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United States Government Accountability Office: 



Before the Subcommittee on Housing and Community Opportunity, Committee 
on Financial Services, House of Representatives: 

For Release on Delivery: 

Expected at 2:00 p.m. EDT Tuesday, July 25, 2006: 

Real Estate Brokerage: 

Various Factors May Affect Price Competition: 

Statement of David G. Wood, Director: 

Financial Markets and Community Investment: 

GAO-PUB No. 06-1005T: 

GAO Highlights: 

Highlights of GAO-06-1005T, a testimony before the Subcommittee on 
Housing and Community Opportunity, Committee on Financial Services, 
House of Representatives 

Why GAO Did This Study: 

Consumers paid an estimated $65.7 billion in residential real estate 
brokerage fees in 2005. Observing that commission rates have remained 
relatively uniform—regardless of market conditions, home prices, or the 
effort required to sell a home—some economists have questioned the 
extent of price competition in the residential real estate brokerage 
industry. Furthermore, while the Internet offers time and cost savings 
to the process of searching for homes, Internet-oriented brokerage 
firms account for only a small share of the brokerage market. This has 
raised concerns about potential barriers to greater use of the Internet 
in real estate brokerage. 

In this testimony, which is based on a report issued in August 2005, 
GAO discusses (1) factors affecting price competition in the 
residential real estate brokerage industry and (2) the status of the 
use of the Internet in residential real estate brokerage and potential 
barriers to its increased use. 

What GAO Found: 

The residential real estate brokerage industry has competitive 
attributes, but its competition appears to be based more on nonprice 
factors, such as reputation or level of service, than on brokerage 
fees, according to a review of the academic literature and interviews 
with industry analysts and participants. Although comprehensive data on 
brokerage fees are lacking, past analyses and anecdotal information 
suggest that commission rates have persisted in the same range over 
long periods, regardless of local market conditions, housing prices, or 
the cost or the effort required to sell a home. One potential cause of 
limited price variation in the industry is the use of multiple listing 
services (MLS), which facilitates cooperation among brokers in a way 
that can benefit consumers but may also discourage participating 
brokers from deviating from conventional commission rates. For 
instance, an MLS listing gives brokers information on the commission 
that will be paid to the broker who brings the buyer to that property. 
This practice potentially creates a disincentive for home sellers or 
their brokers to offer less than the prevailing rate, since buyers’ 
brokers may show high-commission properties first. In addition, some 
state laws and regulations may also affect price competition, such as 
those prohibiting brokers from giving clients rebates on commissions 
and those requiring brokers to provide consumers with a minimum level 
of service. Although such provisions can protect consumers, the 
Department of Justice and the Federal Trade Commission have argued that 
they may prevent price competition or reduce consumers’ choice of 
brokerage services. 

The Internet has changed the way consumers look for real estate and has 
facilitated the growth of alternatives to traditional brokers. A 
variety of Web sites allows consumers to access property information 
that once was available only by contacting brokers directly. The 
Internet also has fostered the growth of nontraditional residential 
real estate brokerage models, including discount brokers and broker 
referral services. However, industry participants and analysts cited 
several potential obstacles to more widespread use of the Internet in 
real estate transactions, including restrictions on listing information 
on Web sites, some traditional brokers’ resistance to cooperating with 
nontraditional firms, and certain state laws and regulations that 
prohibit or restrict commission rebates to consumers. 


To view the full product, including the scope and methodology, click on 
the link above. For more information, contact David G. Wood at (202) 
512-8678 or 

[End of Section] 

Mr. Chairman and Members of the Committee: 

I appreciate the opportunity to be here today as you consider issues 
related to residential real estate brokerage--that is, the bringing 
together of buyers and sellers of homes and the provision of related 
services by licensed brokers and agents. My statement today is based 
primarily on GAO's August 2005 report on the residential real estate 
brokerage industry.[Footnote 1] 

The fees paid for residential real estate brokerage have increased as 
home prices have risen in recent years, well beyond the rate of general 
price inflation. While comprehensive data do not exist, REAL Trends, an 
industry source, estimated that in 2005 consumers paid about $65.7 
billion in real estate brokerage fees related to home sales, up from 
approximately $43 billion in 2000. Payments to brokers are typically 
percentage commissions, or a percentage of the sales price of the home. 
An observed tendency toward uniform commission rates regardless of 
local market conditions has led many economists and other observers to 
question the level of price competition--that is, the rivalry among 
firms to attract clients on the basis of price--in the residential real 
estate brokerage industry. While the emergence of the Internet offers 
the potential to reduce costs by generating efficiencies and new ways 
of doing business, and many consumers now use the Internet to search 
for homes and related services such as mortgages, Internet-oriented 
brokerage firms represent a small share of the market.[Footnote 2] This 
has raised questions concerning potential institutional, legal, and 
other barriers to greater "e-commerce" in real estate brokerage. 

