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THE CHANGING REAL ESTATE MARKET

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 25, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–112

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice Chairman 

RICHARD H. BAKER, Louisiana 

WALTER B. JONES, JR., North Carolina 

CHRISTOPHER SHAYS, Connecticut 

PATRICK J. TIBERI, Ohio 

GINNY BROWN-WAITE, Florida 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

STEVAN, PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

CAMPBELL, JOHN, California 

MICHAEL G. OXLEY, Ohio 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

July 25, 2006 ..................................................................................................... 1

Appendix: 

July 25, 2006 ..................................................................................................... 63

WITNESSES 

TUESDAY, JULY 25, 2006

Brobeck, Stephen, Executive Director, Consumer Federation of America .......... 34

Farmer, Aaron, Broker/Realtor, Texas Discount Realty ....................................... 36

Gorsuch-Bradbury, Kimberly, Senior Vice President, Real Estate Networks, 

LendingTree, LLC ................................................................................................ 37

Kelman, Glenn, President and CEO, Redfin Corporation .................................... 39

Lewis, Geoffrey D., Senior Vice President and Chief Legal Officer, RE/MAX 

International, Inc. ................................................................................................ 41

McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust Division, 

Department of Justice ......................................................................................... 5

Ohlhausen, Maureen K., Director, Office of Policy Planning, Federal Trade 

Commission ........................................................................................................... 7

Vredevoogd-Combs, Pat, 2006 President-elect, National Association of Realtors ........................................................................................................................ 43

Wood, David G., Director, Financial Markets and Community Investment, 

Government Accountability Office ...................................................................... 9

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 64

Ney, Hon. Robert .............................................................................................. 66

Brown-Waite, Hon. Ginny ................................................................................ 67

Waters, Hon. Maxine ........................................................................................ 68

Brobeck, Stephen .............................................................................................. 70

Farmer, Aaron .................................................................................................. 82

Gorsuch-Bradbury, Kimberly ........................................................................... 91

Kelman, Glenn .................................................................................................. 97

Lewis, Geoffrey D. ............................................................................................ 101

McDonald, J. Bruce .......................................................................................... 108

Ohlhausen, Maureen K. ................................................................................... 117

Vredevoogd-Combs, Pat ................................................................................... 153

Wood, David G. ................................................................................................. 132

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Statement of the American Homeowners Grassroots Alliance ..................... 184

Statement of Tom Kunz, Century 21 Real Estate, LLC ................................ 188

Statement of Alex Perriello, Cendant Real Estate Franchise Group ........... 192

Statement of Real Estate Agents for Real Agency, Inc. ................................ 197

Statement of Wayne Thorburn, Texas Real Estate Commission .................. 201

From Horses to Houses, A Brief History of Agency and What Real Estate 

Agency Means for you Today ....................................................................... 204

Letter to Hon. Robert Ney from California Association of Realtors ............. 215

Letter to Hon. Robert Ney from Cendant ....................................................... 218

Letter to Hon. Robert Ney from Missouri Association of Realtors ............... 220

Letter to Hon. Randy Neugebauer from Texas Association of Realtors ...... 223

Page

VI

Who is my Client? A Realtors Guide to Compliance with the Law of 

Agency ............................................................................................................ 226

Response from U.S. Department of Justice to Question Submitted by 

Hon. David Scott ........................................................................................... 240

Response from Federal Trade Commission to Question Submitted by Hon. 

Emanuel Cleaver ........................................................................................... 242

(1)

THE CHANGING REAL ESTATE MARKET 

Tuesday, July 25, 2006

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:08 p.m., in room 

2128, Rayburn House Office Building, Hon. Robert Ney [chairman 

of the subcommittee] presiding. 

Present: Representatives Ney, Miller of California, Baker, 

Brown-Waite, Neugebauer, Campbell, Oxley, Waters, Lee, Miller of 

North Carolina, Scott, Davis of Alabama, Cleaver, and Green. 

Also present: Representatives Sherman and Watt. 

Chairman NEY. The subcommittee will come to order. This afternoon, the Subcommittee on Housing and Community Opportunity 

meets to discuss the changing real estate market, and how these 

changes have affected brokers and consumers alike. 

Since the advent of the Internet, changes to the real estate market have become frequent and far reaching. The nature of real estate transactions and the effect on home ownership and consumers 

are a growing interest not only to this subcommittee but to the financial services industry as a whole. 

To understand changes to the market, we must first look at what 

is known as the traditional brokerage model. Traditional brokers 

offer a bundle of services that can include everything from marketing the seller’s home to preparing offers and assisting in negotiations. 

