business models of Realtors and limit the choices available to consumers.
The broker, Brian Callahan of Homefront LLC, said his business was not affected because instead of entering into exclusive-agency listing agreements with clients, his company provided a marketing agreement that allowed sellers to retain any type of professional adviser who they want to represent them, whether it is a lawyer or another broker.
The MLS battleground
And brokerage company execs and licensees who serve as leaders at some of the nation’s more than 800 MLSs and in state real estate regulatory agencies haven’t been afraid to exercise their power to impede competition and consumer interests, regulators and consumer groups have charged.
In October 2006, the FTC brought to a head a series of enforcement actions by announcing consent agreements with five MLSs in Colorado, New Hampshire, New Jersey, Virginia and Wisconsin. Regulators said the MLSs had refused to transmit "exclusive agency" property listings favored by limited-service brokers to public-facing websites like Realtor.com.
In announcing the consent agreements, the FTC said it was taking action against two Michigan-based MLSs that had refused to settle. One of those MLSs, MiRealSource, entered into a consent agreement with the FTC in February 2007.
But with backing from NAR, the other MLS — Michigan’s largest, Realcomp II Ltd. — decided to fight the FTC in court, racking up more than $2.4 million in legal expenses.
Realcomp did not rescind its policy of withholding exclusive-agency listings from Realtor.com, MoveInMichigan.com, and other public sites until February 2009, when the Sixth Circuit Court of Appeals denied its motion to stay an FTC order.
On March 31, 2011, the appeals court denied Realcomp’s petition to overturn the order. Although Realcomp could still appeal the decision to the U.S. Supreme Court, NAR General Counsel Laurie Janik said at the time of the decision, "I think that would be a long shot."
A Michigan brokerage that offered cash rebates to buyers and commission discounts to sellers sued Realcomp and another MLS, MiRealSource, in 2007, alleging the MLSs’ policies put it out of business. Home Quarters Real Estate Group, which claimed damages in excess of $10 million, reached a confidential settlement with both MLSs last year.
The Department of Justice has also been involved in the MLS arena, filing antitrust suits against two South Carolina MLSs, Columbia-based Consolidated Multiple Listing Service Inc. and
Multiple Listing Service of Hilton Head Island Inc., for allegedly discriminated against discount and fee-for-service brokers. Both lawsuits were settled after the MLSs changed their policies.
Canadian regulators have locked horns with the Canadian Real Estate Association (CREA) over rules governing flat-fee, limited-service brokerages. After a 3 1/2-year legal battle, CREA in October ratified a consent agreement with the Competition Bureau of Canada — Canada’s version of the FTC — which the bureau said protects the right of brokers to provide MLS-only listing services.
Derek Eisenberg, broker-owner of Hackensack, N.J.-based limited-service brokerage Continental Real Estate Group Inc., said he believes his reports on the activities of several MLSs played a role in prompting U.S. regulators to take action.
"In all cases, neither the FTC or the DOJ wanted to be too personal," Eisenberg said, to the point that investigators seemed "removed" at times. "They are not coming to the defense of flat-fee brokers, as much as (taking action to protect) consumers."
Eisenberg said regulators have been "extremely professional" in their attempts to address anti-competitive practices, but he believes they have so far been unresponsive to some issues that still create problems for flat-fee listing brokers who do business in multiple markets.
Some MLSs require brokers to show up in person to take orientation classes or replace lockboxes, he said, by way of example. A Virginia MLS suspended several of his listings and threatened to fine him when, against Eisenberg’s advice, one of his clients put up a "for sale by owner" yard sign, for example.
"I think when it’s their hot spot, they do something about it, and when it’s not, they don’t," Eisenberg said of regulators’ response to his complaints. "It’s not like we can call the sheriff, and (the sheriff) responds."
Several limited-service brokers in Wisconsin have questioned whether one MLS that’s settled with the FTC — Multiple Listing Service Inc. — has since violated the spirit, if not the letter of its 2008 consent agreement.
Suburban Milwaukee-based MLS Inc., they said, adopted rules that allowed one of the largest traditional brokerages in the state, Shorewest Realtors, to block their listings from appearing on its Internet Data Exchange (IDX) site.
MLS rules governing IDX listings — the pool of listings in a given market that brokers have agreed can be published on each others’ public-facing websites — are in most cases based on policies drafted by NAR.
If full and equal access to the local MLS is among the most crucial issues for nontraditional brokers, NAR’s IDX policy may be the area where regulators have had the biggest impact.
NAR amended the policy in 2006, after it was hit with an antitrust lawsuit by the Department of Justice, striking language that allowed MLSs to exclude some properties from display on IDX Web sites based on the type of listing agreement, but preserving the right of individual MLS members to make such decisions.