My statement today discusses (1) factors affecting price competition in 
the residential real estate brokerage industry and (2) the status of 
the use of the Internet in residential real estate brokerage and 
potential barriers to its increased use. In preparing our August 2005 
report, we reviewed academic literature and interviewed and obtained 
documents from industry analysts, the National Association of Realtors® 
(NAR), residential real estate brokerage firms and franchisors, the 
Department of Justice (DOJ), the Federal Trade Commission (FTC), and 
others. We also reviewed relevant selected state laws and regulations 
and state and federal court decisions. Academic studies that we 
reviewed for our work are listed at the end of this statement. 

In summary: 

* While the residential real estate brokerage industry has competitive 
attributes--such as a large number of relatively small firms and ease 
of entry--competition in this industry appears to be based more on 
nonprice factors, such as reputation or level of service, than on 
price. Although comprehensive data on brokerage fees are lacking, past 
analyses and anecdotal information suggest that commission rates have 
persisted in the same range over long periods, regardless of local 
market conditions, housing prices, or the cost or the effort required 
to sell a home. Our review of the academic literature and interviews 
with industry analysts and participants suggested several potential 
causes of this apparent lack of price variation. Multiple listing 
services (MLS)--the local organizations through which residential real 
estate brokers share information about properties for sale--facilitate 
cooperation among brokers in a way that can benefit consumers, but it 
may also discourage participating brokers from deviating from 
conventional commission rates. For example, the practice of showing the 
commission that buyers' brokers will receive for cooperating in the 
sale of a property may discourage brokers from offering less than the 
prevailing commission rate. In addition, some states prohibit brokers 
from giving clients rebates on commissions, and some states require or 
are considering proposals to require brokers to provide consumers with 
a minimum level of service. Although such laws may offer some consumer 
protections, DOJ and FTC have argued that they can potentially prevent 
price competition or reduce consumers' choice of brokerage services. 

* The Internet has increased consumers' access to information about 
properties for sale and fostered the growth of Internet-oriented real 
estate brokerage models, including some discount brokers and services 
that refer clients to brokers. However, industry participants and 
analysts cited several potential obstacles to more widespread use of 
the Internet in real estate transactions. These obstacles include the 
extent to which property information is made available for brokers to 
post online, the resistance of some traditional brokers to cooperate 
with nontraditional firms, and certain state laws and regulations that 
prohibit or restrict commission rebates to consumers. 


Traditionally, real estate brokers have offered a full, "bundled" 
package of services to sellers and buyers, including marketing the 
seller's home or assisting in the buyer's search, holding open houses 
and showing homes, preparing offers and assisting in negotiations, and 
coordinating the steps to close the transaction. Because real estate 
transactions are complex and infrequent for most people, many consumers 
benefit from a broker's specialized knowledge of the process and of 
local market conditions. Still, some consumers choose to complete real 
estate transactions without a broker's assistance, including those who 
sell their properties on their own, or "for-sale-by-owner." 

For many years, the industry has used a commission-based pricing model, 
with sellers paying a percentage of the sales price as a brokerage fee. 
Brokers acting for sellers typically invite other brokers to cooperate 
in the sale of the property and offer a portion of the total commission 
to whoever produces the buyer. Agents involved in the transaction may 
be required to split their shares of the commission with their 
brokers.[Footnote 3] Under this approach, brokers and agents receive 
compensation only when sales are completed. 

In recent years, alternatives to this traditional full-service 
brokerage model have become more common, although industry analysts and 
participants told us that these alternatives still represented a small 
share of the overall market in 2005. Discount full-service brokerages 
charge a lower commission than the prevailing local rate, but offer a 
full package of services. Discount limited-service brokerages offer a 
limited package of services or allow clients to choose from a menu of 
"unbundled" services and charge reduced fees on a commission or fee- 
for-service basis. 