Those traditional brokers belong to a multiple listing service or 

MLS, as it is called, that pools information about homes on the 

market so brokers can access a wide array of listings for their customers. 

This network of brokers utilizes a commission based pricing 

model where sellers pay a percentage of the sales price as a brokerage fee. 

Recent technological advances have changed the way consumers 

look for real estate and have facilitated the creation and expansion 

of alternatives to traditional brokers. 

In recent years, the real estate industry has used the Internet 

to market products and market new types of real estate services. 

In spite of increasing modernization, most consumers still choose to 

be represented by a traditional full service real estate broker or 

agent. 

2

The consumers who do not go with a traditional broker have 

opted for alternative or discount brokers. These real estate models 

offer low commissions in exchange for reduced services, and may 

operate solely or primarily via the Internet. 

Many different options are being offered by discount brokers, including flat fees for services, and rebates for buyers, which have 

been targeted by State laws. 

Despite the emergence of Internet based or discount real estate 

brokerage services, the growth of this segment of the market has 

not been substantial. 

Over the past few years, the real estate market has been met 

with challenges to MLS practices, minimum service requirements, 

and the need for competition to benefit consumers. 

For many American families, purchasing a home is often the 

most complex, expensive, and sometimes scary, transaction that 

they undertake. 

Therefore, it is important that the subcommittee continue to 

raise questions regarding competition and consumer protections 

within today’s real estate transaction process. 

On a positive note, more people are owning homes today than 

ever before. We just passed—I should note and thank Chairman 

Oxley, who is present, and our ranking member, Maxine Waters 

and Mr. Frank, for the FHA bill, which I think is really a legacy 

bill for the chairman and this committee. 

If it was not for your work, Mr. Chairman, we may not have had 

the FHA down the road. I want to thank you for all of the work 

you have put into that. 

We have a rich history in America but it is always incumbent 

upon the subcommittee and the Full Committee to always look at 

the whole process of home ownership and how we can dig into the 

issues and make sure that Americans have the opportunity to own 

a home. 

With that, I will yield to Mr. Oxley, the Chairman of the Full 

Committee. 

The CHAIRMAN. Thank you, Mr. Chairman. Today, we will focus 

on residential real estate brokerage, a valuable service for millions 

of Americans each year, and the serious problems that we have recently learned about in the industry that can affect one of the most 

important financial transactions most people will ever undertake—

buying or selling a home. 

An increasing number of observers from the Government, to consumer groups, to academics, are asking an important question 

about residential real estate brokerage, that frankly, Congress has 

been slow to consider. 

Namely, why is it that in an industry with more than 1.3 million 

competitors, with home prices that vary widely, that brokers from 

Portland, Oregon, to Portland, Maine, so uniformly charge a 6 percent commission? 

Moreover, why has that 6 percent fee remained the same as 

home prices have soared and new technologies have made brokerage more efficient? 

Would not real competition produce varying services and varying 

prices? 

3

In March of 2005, Ranking Member Frank and I asked the GAO 

to examine price competition in real estate brokerage. That followed my request in November of 2004, the GAO report on barriers 

to electronic commerce in real estate. 

The GAO’s report, the actions over the past 18 months by the 

Department of Justice and the Federal Trade Commission, as well 

as scholarly reports, explain what is happening. 

Real estate brokerage is self-regulated. Licensing rules are largely set by the brokers themselves, and real estate exchange rules 

are entirely set by the brokers themselves. The exchanges have become institutions to protect the interest of brokers, not consumers. 

Mr. Chairman, the last time we looked at an industry that was 

self regulated, it was the accounting industry. We know what happened in the accounting industry, with the bankruptcies of Enron, 

WorldCom, and many others. 

We let the stock exchanges in this country set their own rules, 

but only with the SEC reviewing and approving those rules. 

For residential real estate markets, there is no Government regulator to protect the public interest. There is only regulation of the 

brokers, by the brokers, and for the brokers. 

I generally believe that less Government regulation is a good 

thing. This is because robust markets can police themselves. 

Innovators with better products and lower prices will beat companies with anti-consumer ways. 

When competitors exclude innovators and restrain competition, 

which is the allegation of the Department of Justice’s antitrust 

lawsuit against the National Association of Realtors, then markets 

simply cannot work, or at least work effectively. 

Congress needs to pay attention and certainly needs to act. 

On July 13th, the Federal Trade Commission announced an enforcement action against the Austin Board of Realtors for establishing rules that essentially froze properties out of the market if 

the seller used a service that traditional brokers did not like. 