In a 2008 settlement with the Department of Justice, NAR agreed to modify its model MLS policy for "Virtual Office Web sites," or VOWs, operated by Internet-based brokerages like ZipRealty and Redfin.
Password-protected VOW sites provide consumers with listings data that’s more comprehensive than the information provided on public IDX sites. The Department of Justice said NAR’s policy previous policy, allowing brokers to withhold listings from VOWs, restrained VOW brokers from competing with traditional brokers.
In agreeing to amend its VOW policy, eliminating the option for brokers to "opt out" from sharing property listings information with VOW sites, NAR said it expected the impact to be "minimal, since most consumers do not use VOWs because these sites require online registration."
There are, however, popular real estate brokerage websites that incorporate VOWs. ZipRealty’s overall website consistently ranks as the most popular real estate listings portal operated by any brokerage, and was among the top 10 real estate sites overall in March, according to Web research firm Web research firm Experian Hitwise. And national brokerage company Redfin, which also operates a VOW site, has appeared on Hitwise’s top 20 list of top real estate sites.
In fighting attempts by regulators to impose rules on MLSs, NAR and the MLSs themselves have argued that MLSs are created, operated and paid for by real esate brokerages to promote cooperation between brokers representing buyers and brokers representing sellers.
MLSs, NAR and their owners argue, are businesses — not public utilities providing services to all.
Testifying at a Congressional hearing in 2006, NAR’s then-president-elect, Pat Vredevoogd-Combs, said MLSs are nonetheless "a powerful force in facilitating competition," because of the efficiencies they create in buying and selling a home.
MLSs, she said, "level the playing field so that (the) smallest brokerage firm in the local market can compete with the largest."
If the MLS system were restructured "to take away the rights of the listing brokers to market a property as they and their clients see fit, there could be a significant and harmful disruption to the way real estate is marketed to the widest possible pool of buyers," Vredevoogd-Combs said.
"Rather than reducing commissions as hypothesized, another possible scenario is that large brokers and brokers affiliated with franchises would pull out and create their own systems — which the expanding availability and decreasing cost of technology makes more and more feasible."
Although membership in some MLSs is limited to Realtor association members, that membership requirement has been upheld virtually everywhere it’s been challenged, she noted. Membership in Realtor associations, she said, "is available on reasonable and nondiscriminatory terms."
NAR "does not limit competition by excluding from membership innovative real estate firms," and its members "represent almost every conceivable real estate business model," Vredevoogd-Combs testified on behalf of NAR.
"NAR is not a cartel and does not encourage imitative price-setting," she said, arguing that "it would simply be impossible to implement an agreement on prices among NAR’s 1.3 million vigorously competitive members."
Access to Realtor.com
Another issue that’s cropped up for flat-fee "MLS only" listing brokers doing business in many markets is whether they can represent sellers in states where they are not licensed. Some flat-fee brokers work with sites like ForSaleByOwner.com to place flat-fee listings from around the country on Realtor.com.
Realtor.com — NAR’s officially sanctioned listing portal — only accepts listings from MLSs. To get around that restriction, ForSaleByOwner.com refers for-sale-by-owner listings to partner brokers, who enter the properties in MLSs they belong to — even if the MLS is in another state.
A California broker who allegedly accepted hundreds of listings from sellers around the country was hit with cease-and-desist orders last year by state licensing authorities in Nebraska and Alaska. The Nebraska Real Estate Commission maintained that only licensees are permitted to negotiate the listing, sale or purchase of property in the state, or assist in procuring prospects.
The broker, Leslie Rae Young, has filed court challenges disputing the states’ claims to have jurisdiction over her. Other flat-fee listing brokers worry that MLSs could also stop accepting listings from outside the markets they serve.
Eisenberg said he thinks brokers who find themselves in hot water with state licensing officials might successfully argue that they are only soliciting buyers in the states where they are licensed.
"States don’t license property, they license people," he said.
But Eisenberg has taken a different approach himself, obtaining licenses wherever he accepts listings. So far, he said, he’s become licensed in 19 states, and his associate broker is licensed in two more.
Although he doesn’t object in principal to state licensing requirements — the particulars of how transactions must be conducted vary from state to state, as do laws governing brokers’ relationships to buyers and sellers, he noted — Eisenberg said he thinks states could streamline their licensing process for brokers who are already licensed in another state, without sacrificing the integrity of the process.
Some of the material covered in licensing courses and tests required by states is duplicative, and often there’s no option to take classes or tests online or at remote testing centers, he said.