Most local real estate markets have an MLS that pools information about 
homes that area brokers have agreed to sell. Participating brokers use 
an MLS to "list" the homes they have for sale, providing other brokers 
with detailed information on the properties ("listings"), including how 
much of the commission will be shared with the buyer's agent. An MLS 
serves as a single, convenient source of information that provides 
maximum exposure for sellers and facilitates the home search for 
buyers. Each MLS is a private entity with its own membership 
requirements and operating policies and procedures. According to NAR, 
approximately 900 MLSs nationwide were affiliated with the trade 
association in 2005. These NAR-affiliated MLSs are expected to follow 
NAR's model guidelines for various operational and governance issues, 
such as membership requirements and rules for members' access to and 
use of listing information. An MLS that is not affiliated with NAR is 
not bound by these guidelines. 

Individual states regulate real estate brokerage, establishing 
licensing and other requirements for brokers and agents. Of the two 
categories of state-licensed real estate practitioners, brokers 
generally manage their own offices, and agents, or salespeople, must 
work for licensed brokers. States generally require brokers to meet 
more educational requirements than agents, have more experience, or 
both. For the purposes of this statement, I will generally refer to all 
licensed real estate practitioners as brokers. 

Various Factors Can Influence the Extent of Price Competition in Real 
Estate Brokerage: 

Some economists have observed that brokers typically compete more on 
nonprice factors, such as service quality, than on price. While 
comprehensive price data are lacking, evidence from academic literature 
and industry participants with whom we spoke highlight several factors 
that could limit the degree of price competition, including broker 
cooperation, largely through MLSs, which can discourage brokers from 
competing with one another on price; resistance from traditional full- 
service brokers to brokers who offer discounted prices or limited 
services; and state antirebate and minimum service laws and 
regulations, which some argue may limit pricing and service options for 

Real Estate Brokerage Is Characterized More by Nonprice Competition 
Than Price Competition: 

The real estate brokerage industry has a number of attributes that 
economists normally associate with active price competition. Most 
notably, the industry has a large number of brokerage firms and 
individual licensed brokers and agents--approximately 98,000 active 
firms and 1.9 million active brokers and agents in 2004, according to 
the Association of Real Estate License Law Officials. Although some 
local markets are dominated by 1 or a few large firms, market share in 
most localities is divided among many small firms, according to 
industry analysts. In addition, the industry has no significant 
barriers to entry, since obtaining a license to engage in real estate 
brokerage is relatively easy and the capital requirements are 
relatively small. 

While real estate brokerage has competitive attributes, with a large 
number of players competing for a limited number of home listings, much 
of the academic literature and some industry participants we 
interviewed described this competition as being based more on nonprice 
variables, such as quality, reputation, or level of service, than on 
price. One reason for this characterization is the apparent uniformity 
of commission rates. Comprehensive data on brokerage fees are lacking. 
However, past analyses and anecdotal information from industry analysts 
and participants indicate that, historically, commission rates were 
relatively uniform across markets and over time. Various studies using 
data from the late 1970s through the mid-1980s found evidence that the 
majority of listings in many communities clustered around the same 
rate, exactly 6 percent or 7 percent. Although these studies and 
observations do not indicate that there has been complete uniformity in 
commission rates, they do suggest that variability has been limited. 
Many of the industry analysts and participants we interviewed said that 
commissions still cluster around a common rate within most markets, and 
they generally cited rates of 5 percent to 6 percent as typical. 