The Austin Realtors set rules saying that exclusive agency listings, that is homes where the seller used a broker who performed 

very limited services, could not be listed in Austin’s multiple listing 

service, or MLS, the local exchange for homes for sale. 

The settlement with the FTC nullifies the Austin Realtors’ rule. 

We should wonder, is this going on elsewhere as well? That is 

not all. Organized real estate brokers are pushing for State laws 

to outlaw low cost minimum service brokerage, where brokers will 

charge less, perhaps tens of thousands of dollars less, and in exchange, provide less brokerage service. 

Innovative brokers complain of organized discrimination in the 

markets. If you are a broker who charges less, you might be blackballed in the industry, and other brokers will not show buyers the 

homes you are listing. 

The Wall Street Journal reported last October on an Ohio Realtor who had her listings pulled from the local MLS, in essence because she charged a low flat fee rather than the full 6 percent. 

A lawyer for the MLS said, ‘‘For sale by owner listings’’, should 

not be in the MLS because it creates uncertainty about whether 

the buyer’s broker will get paid for the sale. 

4

We, on this committee, know only too well that the NAR wants 

to keep national banks from providing real estate services and providing more competition in the industry. 

What do all these examples have in common? They show organized real estate brokers setting or using the rules to protect higher fees or stifle competition to the detriment of consumers and to 

the detriment of new brokerage models. 

This is one of the most important issues we have considered because it very directly affects millions of Americans each year, and 

because consumers could be saving billions of dollars each year. 

One industry publication called, ‘‘The REAL Trends’’, reportedly estimates consumers paid a whopping $61 billion in real estate brokerage fees in 2004. Others estimated it as high as $100 billion. 

Just think, if real estate brokerage fees were just one percentage 

point lower, consumers could save tens of billions of dollars per 

year. 

We, on this committee, have an obligation to make sure that 

markets are fair and open, and to protect consumers. 

I want to thank Chairman Ney for his leadership and for holding 

this very important hearing today. This should be the first step in 

our inquiry, not the last, and I yield back, Mr. Chairman. 

Chairman NEY. Thank you, Mr. Chairman. The gentleman from 

Missouri, Mr. Cleaver. 

Mr. CLEAVER. A short comment, Mr. Chairman. I would just like 

to congratulate you and Ranking Member Waters for successfully 

ushering H.R. 5121 through today. It was very, very important that 

legislation pass. I thank you and Ranking Member Waters for all 

of the work you did on it. 

Chairman NEY. Thank you. I want to thank the gentlemen for 

his comments. 

At this point in time, we will move on. I have for the record, ‘‘A 

Realtor’s Guide to Compliance’’ submitted by the National Association of Realtors; a ‘‘Brief History of Agency’’ submitted by the real 

estate agents for Real Agency, Inc.; letters from the Missouri Association of Realtors; testimony of Alex Perriello, president and CEO, 

Cendant Real Estate Franchise Group; testimony of Tom Kunz, 

president and CEO, Century 21; and a letter from Cendant Corporation, real estate agents for Real Agency, Inc., and American 

Homeowners Grassroots Alliance. 

Without objection, they will be made part of the record. 

With that, we will go straight to the witnesses. I want to welcome you today to the Housing Subcommittee. 

First, we have Bruce McDonald, who is a Deputy Assistant Attorney General with the Department of Justice’s Antitrust Division. 

Since 2003, he has been one of two deputies in charge of civil antitrust enforcement. 

Prior to his appointment in 2003, Mr. McDonald was a partner 

in the antitrust group of the Houston law firm of Baker and Botts. 

Maureen Ohlhausen is Director of the Office of Policy Planning 

at the Federal Trade Commission. The FTC assures a competitive 

marketplace for both American consumers and businesses by preventing unfair anticompetitive commercial practices. 

David Wood is the Director of Financial Markets and Community 

Investment at the Government Accountability Office (GAO), an 

5

independent and non-partisan agency that works for Congress. 

GAO is often called, as we know, the Congressional watchdog, because it investigates how the Federal Government spends taxpayers’ dollars and how well Executive Branch agencies do their 

jobs. 

I want to welcome all the members of the panel today. We will 

start with Mr. McDonald. 

STATEMENT OF J. BRUCE McDONALD, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF 

JUSTICE 

Mr. MCDONALD. Thank you, Mr. Chairman. Mr. Chairman, and 

members of the subcommittee, I am pleased to be here on behalf 

of the Department of Justice’s Antitrust Division, to discuss the 

competitive implications of developments taking place in real estate 

brokerage markets. 

