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.

Update on Idaho Class Actions

As you may know, before this blog kicked off, four separate class action lawsuits were filed in federal court in Idaho (originally the four were joined together in a single action filed in 2004) against four separate real estate brokerages – Aspen Realty, Inc., Holland Realty, Inc., Sel-Equity, Co., and Park Pointe Realty, Inc., alleging tying arrangements prohibited by the Sherman Act. The brokerages were accused of charging commissions based upon the price of undeveloped land plus the anticipated cost of a home to be built thereon, instead of a commission simply based upon the cost of the undeveloped land. While the plaintiffs apparently do not allege any collusion amongst the various defendants in these four suits, they allege that the sale of undeveloped land was contingent upon this arrangement. The current complaint pending against Aspen can be viewed here.

Last summer Judge Winmill granted class certification in each case, meaning that certain home buyers may be entitled to damages incurred as a result of the allegedly illegal commissions charged. Of course the plaintiffs will first have to prove their claims before the Court.

The Court originally certified the classes last June, but modified them same several weeks ago after receiving various motions from the defendants. The class presently consists of “[a]ll persons who: (1) bought an undeveloped lot in a subdivision in either Ada, Boise, Canyon, Gem or Owyhee county, Idaho between August 18, 2001 and February 28, 2006 in which Defendant has or had the exclusive right to market or sell the subdivision lots on behalf of the developer; (2) were required to build a house on the lot in order to buy the lot; and (3) were required to pay Defendant a commission based on the cost of the lot plus the actual or estimated cost of the house in order to buy the lot.”

Rockford litigation update

Last year I wrote a post about an antitrust lawsuit involving a number of real estate players in Rockford, Illinois. Since plaintiff filed his complaint, the various defendants have responded with motions to dismiss, motions for a more definite statement, Answers and Motions to Compel Arbitration/Stay Litigation. Presently Judge Bucklo estimates that her rulings will be in the mail around July 6, 2007.

In the "Report of Parties’ Planning Meeting" filed with the Court on March 27, 2007, the parties collectively estimated that they will need to take approximately seventy (70) depositions, and that the case would be ready for trial in March 2010, taking approximately thirty (30) days to complete.

I have to think that this case will settle, but you never know. While various matters will likely demand her attention beforehand, the Court has set the next status date for March 28, 2008.

Civil action against Kentucky Real Estate Commissioners

Here is a brief overview of the litigation previously reported upon in the Louisville press, and presently pending in the Western District of Kentucky (3:06CV451).

Last year six plaintiffs filed a forty-page complaint against the Executive Director of the Kentucky Real Estate Commission (“KREC”), and five KREC commissioners, all in their official capacities, challenging KREC’s “unconstitutional prohibition against cooperation between real estate brokers licensed in Kentucky and brokers licensed by other states in the interstate marketing and sale of Kentucky commercial property.” Among other things, the plaintiffs have asked the court to enjoin the defendants from (i) enforcing “the KREC’s unconstitutional turf state policy” and “their ban on cooperation between Kentucky brokers and out-of-state brokers in the interstate marketing and sale of Kentucky commercial property” and (ii) “regulating the amount or allocation of brokerage fees associated with such cooperative brokerage services.”

In response the Attorney General of Kentucky, on behalf of the defendants, asked the court to abstain from deciding the case, and asserted that the statute in question is not facially discriminatory and does not have a discriminatory purpose or effect, that there is no less restrictive alternative to satisfy Kentucky’s “legitimate local purposes,” and that the burdens placed on interstate commerce by the statute are not clearly excessive relative to the “local benefits.”

Judge Simpson is presently considering cross motions for summary judgment, which he could rule upon at any time.