Some economists have cited certain advantages to the commission-based 
model that is common in real estate brokerage, most notably that it 
provides sellers' brokers with an incentive to get the seller the 
highest possible price. Moreover, uniformity in commission rates within 
a market at a given time does not necessarily indicate a lack of price 
competition. But some economists have noted that in a competitive 
marketplace, real estate commission rates could reasonably be expected 
to vary across markets or over time--that is, to be more sensitive to 
housing market conditions than has been traditionally observed. For 
example, commission rates within a market at a given time do not appear 
to vary significantly on the basis of the price of the home. Thus, the 
brokerage fee, in dollar terms, for selling a $300,000 home is 
typically about three times the fee for selling a $100,000 home, 
although the time or effort required to sell the two homes may not 
differ substantially.[Footnote 4] Similarly, commission rates do not 
appear to have changed as much as might be expected in response to 
rapidly rising home prices in recent years. Between 1998 and 2005, the 
national median sales price of existing homes, as reported by NAR, 
increased about 74 percent, while inflation over the same period was 
about 16 percent, leaving an increase of some 58 percent in the 
inflation-adjusted price of housing. According to REAL Trends, average 
commission rates among the largest brokerage firms fell from an 
estimated 5.5 percent in 1998 to an estimated 5.0 percent in 2005, a 
decrease of about 9 percent.[Footnote 5] Thus, with the increase in 
housing prices, the brokerage fee (in dollars) for selling a median- 
priced home increased even as the commission rate fell. 

Some economists have suggested that uniformity in commission rates can 
lead brokers to compete on factors other than price in order to gain 
market share. For example, brokers might hire more agents in an effort 
to win more sellers' listings. Brokers may also compete by spending 
more on advertising or offering higher levels of service to attract 
clients. Although some of these activities can benefit consumers, some 
economic literature suggested that such actions lead to inefficiency 
because brokerage services could be provided by fewer agents or at a 
lower cost. 

To the extent that commission rates may have declined slightly in 
recent years, the change may be the result in part of rapidly rising 
home prices, which have generated higher brokerage industry revenues 
even with lower commission rates. However, competition from increasing 
numbers of discount, fee-for-service, and other nontraditional 
brokerage models may have also contributed to the decline. These 
nontraditional models typically offer lower fees, and although NAR 
consultants estimated that nontraditional firms represented only about 
2 percent of the market in 2003, these firms may be putting some 
downward pressure on the fees charged by traditional brokerages. 

Cooperation Facilitated by MLSs and Other Factors May Inhibit Price 

Factors related to the cooperation among brokers facilitated by MLSs, 
some brokers' resistance to discounters, and consumer attitudes may 
inhibit price competition within the real estate brokerage 
industry.[Footnote 6] 

First, while MLSs provide important benefits to consumers by 
aggregating data on homes for sale and facilitating brokers' efforts to 
bring buyers and sellers together, the cooperative nature of the MLS 
system can also in effect discourage brokers from competing with one 
another on price. Because participating in an MLS in the areas where 
they exist is widely considered essential to doing business, brokerage 
firms may have an incentive to adopt practices that comply with MLS 
policies and customs. As previously noted, MLSs facilitate cooperation 
in part by enabling brokers to share information on the portion of the 
commission that sellers' brokers are offering to buyers' brokers. In 
the past, some MLSs required participating brokers to charge standard 
commission rates, but this practice ended after the Supreme Court 
ruled, in 1950, that an agreement to fix minimum prices was illegal 
under federal antitrust laws.[Footnote 7] Subsequently, some MLSs 
adopted suggested fee schedules, but this too ended after DOJ brought a 
series of antitrust actions in the 1970s alleging that this practice 
constituted price fixing.[Footnote 8] Today, MLSs no longer establish 
standard commission rates or recommend how commissions should be 
divided among brokers. MLS listings do show how much sellers' brokers 
will pay other brokers for cooperating in a sale, according to industry 
participants. When choosing among comparable homes for sale, brokers 
have a greater incentive--all else being equal--to first show 
prospective buyers homes that offer other brokers the prevailing 
commission rate, rather than homes that offer a lower rate. Therefore, 
even without formal policies to maintain uniform rates, individual 
brokers' reliance on the cooperation of other brokers to bring buyers 
to listed properties may help maintain a standard commission rate 
within a local area, at least for buyers' brokers. FTC, in a 1983 
report, concluded that the cooperative nature of the industry and the 
interdependence among brokers were the most important factors 
explaining the general uniformity in commission rates that it had 
observed in many markets in the late 1970s. 

