| Grover C. McCoury III 2005-06-28, 4:25 am |
| Isn't competition in the marketplace grand?
By Robert MacMillan
Washington Post Staff Writer
Tuesday, May 10, 2005
Officials from the National Association of Realtors plan to meet with U.S.
Justice Department officials in Washington, D.C., on Wednesday in a bid to
stave off a federal lawsuit that could increase competition in the online
real estate market and potentially lower the soaring cost of home prices.
The Wall Street Journal broke the story on Monday, saying that the Justice
Department plans to accuse the nation's primary realty association of trying
to "stifle Internet-based rivals and discounters" through a bylaw -- set to
go into effect this July -- that would allow its members to withhold their
property listings from online brokers. Such a move would not only put those
brokers at a competitive disadvantage, but it would keep the properties'
sellers from taking advantage of their often discounted commissions, the
Journal reported.
This development adds real estate to the list of businesses reeling from the
perpetually increasing popularity of the Internet. Newspapers and magazines,
music and movie companies -- each is scrabbling for ways to score a profit
online as the Internet stimulates the public's already ravenous appetite for
information and entertainment by transforming it from a premium into a
commodity.
Here's more from the Journal's Monday article: "The federal investigation of
the association's rules has been under way for more than a year. When it was
first disclosed in October 2003, the group said it would cooperate with the
inquiry and that its proposed rules regarding access to Internet listings
wouldn't violate antitrust law. Late Friday, a lawyer for the group
acknowledged that government officials and the association have so far been
unable to resolve their differences and that a federal antitrust challenge
was likely soon. Justice Department spokeswoman Gina Talamona said antitrust
enforcers are 'investigating the potential competitive impact of certain
rules involving the display of residential-real-estate listing data over the
Internet.' She declined to comment on the timing of any legal action. Laurie
Janik, general counsel for the NAR, said the residential-real-estate
industry 'is already highly competitive' and that 'a broker who works long
and hard to get listings should not be forced to share them with all of his
competitors.'"
At stake, according to several news sources, is a hot home market that
industry publication Real Trends says racked up $61 billion in sales and
commissions in 2004, compared to $42.6 billion in 2000.
The Journal in a report today said that federal action could accelerate
change in the real estate business, which so far has skirted some of the
changes that the Internet has visited upon other industries: "In recent
years, commissions on everything from trading stocks to airline tickets have
fallen significantly as the Internet reduces the role of middlemen. But the
biggest single commission many consumers will ever pay -- for selling their
home -- on average has declined only modestly from the traditional 6% or so,
despite initial expectations of a revolution in the way homes are sold. That
is largely because consumers often value a trusted name more than the lowest
price available, and selling houses is much more complicated than selling
stocks or airline tickets."
Now, the article said, smart shoppers can find commissions at half that rate
or take advantage of thousands of dollars in rebates that they aren't
getting from traditional realtors. "Still others offer fixed prices for a la
carte services such as listing homes on Web sites or negotiating contracts,
or help for do-it-yourself sellers including yard signs and how-to manuals,"
the paper said.
The Washington Post reported that the feds have targeted several states with
laws that prevent such competition: "The Justice Department recently sued
the state of Kentucky, arguing that its rules prohibiting real estate
brokers from offering rebates to customers violate antitrust law. Kentucky
is one of several states that prohibit agents from offering cash rebates or
other incentives to home sellers to list with them. The Justice Department
lawsuit argued that the practice limits free-market competition."
NAR's Janik told The Post that the Justice Dept. and the association are
"180 degrees apart on that issue." The "issue boils down to whether a
listing agent can effectively claim ownership rights to a home listing,
deciding where and when it can be displayed on the Internet, for the
duration of the listing contract, which usually runs between 60 and 90
days," The Post reported. "The Realtors' group argues that agents work hard
to get listings and so should be entitled to choose whether a home can also
be displayed on a competitor's Web site. 'In the past, another broker would
never have been able to run a classified ad in the newspaper advertising my
listing,' Janik said. 'You couldn't come put your yard sign in front of my
listing. It's the same thing.'" Janik also told the paper that it wasn't
about targeting online brokerages specifically.
Newspapers across the country reported that Internet-based listings are
transforming the business, like it or not. Several quoted Pat Lashinsky,
vice president of marketing for Zip Realty. Lashinsky "said consumers pay
nothing to peruse its listings on ziprealty.com and they receive a rebate if
they use his firm to negotiate the purchase of the home. Typically,
commissions amount to about 5 percent of a house's sale price, with half the
commission paid to the seller's broker and half to the buyer's broker, or
2.5 percent each," the Boston Globe reported . "'If we get 2.5 percent, we'd
give [the buyer] 0.5,' said Lashinsky, whose firm now employs 124 agents in
Massachusetts, up from 47 a year ago. His business is thriving in the state,
because 'consumers are finding it's much easier to use our site to find
homes that are available' than to use traditional brokers' sites.'"
The Austin American-Statesman reported that the Justice Department last
month warned the Texas Real Estate Commission against passing rules
requiring discount brokers to offer a minimum level of service, while the
San Diego Union-Tribune carried a story quoting realtors who worry that
federal action essentially will rob them blind: "'Anything that helps
discount brokers just picks my pocket,' said Sylvia Starbird, broker-owner
of Century 21-Carole Realty in Mission Valley. 'I just would like discount
brokers to go away.'"
Not all discount brokers use the Internet, and plenty of traditional
realtors applaud cyberspace for a number of reasons. Starbird, however,
echoes a refrain often thought but little spoken by the captains of
20th-century industry (including quite a few newspaper publishers). Things
would be much simpler for them if the Internet had never come along, if only
because our choices would remain limited. The Internet, in the hands of an
educated consumer, is a powerful tool for finding the best deal. When it
comes to the largest purchase that many of us will ever make, seeking that
competitive edge is imperative. Realtors need to recognize that fact and
compete, using the Internet to its best advantage -- if they can.
How They Do It Up North
The Minneapolis Star-Tribune reported that Minnesota's realtors allow other
companies to post their listings, which has kept Internet-based realtors
from gaining significant marketshare in the state. "Since 2000, most brokers
and sales agents in Minnesota have signed reciprocity agreements that give
participating companies within the Regional Multiple Listing Service
permission to share those listings. Select information can be withheld," the
paper reported.
Also, check out this excerpt quoting Dana Strandmo, general counsel for
HomeServices of America Inc.: "Strandmo said competition is a good thing for
the marketplace, but because Edina Realty and Coldwell Banker Burnet have
dominated the Twin Cities market for several years, virtual realty offices
have yet to make significant inroads into this market. 'They have gained
some market share,' he said. 'But the position we've taken is that it's
competition, and at the end of the day, the broker that provides the best
service is the one that's going to be left standing.'
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