"I wish they would come up with uniform standards of reciprocity, so they would respect your general coursework, your general exam, and your two years of experience, and only make you take a short exam and possibly an online course that only gets into state law," Eisenberg said.
Despite such obstacles, Eisenberg thinks that flat-fee listing brokers could conceivably command 25 percent of all for-sale property listings within the next 10 years.
His company is growing rapidly — it’s on target to sign 200 listings this month, he said — and its lean operating model means it wasn’t hit as hard as traditional Realtors during the downturn, he said.
"Our position is very much like (discount stock broker) Charles Schwab in the early days," Eisenberg said. "Schwab popped up in the 1970s, and even without the backlash and persecution (that he said flat-fee real estate brokers have faced), it took until the early- to mid-1990s until discount stock brokerages became a viable model."
One problem with that analogy, Eisenberg acknowledges, is that "people trade stocks all the time, and they only sell a house every seven years on average."
However, he said consumers are getting more educated about real estate, and he believes the limited-service brokerage model is gaining acceptance — even though companies that have adopted the business model don’t have big marketing budgets to spread the word.
Continental’s clients include investors, lawyers, and "big-name Realtors who come to me because their own firm won’t cut them a deal," Eisenberg said.
He said if any of his less experienced clients get cold feet after signing a listing agreement with him, he offers a full refund to clients who allow him to refer them to a full-service broker. "It comes down to the consumer," he said, and the consumer’s comfort level with the real estate transaction process.
In an online real estate compensation study conducted by Inman News in February and March with participation by 1,054 respondents, about 12 percent said they offer a flat-fee structure to clients as a compensation option, and about 35.3 percent of respondents said they expect flat-fee services will become more popular within the next five years.
The only fee structure identified by a larger share of respondents (43.6 percent) as likely to become more popular in the next five years is the percentage-based commission model — which 94.3 percent of respondents said they already offer to clients.
Contact Matt Carter: Letter to the Editor
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5 ways to better your real estate business | Inman News
5 ways to better your real estate business
Kaira Rouda reveals success tips in new book
By Bernice Ross, Monday, May 2, 2011.
Image courtesy of Greenleaf Book Group LLC.
Kaira Rouda, founder of Real You, the brand creator for Real Living, and best-selling author of "Real You Incorporated: 8 Essentials for Women Entrepreneurs," has just released her first novel, "Here, Home, Hope."
"Here, Home, Hope" is not only a fun read — it’s a primer from one of real estate’s most successful women on how to build a successful real estate practice.
Kelly Mills Johnson, age 39, is the mother of two teenage boys who is facing a midlife crisis. As you follow Kelly’s journey from housewife and mom to budding home stager, Rouda provides a road map for business success coupled with plenty of laughs and tears along the way.
One of Kelly’s most endearing traits is her constant creation of Post-it notes for her "Things to Change" list. Below are five of the 20 items from Kelly’s list that are worth exploring in your real estate business.
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Osama bin Laden’s $1M mansion is no ‘spartan cave’ | Inman News
Osama bin Laden's $1M mansion is no 'spartan cave'
The Real Estate Roundabout
By Mary Umberger, Monday, May 2, 2011.
Google Maps location identified as “Osama bin Laden’s Hideout Compound.”
Editor’s note: The following is a collection of real estate news items and information from around the globe. Got an item for us to consider? Email it to us with the subject: "roundabout." UPDATE: The Google Maps location for the compound where Osama bin Laden was found has been updated based on new news reports.
Bin Laden’s hiding place: a $1 million compound
Unquestionably, the most interesting piece of real estate on the entire planet today is the "mansion" compound where Osama bin Laden was found.
As the New York Times reported, "It was hardly the spartan cave in the mountains that many had envisioned as bin Laden’s hiding place. Rather, it was a mansion on the outskirts of the town’s center, set on an imposing hilltop and ringed by 12-foot-high concrete walls topped with barbed wire.
"The property was valued at $1 million, but it had neither a telephone nor an Internet connection," the Times wrote. "American officials believed that the compound, built in 2005, was designed for the specific purpose of hiding bin Laden."
The Los Angeles Times has published a graphic showing property details, as well as satellite images from before and after the compound was built.
Standard & Poor’s/Case-Shiller home-price index … the opera
Recently, the folks at National Public Radio’s "All Things Considered" found themselves wishing they could show their audience, in the form of a graph, the recent history of America’s home prices. But radio, of course, can’t do much with the visual medium of graphs and charts.
So they converted the data into musical notes and gave it to a singer at the Julliard School in New York to perform in operatic fashion.
Jailhouse rock
Add this to the insults to the American way of life that the housing bust has caused: It’s made it harder for some people to post bail.