Second, traditional brokers may discourage price competition by 
resisting cooperation with brokers and firms whose business models 
depart from charging conventional commission rates, according to 
several industry analysts and participants with whom we spoke.[Footnote 
9] A discount broker may advertise a lower commission rate to attract 
listings, but the broker's success in selling those homes, and in 
attracting additional listings in the future, depends in part on other 
brokers' willingness to cooperate (by showing the homes to prospective 
buyers) in the sale of those listings. Some discount full-service and 
discount limited-service brokerage firms we interviewed said that other 
brokers had refused to show homes listed by discounters. In addition, 
traditional brokers may in effect discourage discount brokers from 
cooperating in the sale of their listings by offering discounters a 
lower buyer's broker commission than the prevailing rate offered to 
other brokers. This practice can make it more difficult for discount 
brokers to recruit new agents because the agents may earn more working 
for a broker who receives the prevailing commission from other 
brokers.[Footnote 10] Some traditional full-service brokers have argued 
that discount brokers often do less of the work required to complete 
the transaction and, thus, deserve a smaller portion of the seller's 
commission. Representatives of discount brokerages told us they 
believed that reduced commission offers are in effect "punishment" for 
offering discounts to sellers and are intended as signals to other 
brokers to conform to the typical pricing in their markets. 

Finally, pressure from consumers for lower brokerage fees appears to 
have been limited, although it may be increasing, according to our 
review of economics literature and to several industry analysts and 
participants. Some consumers may accept a prevailing commission rate as 
an expected cost, in part because that has been the accepted pricing 
model for so long, and others may not realize that rates can be 
negotiated. Buyers may have little concern about commission rates 
because sellers directly pay the commissions. Sellers may be reluctant 
to reduce the portion of the commission offered to buyers' brokers 
because doing so can reduce the likelihood that their homes will be 
shown. In addition, home sellers who have earned large profits as 
housing prices have climbed in recent years may have been less 
sensitive to the price of brokerage fees. However, some brokers and 
industry analysts noted that the growth of firms offering lower 
commissions or flat fees has made an increasing number of consumers 
aware that there are alternatives to traditional pricing structures and 
that commission rates are negotiable. 

Some State Laws and Regulations Can Affect Price Competition: 

Although state laws and regulations related to real estate licensing 
can protect consumers, DOJ and FTC have expressed concerns that laws 
and regulations that restrict rebates to consumers or require minimum 
levels of service by brokers may also unnecessarily hinder competition 
among brokers and limit consumer choice. 

As of July 2006, at least 12 states appeared to prohibit, by law or 
regulation, real estate brokers from giving consumers rebates on 
commissions or appeared to place restrictions on this 
practice.[Footnote 11] Proponents said such laws and regulations help 
ensure that consumers choose brokers on the basis of the quality of 
service as well as price, rather than just on the rebate being offered. 
Opponents of antirebate provisions argued that such restrictions serve 
only to limit choices for consumers and to discourage price competition 
by preventing brokers from offering discounts. Opponents also noted 
that offering a rebate is one of the few ways to reduce the effective 
price of buyer brokerage services, since commissions are typically paid 
wholly by the seller.[Footnote 12] In November 2005, DOJ and the 
Kentucky Real Estate Commission settled a suit in which DOJ had alleged 
that the commission's administrative regulation banning rebates 
violated federal antitrust law. In its complaint, DOJ argued that the 
regulation unreasonably restrained competition to the detriment of 
consumers, making it more difficult for them to obtain lower prices for 
brokerage services.[Footnote 13] Pursuant to the approved settlement 
agreement, the commission put in place emergency regulations permitting 
rebates and other inducements as long as they are disclosed in writing. 

In addition, as of July 2006, 12 states appeared to be considering or 
to have passed legislation that requires brokers to provide a minimum 
level of service when they represent consumers.[Footnote 14] Such 
provisions generally require that when a broker agrees to act as a 
consumer's exclusive representative in a real estate transaction, the 
broker must provide such services as assistance in delivering and 
assessing offers and counteroffers, negotiating contracts, and 
answering questions related to the purchase and sale process. Advocates 
of minimum service standards argued that they protect consumers by 
ensuring that brokers provide a basic level of assistance. Furthermore, 
full-service brokers argued that such standards prevent them from 
having to unfairly shoulder additional work when the other party uses a 
limited-service broker. Opponents of these standards argued that they 
restrict consumer choice and raise costs by impeding brokerage models 
that offer limited services for a lower price.[Footnote 15] Between 
April and November 2005, DOJ wrote to state officials in Oklahoma and 
New Mexico, and DOJ and FTC jointly wrote to officials in Alabama, 
Michigan Missouri, and Texas discouraging adoption of these states' 
proposed minimum service laws and regulations. The letters argued that 
the proposed standards in these states would likely harm consumers by 
preventing brokers from offering certain limited-service options and 
therefore requiring some sellers to buy brokerage services they would 
otherwise choose to perform themselves. They also cited a lack of 
evidence that consumers have been harmed by limited-service brokerage. 
Despite the concerns raised by DOJ and FTC, the governors in Alabama, 
Missouri, Oklahoma, and Texas subsequently signed minimum service 
standards into law. 