The Antitrust Division has a long history of pursuing enforcement actions to protect competition and consumers in this industry 

against antitrust violations. Today, we are also working to educate 

State governments about potential anticompetitive effects of State 

rules restricting brokerage services. 

Competition in these markets is important. Every year, millions 

of Americans purchase real estate brokerage services. Last year, 

over eight million homes were sold in the United States. According 

to the GAO, consumers paid over $60 billion in real estate brokerage fees in 2004. 

When the brokerage industry does not function competitively, it 

can be very expensive for home buyers and sellers. 

In the last few years, although the cost of providing brokerage 

services has if anything decreased, consumers have been paying 

more. Because commission percentages have remained high, as 

home prices have climbed, the dollars paid to broker commissions 

have climbed also. 

From 2000 to 2004, fees paid for brokerage services grew much 

more quickly than the CPI. 

As Chairman Oxley pointed out, commission percentages do not 

seem to vary significantly with house prices, service quality, or geography. This is not how one would expect a competitive market 

to behave. 

Today, the Internet is bringing new possibilities for increased 

competition to real estate brokerage services, as it has in other industries throughout our economy. Web-based brokers can provide 

online information to their clients about homes for sale. Home buyers can learn about neighborhoods and explore suitable homes 

more efficiently on their own time, saving broker time and expense, 

which can translate into lower broker fees. 

By taking charge of some of the services themselves, customers 

can reduce the services they need to purchase from brokers. 

At last year’s joint DOJ/FTC hearings on real estate competition, 

one of the topics discussed was the negative effect that some restrictive State laws and regulations are having on competition in 

brokerage markets. 

Consistent with our practice in other industries, when we learn 

that significantly anticompetitive State laws or regulations are 

6

under consideration, we approach State officials to advise that they 

take into account the benefits to consumers of a more competitive 

approach. 

We have had a number of opportunities to do this on proposed 

measures affecting real estate brokerage services. One example is 

State practice-of-law rules. Over the last decade, we have advised 

State legislatures, courts, and bar associations on the implications 

of proposals to expand the definition of practice of law in ways that 

would prohibit non-lawyers from providing routine real estate closing services. 

The evidence does not suggest that excluding non-lawyers, like 

most real estate brokers, from providing these services actually 

protects home buyers and sellers, as real estate lawyers have 

claimed. 

When non-lawyers are allowed to provide these services, consumer complaints actually do not increase. Non-lawyers typically 

charge lower fees for the same services, and this competition results in lower lawyer fees for these services as well. 

Another example is the minimum-services rules that some brokers recently have urged their State legislature or local real estate 

board to adopt, requiring that all real estate brokers provide a 

specified minimum package of services. 

Some consumers prefer to purchase less than the full array of 

traditional brokerage services, handling certain tasks themselves, 

and paying less. 

In response, new broker business models have begun to offer 

smaller packages of brokerage services, often on a menu basis, in 

exchange for a smaller total fee. 

Where this consumer choice is allowed, home sellers and buyers 

have saved thousands of dollars per transaction. 

Some brokers are resisting, seeking imposition of minimum-services rules. This is portrayed as protecting consumers from unwittingly agreeing to substandard service. We have found no evidence 

of consumer confusion, so it appears that the restrictions do not 

protect consumers, but just interfere with their freedom to choose 

and pay for only the services they want. 

Over the last few years, the Justice Department and FTC have 

advised a number of States on the competitive implications of minimum-services proposals. Our efforts have been successful in a 

number of States. 

Restraints by market participants also can be harmful to competition. Of course, they are fully subject to the antitrust laws. 

The Justice Department recently brought two enforcement actions against restrictive real estate brokerage rules that violated 

Section I of the Sherman Act. 

Chairman NEY. I am sorry, Mr. McDonald. Your time has expired, but if you would like to conclude, then we will enter the rest 

for the record. 

Mr. MCDONALD. Thank you, Mr. Chairman. 

Home ownership is a cornerstone of the American dream. Purchasing a home is the largest financial decision made by most families. Home sellers and home buyers are harmed when Government 

or private restrictions on real estate broker competition prevents 

7

brokers from offering innovative services or adopting new cost-saving practices. 

Therefore, the Antitrust Division will continue to use both law 

enforcement and competition advocacy tools to protect competition 

and consumers in real estate markets. 

Thank you for the opportunity to testify. I am happy to answer 

any questions. 

[The prepared statement of Mr. McDonald can be found on page 

108 of the appendix.] 

Chairman NEY. Thank you, sir. 

Ms. Ohlhausen? 

