Status hearing in U.S. v. National Association of Realtors

I attended a status hearing this morning in U.S. v. National Association of Realtors. Judge Filip was primarily concerned with establishing certain deadlines ahead of the bench trial in this case, which could come in the first half of 2008. While there wasn’t anything of substance raised by the attorneys, some interesting statistics came out.

The DOJ attorney noted that the government had served 108 subpoenas in this matter, and taken 20 depositions. It was not clear whether any of these occurred during the DOJ’s pre-filing investigation. He also noted that NAR had served six subpoenas and taken one deposition. Of course each party is free to ask a deponent questions during a deposition – these figures simply refer to the number of subpoenas/depositions commenced by each party.

In support of his request for adequate time to respond to the government’s expert witness report, NAR’s attorney reminded the court that thirty-six (36) markets were at issue, the government had recently submitted a one hundred (100) page, single-spaced expert witness report, and that fifty depositions remained to be taken. The court granted NAR until August 1, 2007 to respond to the government’s report.

The next status hearing before Judge Filip will be on July 16, 2007.

TAR's antics in Tennessee (H.B. 2095)

The recently released FTC/DOJ Report on Competition in the Real Estate Brokerage industry notes that the Tennessee Real Estate Commisison has for some time been in the process of reversing its anti-rebate rule. The Report notes, at footnote 251, that the final repeal of the rule would likely take effect this month. In fact, the DOJ letter discussed below suggests that final repeal has already been achieved.

Obviously wise to the Commission's intentions, the Tennessee Association of Realtors has apparently been pressing the state legislature to counter the effect of a repeal by essentially codifying the rule in a state statute (Amendment 1 to House Bill 2095). Yesterday the Justice Department faxed a letter to the Speaker of the TN House of Representatives, emphasizing the anticompetitiveness of prohibiting rebates to consumers. DOJ's press release notes that passage would "deny Tennesseans the opportunity of receiving cash rebates from real estate brokers when they buy and sell their homes . . . [thereby] imped[ing] real estate brokers from competing on price and force Tennesseans to pay more in real estate commissions."

CommercialAppeal.com reports that TAR's lobbying efforts have paid off. Last night the Tennessee legislature apparently passed HB 2095 (including Amendment 1), which is now headed for the Governor's desk.

I don't know the Governor's intentions. But price competition may be about to take a hit in Tennessee, and I'll be not a single member of the Tennessee legislature that voted for this amendment could point to a single piece of evidence that rebates harm buyers, sellers, or, for that matter, brokers. Here's the best rationale a TAR official could offer: "Unfortunately rebates, in too many cases, take the form of cash incentives that could be used to lure consumers into risky real estate transactions. And in some cases, you could see a rebate used as part of a down payment, which could amount to mortgage fraud," said J.A. Bucy, director of governmental relations for the Tennessee Association of Realtors." (emphasis added).

ZeroBrokerFees.com lawsuit in New Hampshire

Concerned about the potential implications of a New Hampshire law compelling licensure, plaintiff Skynet Corporation, the operator of ZeroBrokerFees.com, filed a three-count federal lawsuit last year in New Hampshire against New Hampshire Real Estate Commission officials, asking the court to declare certain provisions of the New Hampshire Real Estate Practice Act unconstitutional restrictions on plaintiff’s rights to free speech.

ZeroBrokerFees.com apparently only displays properties for sale on its website, nothing more, and has asked the court to declare the relevant provisions - which prohibit plaintiff from "listing and advertising New Hampshire properties for sale on Internet websites and/or in print" - in contravention of the U.S. Constitution. Plaintiff also seeks an order prohibiting defendants from "enforcing New Hampshire's real estate licensing laws, policies, and regulations in a manner that impairs [plaintiff's] ability to disseminate information and to operate its business and from imposing fines or criminal penalties, or otherwise subjecting [plaintiffs] to harassment."

In March 2007, the Magistrate Judge assigned to the case denied the defendants’ motion to dismiss the suit, which was based upon a variety of purported procedural deficiencies.