The Internet Has Increased Consumers' Options, but Several Factors 
Could Limit Its Wider Use: 

The Internet has increased consumers' access to information about 
properties for sale and has facilitated new approaches to real estate 
transactions. Whether the Internet will be more widely used in real 
estate brokerage depends in part on the extent to which listing 
information is widely available. Like discount brokerages, Internet- 
oriented brokerage firms, especially those offering discounts, may also 
face resistance from traditional brokers and especially may be affected 
by state laws that prohibit them from offering rebates to consumers. 

The Internet Allows Consumers More Direct Access to Information and 
Facilitates Alternative Service and Pricing Options: 

The Internet allows consumers direct access to listing information that 
has traditionally been available only from brokers. Before the Internet 
was widely used to advertise and display property listings, MLS data 
(which comprise a vast majority of all listings) were compiled in an 
"MLS book" that contained information on the properties listed for sale 
with MLS-member brokers in a given area. In order to view the listings, 
buyers generally had to use a broker, who provided copies of listings 
that met the buyer's requirements via hard copy or fax. Today, 
information on properties for sale--either listed on an MLS or 
independently, such as for-sale-by-owner properties--is routinely 
posted on Web sites, often with multiple photographs or virtual tours. 
Thus, the Internet has allowed buyers to perform much of the search and 
evaluation process independently, before contacting a broker.[Footnote 
16] Sellers of properties can also benefit from the Internet because it 
can give their listings more exposure to buyers. Sellers may also use 
the Internet to research suitable asking prices for their homes by 
comparing the attributes of their houses with others listed in their 

Although Internet-oriented brokerages and related firms represented 
only a small portion of the real estate brokerage market in 2005, the 
Internet has made different service and pricing options more widely 
available to consumers. Among these options are full-service and 
limited-service discount brokerages, information and referral 
companies, and alternative listing Web sites. 

* Full-service discount brokerages offer buyers and sellers full-
service real estate brokerage services but advertise lower than 
traditional commissions, for example between 3 percent and 4.5 percent. 
These types of brokerages existed before widespread use of the 
Internet, but many have gained exposure and become more viable as a 
result of the Internet. In addition, by posting listings online, 
displaying photographs and virtual tours of homes for sale, and 
communicating with buyers and sellers by e-mail, some of these 
companies say that they have been able to cut brokerage costs. 

* Limited-service discount brokerages provide fewer services than full- 
service brokerages but also charge lower commissions or offer their 
services for flat fees. For example, some firms charge a flat fee for 
marketing and advertising homes and, for additional fees, will list a 
property in the MLS and show the home to prospective buyers. The 
Internet has allowed these firms to grow in number and size in recent 
years, in part because they can market their services to a larger 
population of buyers and sellers. 

* Information and referral companies provide resources for buyers and 
sellers--such as home valuation tools and access to property listings-
-and make referrals of those consumers to local brokers.[Footnote 17] 
Some of these companies charge referral fees to brokers and then rebate 
a portion of that fee back to buyers and sellers. The Internet allows 
these companies to efficiently reach potential consumers and offer 
those customers services and access to brokers. 

* Alternative listing Web sites offer alternatives to the MLS, allowing 
sellers who want to sell their homes themselves to advertise their 
properties to buyers and giving buyers another source of information on 
homes for sale. These alternative listing sites include the Web sites 
of local newspapers, Craigslist, and "for-sale-by-owner" Web 
sites.[Footnote 18] 

Wider Use of the Internet in Real Estate Brokerage Will Depend on the 
Availability of Listing Information and Other Factors: 

Several factors could limit the extent to which the Internet is used in 
real estate transactions. A key factor is the extent to which 
information about properties listed in an MLS is widely available. 
Currently, buyers may view MLS-listed properties on many Web sites, 
including broker and MLS Web sites and on NAR's Web site. 
The real estate brokerage industry has faced controversy over the 
public availability of listings on the Internet and over whether 
brokers can restrict the display of their listings on other brokers' 
Web sites.[Footnote 19] Proponents of allowing such restrictions argued 
that listings are the work product, and thus the property, of the 
selling broker, who should have control over how the listings are used. 
Opponents argued that such control would unfairly limit Internet- 
oriented brokers' ability to provide their clients with access to MLS 
listings through their Web sites. 