STATEMENT OF MAUREEN K. OHLHAUSEN, DIRECTOR, OFFICE 

OF POLICY PLANNING, FEDERAL TRADE COMMISSION 

Ms. OHLHAUSEN. Chairman Ney, Chairman Oxley, and members 

of the committee, I am pleased to present the FTC’s testimony on 

competition in the real estate brokerage industry. The Commission’s full testimony has been submitted for the hearing record, and 

my statement, and any answers I may provide, reflect my own 

views and are not necessarily those of the Commission. 

New technologies have given rise to alternative brokerage models 

that offer a promise of greater competition and greater savings for 

consumers. The FTC is committed to using its enforcement advocacy and research capabilities to protect the interests of consumers 

in this important market. 

For buyers, the Internet has become an indispensable source of 

information on properties, neighborhoods, and the home buying 

process itself. For example, new alternative brokerage models, such 

as virtual office Web sites, allow buyers to view detailed MLS information online, and they often also offer a rebate. 

For sellers, the Internet has replaced the yard sign as the most 

used marketing tool. Home sellers can now perform tasks that were 

once the exclusive domain of brokers, likely spurring the increased 

demand for non-traditional services, such as limited-service brokerage, or a seller pays the broker a flat fee for listing the home in 

the local MLS and providing some selling aides while handling the 

rest of the transaction him- or herself. This option allows the consumer to save potentially thousands of dollars in commissions in 

exchange for doing more work. 

As alternative brokerage models have proliferated, however, we 

have also become aware of actions by MLS’ and State bodies that 

make it more difficult for alternative business models to compete 

against traditional brokers. 

For example, the Commission recently charged the Austin Board 

of Realtors with violating the antitrust laws by adopting a rule 

that prevented properties with non-traditional listing agreements 

from appearing on important publicly accessible Web sites. 

The Commission alleged that this conduct impeded the provision 

of non-traditional brokerage services to consumers. 

The Commission’s consent order with the Austin Board which 

settled the charges prohibits it from adopting or enforcing any policy to deny, restrict, or interfere with the ability of its members to 

enter into non-traditional listing arrangements. 

8

Over the past 2 years, several State legislatures and real estate 

commissions have considered or adopted minimum service requirements which effectively force consumers to purchase a set bundle 

of real estate brokerage services. 

Because these measures are likely to harm consumers, the FTC 

and DOJ have filed advocacy comments opposing their adoption. 

Our comments concluded that by eliminating many popular limited 

service options, these laws would reduce consumer choice and competition among traditional brokers and limited-service brokers. 

We also noted the lack of evidence that such laws are necessary 

to protect consumers. Further, at the FTC/DOJ real estate workshop, panelists who represented both traditional brokerages and 

new business models all stated that they did not see a need for 

minimum service laws. 

It is important to emphasize that the Austin enforcement action 

and our advocacy efforts do not reflect any attempt by the Commission to favor one form of brokerage business model over another. 

Rather, the Commission’s work is intended to protect competition 

in the market, not particular competitors, so that consumers can 

select the services that best meet their needs. 

The structure of the real estate brokerage industry appears to 

exhibit some characteristics of a competitive market, including low 

market concentration and low barriers to entry. 

Despite these structural features, there is a perception supported 

primarily by anecdotal evidence, that commission rates remain at 

a super competitive level. This perception arises from the observation that commission rates do not appear to vary with geography, 

the price of the house for sale, or the agent’s experience level or 

quality of service. 

Although relatively recent survey data indicates that average national commission rates have fallen somewhat over the past few 

years, significant increases in property values over this period appear to have more than offset any such decreases in commission 

rates. 

Our experience in this industry points to several possible factors 

that may explain why price competition appears to be lacking. 

First, private anticompetitive conduct that disadvantages new 

business model reduces their ability to put downward pressure on 

commission rates. 

Second, State imposed restrictions, such as minimum service 

laws and prohibitions on rebates, also limit the ability of new business models to compete with traditional brokerage models on price. 

Third, disparagement and harassment of non-traditional brokers 

may deter brokers from engaging in vigorous price competition. 

Finally, consumers appear to be uninformed about certain facts 

critical to price competition, such as the negotiability of commission 

rates and the duties their broker or agent owes them. 

The FTC plans to remain actively engaged in this area through 

enforcement, advocacy, research, and consumer education, and we 

are committed to ensuring that consumers can enjoy the benefits 

of competition in real estate brokerage. 

We are willing to assist your committee in any way that we can. 

Thank you. 

9

[The prepared statement of Ms. Ohlhausen can be found on page 

117 of the appendix.] 