The Wall Street Journal recently reported that bail bondsmen in areas where large numbers of homes have underwater mortgages have turned their backs on their longstanding practice of accepting homes as collateral. Some, instead, have opted for long-term payment plans for incarcerated types whose houses are no longer desirable markers.
"I’ve got better luck winning the lottery than I would finding someone with a home up for collateral that actually has value to it," a Modesto, Calif., bondsman told the Journal.
Rich, indeed
Money just ain’t what it used to be in Aspen, Colo.: The super-rich homeowners who dominated the chi-chi ski capital in recent years lost a bundle in the recession and are unlikely to maintain their role in Aspen’s future.
That’s according to a former demographer for the Colorado state government, who told local officials they ought to be courting more tourists and retirees and to stop depending on the financial elite.
The demographer, Jim Westkott, suggested that some local mansions of 10,000 square feet or more eventually might be converted into duplexes, co-ops or assisted-living facilities as baby boomers begin to retire, according to an Associated Press report.
Real estate agent scores a bullseye
A Franklin, Tenn., real estate agent won $100,000 on the History Channel’s "Top Shot" reality show by besting 15 competitors in the use of weapons that ranged from sniper rifles and .44 Magnums to tomahawks and blow guns.
Chris Reed, who described himself as "country boy from the cotton fields of the Mississippi Delta" is a seasoned competitor, according to the Tennessean newspaper: He was runner-up in Field & Stream magazine’s 2009 Total Outdoorsman Challenge and has won numerous state and national championships in archery and long rifle events.
A nasty calling card
Police have arrested a Northwood, N.H., demolition contractor in connection with the illegal dumping of multiple truckloads of burned debris onto the driveway of a local real estate company.
Police charged the man with one count of felony criminal mischief for dumping the charred wood and debris in front of a local Keller Williams Real Estate office; a police representative didn’t offer a reason for the deed, according to the Concord Monitor newspaper.
Bugged by bedbugs
A Chicago condo board is suing the resident of a North Side high-rise because it claims she is being uncooperative in its efforts to eradicate more than 500 bedbugs in her unit, according to Crain’s Chicago Business. The suit said her failure to cooperate has hampered efforts to keep the bugs from finding their way to other residences in the building.
A parting of the ways
More than 120 agents and brokers are listed as supporters of Real Estate Professionals for a Better Wisconsin, which is protesting the Wisconsin Association of Realtors’ backing of Gov. Scott Walker and its donation of $150,0000 to his campaign, according to the Wisconsin State Journal.
Walker has been at the center of the state’s highly controversial efforts to cut its budget, including the cutting of state jobs and limiting collective bargaining for state employees.
"We are petitioning the WRA to stop endorsing individual political candidates, focusing instead on educating the public about issues affecting our industry and where the candidates stand on them," reads a statement on the group’s site.
The international report
A three-story penthouse in London’s Knightsbridge neighborhood has been sold for about $221 million — and it’s a fixer-upper. The new owner bought the unit with bare walls and no amenities and is expected to spend up to $100 million to finish it, according to the Telegraph newspaper.
A government survey in Ireland estimates that more than 2,800 "ghost estates" haunted the country at the end of 2010.
The Sunday Business Post reports that "ghost estates" are developments that have been bought but not completed as a result of the nation’s enormous economic downturn. This amounts to 40,000 unoccupied properties in various stages of construction, with 58,000 more approved but not yet built.
Got an item you’d like us to consider for Real Estate Roundabout? Send us an email.
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Realty Executives Phoenix files for bankruptcy reorganization | Inman News
Realty Executives Phoenix files for bankruptcy reorganization
Franchisor Realty Executives International not included in filing
By Matt Carter, Monday, May 2, 2011.
Phoenix-based brokerage Realty Executives Inc. filed for Chapter 11 bankruptcy reorganization on Saturday to give the company breathing room from creditors as it cuts overhead expenses and rolls out new pricing plans for agents.
Owner Richard Rector said Friday the 1,100-agent brokerage has been renegotiating leases on 14 offices Phoenix and Tucson with an equal number of landlords. Difficulties with two landlords that resulted in Realty Executive agents being temporarily locked out of three offices led Rector to conclude that seeking protection from creditors in bankruptcy court was his best option.
"It’s impossible for agents and brokers to do their business with those kinds of interruptions," Rector said. "Unfortunately, a couple of landlords have been uncooperative, forcing our hand and putting other landlords who we’d worked things out with at a disadvantage, too."
Realty Executives was sued by one of its landlords last month. The lawsuit alleges that after obtaining a rent deferment and lease amendment, Realty Executives moved its Pinnacle Peak office in Scottsdale to another building, leaving $142,964 in rent and other sums due under its lease unpaid.
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