Even with few restrictions on the availability of information about 
properties for sale, Internet-oriented brokerage firms may face other 
challenges. First, Internet-oriented brokers with whom we spoke 
described resistance, similar to that previously described, involving 
some traditional brokerages that refused to show the Internet-oriented 
brokerages' listed properties or offered them buyers' brokers 
commissions that were less than those offered to other brokers. 
However, the online availability of listing information may discourage 
such behavior by enabling buyers to more easily detect whether a broker 
is avoiding other brokers' listings that are of interest. Second, some 
Internet-oriented companies said that state antirebate laws and 
regulations could affect them disproportionately, since their business 
models often were built around such rebates. Finally, other factors, 
such as the lack of a uniform technology to facilitate related 
processes--such as inspection, appraisal, financing, title search, and 
settlement--may inhibit the use of the Internet for accomplishing the 
full range of activities needed for real estate transactions. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
answer any questions at this time. 

Contacts and Acknowledgments: 

For further information on this testimony, please contact David G. Wood 
at (202) 512-8678. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
statement. Individuals making key contributions to this testimony 
include Jason Bromberg, Tania Calhoun, Julianne Stephens Dieterich, and 
Cory Roman. 


This bibliography includes articles from our review of literature on 
the structure and competitiveness of the residential real estate 
brokerage industry. 

Anglin, P. and R. Arnott. "Are Brokers' Commission Rates on Home Sales 
Too High? A Conceptual Analysis." Real Estate Economics, vol. 27, no. 4 
(1999): 719-749. 

Arnold, M.A. "The Principal-Agent Relationship in Real Estate Brokerage 
Services." Journal of the American Real Estate and Urban Economics 
Association, vol. 20, no. 1 (1992): 89-106. 

Bartlett, R. "Property Rights and the Pricing of Real Estate 
Brokerage." The Journal of Industrial Economics, vol. 30, no. 1 (1981): 

Benjamin, J.D., G.D. Jud and G.S. Sirmans. "Real Estate Brokerage and 
the Housing Market: An Annotated Bibliography." Journal of Real Estate 
Research, vol. 20, no. 1/2 (2000): 217-278. 

-----"What Do We Know about Real Estate Brokerage?" Journal of Real 
Estate Research, vol. 20, no. 1/2 (2000): 5-30. 

Carney, M. "Costs and Pricing of Home Brokerage Services." AREUEA 
Journal, vol. 10, no. 3 (1982): 331-354. 

Crockett, J.H. "Competition and Efficiency in Transacting: The Case of 
Residential Real Estate Brokerage." AREUEA Journal, vol. 10, no. 2 
(1982): 209-227. 

Delcoure, N. and N.G. Miller. "International Residential Real Estate 
Brokerage Fees and Implications for the US Brokerage Industry." 
International Real Estate Review, vol. 5, no. 1 (2002): 12-39. 

Epley, D.R. and W.E. Banks. "The Pricing of Real Estate Brokerage for 
Services Actually Offered." Real Estate Issues, vol. 10, no. 1 (1985): 

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[1] GAO, Real Estate Brokerage: Factors That May Affect Price 
Competition, GAO-05-947 (Washington, D.C.: Aug. 31, 2005). 

[2] For the purposes of this statement, the term "Internet-oriented 
brokerages" refers to brokerage firms whose business models depend 
largely on the Internet. Other brokerage firms may also use the 
Internet to varying degrees. 

[3] Brokers who operate as part of a franchise may also be required to 
share a portion of their commission revenue with the franchise, in 
payment for using the brand name and other services. 

[4] Some industry participants we met with suggested that it costs more 
to market expensive homes, in part because the number of prospective 
buyers is smaller. However, we did not identify any data on brokers' 
actual costs of marketing homes. 