Chairman NEY. Thank you. 

Mr. Wood? 

STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WOOD. Thank you, Mr. Chairman. I appreciate the opportunity to be here today. 

When preparing our report to the committee last year, we found 

very quickly that our ability to examine price competition was severely limited because there is simply no single place where one 

can find comprehensive brokerage price data. 

Accordingly, our work consisted largely of reviewing the academic literature and interviewing a variety of market participants. 

Our findings regarding price competition can be summed up in 

a few key points. The first is that while real estate brokerage has 

competitive attributes, a large number of players competing for a 

limited number of home listings, historically, the competition has 

been based more on non-price factors, such as quality or level of 

service. 

A principal reason for this view is that within specific local markets, there seems to have been limited variation in commission 

rates. 

The lack of comprehensive data, both historically and currently, 

makes it difficult to determine the extent of variation in commission rates. However, the picture that emerges from the limited data 

available is that within a given market, a single rate has predominated. 

For example, the Federal Trade Commission examined random 

samples of properties sold in the late 1970’s in several cities. In 

Boston, 72 percent of listings had exactly the same commission 

rate. In both Los Angeles and Minneapolis, it was 88 percent, and 

in Seattle, 90 percent. 

In another example, academic researchers reported that of the 

homes sold in Lincoln, Nebraska, in 1986, 88 percent had exactly 

the same commission rate. 

Academic studies also suggest some causes for the limited variation in rates that was observed. For example, one study found 

that lower commission rates were associated with more expensive 

houses, and with houses that were vacant or renter occupied. 

Finally, as Ms. Ohlhausen noted, anecdotal data suggests that 

commission rates have declined from the 6- or 7 percent level that 

the FTC found in the late 1970’s to a typical range of 5- to 6 percent now. 

Although the lack of data precluded empirical analysis, we did 

identify several factors that might inhibit price competition. The 

first of these is the cooperation among competing brokers facilitated by the multiple listing service or MLS. 

While MLS’ provide important benefits to both buyers and sellers, practices that encourage cooperation among participating brokers may, in effect, discourage deviations from prevailing commission rates. 

10

For example, MLS listings give brokers information on the commission that will be paid for producing a successful buyer. To ensure that brokers will show prospective buyers their homes, sellers 

may be reluctant to offer anything less than the standard prevailing commission. 

A second factor is certain State laws, as Chairman Oxley and the 

previous witnesses have noted. 

Finally, a third factor is the lack of consumer pressure generally. 

For many consumers, selling a property is an infrequent event. 

They may be unaware of alternatives to a traditional broker charging a standard commission. However, this is one factor that is likely being affected by the Internet. Some three-quarters of home buyers now use the Internet during the home buying process. 

The Internet has helped provide both buyers and sellers with 

much information that previously was available only by contacting 

a real estate broker. 

In addition to permitting buyers to easily search for homes on 

their own, the Internet has facilitated options for consumers, such 

as fee for service brokerage, and alternatives to MLS listings. 

However, some factors may inhibit using the Internet for accomplishing the full range of activities associated with a real estate 

transaction. For example, even with the availability of virtual 

tours, consumers still like to visit properties firsthand. 

Also, as we noted in our report, a key factor is the extent to 

which properties listed in an MLS continue to be widely available 

online. 

Mr. Chairman, that concludes my prepared statement. I will be 

happy to answer any questions you have. 

[The prepared statement of Mr. Wood can be found on page 132 

of the appendix.] 

Chairman NEY. Thank you. I am going to begin questions and 

yield my time at this point to Chairman Oxley. 

Before I do, I want to ask, just for clarification. Ms. Ohlhausen, 

you have a statement prepared. It says, ‘‘Prepared Statement of the 

Federal Trade Commission.’’ Did you say in the beginning that 

your comments are your personal comments? 

Ms. OHLHAUSEN. My oral remarks are my own. The statement 

that has been submitted is the official statement of the Federal 

Trade Commission. 

Chairman NEY. The questions? 

Ms. OHLHAUSEN. Any answers are again my views. 

Chairman NEY. Thank you. Chairman Oxley? 

The CHAIRMAN. Thank you, Mr. Chairman. 

Mr. McDonald, can you explain, if you can, what regulatory 

structure for real estate law now exists? What kind of a regulatory 

structure do we have going forward with real estate sales and commissions? 

Mr. MCDONALD. Mr. Chairman, I do not hold myself as an expert 

on the regulatory structures in the various States that govern real 

estate transactions or real estate brokerage. 