Similar to the regulation at issue in the ForSaleByOwner.com litigation in California a few years ago (wherein the court ultimately ruled in favor of the website), the New Hampshire law allegedly requires any entity that charges a fee to disseminate information about properties being offered for sale to be licensed in New Hampshire. As did the California statute, the New Hampshire law provides an express exception for "newspaper[s] and other publication[s] of general circulation."

The court’s decision is not a substantive ruling on plaintiff’s claims. Instead it signals that the plaintiff may proceed with its case before the court. Shortly after the court's ruling, the commission officials answered the plaintiff's complaint. Their position, in part, seems to be that the subject provision is constitutional on its face and as applied, but that "it is likely that the Act does not apply to the Plaintiff."

The bench trial in this case, espected to last no more than five days, is scheduled to commence on November 6, 2007 (subject to rulings on any dispositive motions filed on or before July 16, 2007). In their revised discovery plan, the parties state that "settlement is unlikely, although not inconceivable." Presently the parties are conducting pre-trial discovery.

FTC/DOJ Competition Report

The Federal Trade Commission and the Department of Justice have issued a joint report entitled "Competition in the Real Estate Brokerage Industry." The agencies stated objective in preparing the report is “to inform consumers and others involved in the industry about important competition issues involving residential real estate, including the impact of the Internet, the competitive structure of the real estate brokerage industry, and obstacles to a more competitive environment.”

The report advises that competition “has been hindered as a result of actions taken by some real estate brokers acting through multiple listing services and the National Association of Realtors, state legislatures, and state real estate commissions.” It also notes that consumers would likely benefit from additional knowledge about the range of options available in brokerage services and fees.

The report offers the following recommendations to encourage competition and protect real estate consumers:

• The FTC and the Department should continue to monitor the cooperative conduct of private associations of real estate brokers and bring enforcement actions in appropriate circumstances. While cooperation among brokers through a multiple listing service can provide consumers with important efficiencies, cooperation used to adopt rules that hinder rivals can be anticompetitive and, as recent agency actions indicate, may violate the antitrust laws.

• The FTC and the Department should continue to provide state legislators and industry regulators with information concerning the competitive consequences of state legislation and regulations that threaten to or already do restrict competition and consumer choice in the real estate brokerage industry, and take enforcement action in appropriate circumstances.

• State legislators and industry regulators should consider repealing existing laws, rules and regulations, such as minimum-service and anti-rebate provisions, that limit choice and reduce the ability of new brokerage models (e.g., fee-for-service brokers, discount full-service brokers, virtual office Web site brokers, and broker referral networks) to compete and that do not appear to provide any consumer benefits that would justify such restrictions. They should also avoid enacting such laws, rules and regulations in the future.

• The FTC, Department, and industry regulators should promote consumer understanding of marketplace options. Some consumers may not be aware of the range of alternatives available to them when hiring a real estate broker, including the types of business models available and the negotiability of fees, for both home buyers and sellers, or may not understand the duties owed by their broker. Competition in the real estate brokerage industry would likely be enhanced if consumers had better access to such information

• The FTC, Department, and industry regulators should assess the feasibility of an empirical study of the real estate brokerage industry. Transaction-level data on commission rates and fees are not publicly available, but broad national aggregate data suggest that commission rates and fees move in tandem with housing prices. Just as a 1983 FTC study provided valuable information about how real estate brokers competed in the late 1970s and early 1980s, a new study examining how transaction-level commission rates and fees vary based on such factors as market conditions, housing prices, and regulation would provide a better understanding of the current state of competition in the real estate brokerage industry.

60 MINUTES profile

A reliable source tells me that this Sunday's (May 13) episode of 60 Minutes will feature a long-awaited piece on the state of the real estate brokerage industry. I suppose some breaking news could bump it, and the 60 Minutes website, as of today, has not been updated to preview this Sunday's show. However, I think there's a good chance the piece will finally air on Sunday.