[5] REAL Trends' data did not address the range of or variation among 
actual commission rates. REAL Trends estimates average commission rates 
by dividing the total gross commission revenue reported by the largest 
brokerage firms by their total sales volume. 

[6] We made no judgment on the legality of any actions that may inhibit 
price competition; such matters were beyond the scope of our work. 

[7] United States v. National Association of Real Estate Boards, 339 
U.S. 485, 488-89 (1950). 

[8] For example, see United States v. Greater Pittsburgh Bd. of 
Realtors, 1973-1 Trade Cas. ¶ 74,454 (W.D. Pa. 1973), and United States 
v. Los Angeles Realty Bd., 1973-1 Trade Cas. ¶ 74,366 (C.D. Cal. 1973). 
In 1971, NAR adopted a policy prohibiting its affiliated MLSs from 
fixing or recommending to their members commission rates or fees to be 
charged or the percentage division of commissions or fees. 

[9] We did not investigate specific instances of alleged resistance to 
cooperation, nor did we have information to assess how common such 
practices might be. 

[10] Conversely, officials from one firm suggested that a broker who 
offers lower commissions to other brokers may have difficulty 
recruiting or retaining agents because the affected brokers will have 
less incentive to cooperate with those agents. 

[11] As of July 13, 2006, states that appeared to prohibit or place 
restrictions on real estate brokers giving consumers rebates on 
commissions included Alabama, Alaska, Iowa, Kansas, Louisiana, 
Mississippi, Missouri, New Jersey, North Dakota, Oklahoma, Oregon, and 
Tennessee. At the time of our August 2005 report, West Virginia also 
restricted rebates, but it no longer does so. We did not review all 
states' laws and regulations or evaluate how the states interpret and 
apply provisions, so other states also may prohibit or restrict 
commission rebates to consumers. 

[12] According to economic theory, sellers pass a portion of their 
brokerage costs to buyers in the price of the home. By offering a 
rebate to the buyer, a broker is in effect offering to offset this 

[13] Complaint, United States v. Kentucky Real Estate Commission, U.S. 
Dist. Ct., W.D. Ky., Case No. 3:05CV-188H, at 1, 2 (Mar. 30, 2005). 

[14] As of July 13, 2006, Alabama, Delaware, Florida, Georgia, 
Illinois, Indiana, Iowa, Missouri, Oklahoma, Texas, Wisconsin, and Utah 
had enacted minimum service standards. At that time, Michigan was 
considering adopting such standards. 

[15] Minimum service standards would not necessarily prohibit a broker 
from providing limited advice or service to a client if the broker had 
not agreed to act as the consumer's exclusive representative. However, 
an MLS may require brokers to have such an agreement in order to enter 
a property listing in the MLS. 

[16] Before the Internet, a buyer could still learn about properties 
without a broker--for example, through newspaper advertisements or by 
driving past to view a property. However, the Internet enables 
consumers to obtain far more extensive information, including, in some 
cases, complete details on the property from the MLS as well as 
photographs or a virtual tour. 

[17] These information and referral companies typically have a network 
of participating real estate brokers in various markets to which they 
refer customers. Although many information and referral companies are 
themselves licensed real estate brokers, they generally do not directly 
provide services typical of a real estate broker, such as showing homes 
or negotiating a sales price. 

[18] Craigslist is a noncommercial Internet bulletin board that 
operates in more than 300 communities in more than 50 countries. Among 
other things, users of Craigslist can post or review information on 
properties for sale. 

[19] On August 31, 2005, NAR's Internet Listing Display policy took 
effect, replacing the Virtual Office Web site policy that was in place 
when we completed our August 2005 report. Both policies set out 
guidelines for how NAR-affiliated MLSs could govern the Internet 
display of listing information. The Virtual Office Web site policy 
allowed MLS participants to selectively exclude their listings from 
display on other participants' Web sites, while the newer policy allows 
participants to exclude their listings on either all other 
participants' Web sites, or none of them. DOJ filed suit against NAR 
alleging that both policies violate federal antitrust laws (Amended 
Complaint, United States v. National Association of Realtors, U.S. 
Dist. Ct., N.D. Ill., Case No. 05C-5140 (Oct. 4, 2005)). 

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