I think I can say generally that real estate brokers are governed 

almost solely by State laws, including State real estate broker commissions, and in many of those States, the broker commissions are 

11

by law or rule required to be real estate brokers, or some percentage of the board are required to be real estate brokers. 

In most States, the real estate commission is set at a market 

rate and is not specifically controlled by regulation. 

The CHAIRMAN. What about the Justice Department and efforts 

at Antitrust? Is this an effort to try to induce competition in the 

real estate industry? What was the purpose behind the Justice Department’s antitrust activities regarding real estate? 

Mr. MCDONALD. Mr. Chairman, we have engaged in two general 

kinds of activities. One, competition advocacy, in which we encourage State decision makers to not pass laws or regulations that restrict competition in providing brokerage services. One example is 

the minimum-services rules that you mentioned. 

Our other set of efforts are enforcement actions. We have 

brought two in recent years, although we have a history over the 

decades of bringing enforcement actions in this area. 

One of those recent enforcement actions was against the Kentucky Real Estate Commission, which had passed a rule that prohibited brokers from giving rebates of commissions to their customers. 

More recently, we brought an action against the National Association of Realtors, which imposed a set of rules applicable to its 

local multiple listing services nationwide that allowed brokers to 

discriminate against fellow brokers who communicate with their 

customers on the Internet. 

These rules discouraged competition from new business models 

that take advantage of Internet technology and they are anticompetitive and violate the antitrust laws. 

The CHAIRMAN. What is the current status of the Kentucky case 

and the NAR? 

Mr. MCDONALD. Mr. Chairman, the Kentucky Real Estate Commission abandoned the rule and settled the case shortly after we 

brought it. 

The action against the National Association of Realtors is pending in Federal court in Chicago. 

The CHAIRMAN. In the Kentucky case, does that have any meaning outside of the Commonwealth of Kentucky or is that simply a 

settlement that would only apply to the Kentucky situation or set 

of facts? 

Mr. MCDONALD. Mr. Chairman, that settlement applies directly 

only in Kentucky. We did see after that case was brought and it 

was settled that two other State real estate commissions that had 

similar rules abandoned them. 

The CHAIRMAN. The Kentucky settlement was considered a template for those? 

Mr. MCDONALD. Mr. Chairman, I think the Kentucky settlement 

set an example of the consequences of having such rules. 

The CHAIRMAN. The suit that the Justice Department brought 

against NAR, if the outcome is favorable to the Justice Department, would that precedent then apply nationwide? 

Mr. MCDONALD. Mr. Chairman, the rules that NAR has promulgated do apply nationwide. If the Government’s lawsuit is successful, those rules would not apply anywhere. 

The CHAIRMAN. Thank you. 

12

Ms. Ohlhausen, regarding the Austin Board of Realtors’ case 

with the Federal Trade Commission, as I understand it, that agreement nullifies the Austin Realtors’ rule, which basically would not 

allow all but full service Realtors to list with the MLS; is that correct? 

Ms. OHLHAUSEN. That is correct. What the rule did was it prevented the MLS from sending the data for the non-traditional listings to popular, publicly accessible Web sites. They could still have 

their listings in the MLS, but a lot fewer people saw them. 

The CHAIRMAN. Will that ruling or that decision have any application outside of Texas? 

Ms. OHLHAUSEN. We are investigating other similar rules. We 

have other cases in the pipeline. If other MLS’ have a similar rule, 

that is something we would be interested in pursuing. 

The CHAIRMAN. That was a settlement, was it not? 

Ms. OHLHAUSEN. That is correct. 

The CHAIRMAN. You are saying, essentially, even though it is the 

Federal Trade Commission, those settlements or agreements have 

to be done State by State? 

Ms. OHLHAUSEN. Yes. It would be individual MLS’, by individual 

MLS. 

The CHAIRMAN. Mr. Wood, you had indicated, I think, in your initial statement, that you had difficulty obtaining price competition 

figures in your study. Is that correct? 

Mr. WOOD. We had difficulty getting price data. Ideally, what we 

would have liked to have been able to obtain would be brokerage 

commission data across markets, across time. There is no one 

source that you can go to to get that data. 

The CHAIRMAN. There is no database and no transparency? 

Mr. WOOD. These are private entities. It is their data. They are 

certainly under no obligation to provide it to GAO. In the timeframe that we were working in last year, we did not seek to survey 

MLS’ or try to obtain data from them because we saw what a giant 

task that would be. 

The CHAIRMAN. The European market, the commissions seem to 

be much lower, half lower than they are in the United States. Are 

any of you familiar with the European model and what those commissions are? 

Mr. WOOD. I only know from reviewing some of the academic literature. There are one or two articles that look at international 

brokerage. Basically, the conclusion is that this is an area that 

needs more study. 

I believe there are differences in the commission rates, but there 

also may be differences in the brokerage models, the types of services that are provided. 

Trying to control for all those differences is not something I am 

sure has been done. 

The CHAIRMAN. Mr. McDonald, the effort by the Justice Department heretofore has been on an antitrust enforcement basis; is that 

correct? 

Mr. MCDONALD. That is correct, Mr. Chairman. 

The CHAIRMAN. Are there any other tools available to the Justice 

Department besides the antitrust issue that is being considered or 

could be considered? 

13

Mr. MCDONALD. Mr. Chairman, that is an interesting question. 

As I sit here today, I am not aware of any. 

The CHAIRMAN. I have no further questions. Thank you, Mr. 

Chairman. 

Chairman NEY. Thank you, Mr. Chairman. Our ranking member, 

the gentlelady from California. 

Ms. WATERS. Thank you very much, Mr. Chairman. I was just 

sitting here going over some of the statements, and recalling my 

experiences with buying houses and the last experience that I had 

purchasing property. 

I could not have imagined going through that experience without 

my real estate agent, and all of the complications of the transaction. 

I suppose the general question that I have is what kind of problems do you think the average home buyer would encounter if, in 

fact, they did not have the kind of real estate services that have 

served us well over the years? 

As I think back through my last experience, and I am thinking 

about any number of concerns, that I would not have known how 

to address had it not been for the real estate services that I was 

receiving. 

How do you think an average person would fare without the traditional real estate services that are available to us? Anybody can 

answer that question. 

Mr. MCDONALD. Ranking Member Waters, your question implicates the issue that we have discussed on whether States should 

impose minimum services requirements on brokers. 

As we have mentioned, new business models have developed in 

which brokers have responded to consumer demand for the provision of limited services. 

Certainly, there are home buyers and sellers who for whatever 

reason do want the full range of brokerage services, everything 

from listing and marketing the house to communicating buy and 

sell offers, to being represented at closing, the services that traditional full service brokers provide. 

There are also many consumers who, whether it is because they 

are taking advantage of the Internet or because they are especially 

comfortable with the home purchase transaction, are comfortable 

with purchasing only a few services from a broker, and handling 

the rest of the services themselves. 

The point of our criticism of minimum services legislation is that 

minimum services rules take that choice away from some consumers. With or without minimum services legislation, the home 

buyer or seller who wants a full range of services can get it. We 

are trying to preserve the competitive option for consumers who 

want to buy less than the full range of services, to buy fewer services, handle the rest themselves, and pay less. 

Ms. WATERS. Mr. Chairman, I will listen to the responses from 

questions that will be generated from other members. I am a little 

partial in all of this because of all of the stories that I have heard 

year in and year out about what home buyers, in particular, encounter in this very, very complicated and competitive business. 

Let me just hear what they are answering to other questions 

that are coming up. 

14

Chairman NEY. I have a question, and then we will move on to 

the gentlelady from California, Ms. Lee. 

The question I have is for Mr. McDonald. The Department of 

Justice has not supported State measures that have sought to mandate the minimum service requirements for real estate professionals. What is the methodology of that, of opposing the State 

measures that seek to mandate minimum service? 

Mr. MCDONALD. Mr. Chairman, from our pro-competition perspective, in general, Government regulation where it is not necessary can have a market distorting effect. 

As it relates to minimum services rules, those rules limit the 

ability of limited-service brokers to sell to customers less than the 

full array of brokerage services. It prevents consumers who would 

like to purchase less than the full array of brokerage services from 

doing so. 

The option that competition brings is to have various different 

kinds of brokerage business models, various different kinds of options available to consumers. Some consumers who want more 

services can buy more services and pay more. Consumers who want 

fewer services can buy fewer services and pay less. That increases 

competition throughout the market. Minimum service legislation 

prevents that consumer choice. 

Chairman NEY. It is not a matter of the Federal versus the 

States. It is a matter of minimum services applied by the States 

would not create as much competition? 

Mr. MCDONALD. That is correct, Mr. Chairman. It undercuts 

competition. 

Chairman NEY. Thank you. I had a question, and if anybody else 

wants to answer these questions, please feel free. 

On the statement from the GAO, do you not believe there is an 

over saturation of real estate brokers and agents in the market? Is 

that what GAO has thought? 

Mr. WOOD. I do not know that we would characterize it as an 

over saturation. I think you will see in the testimony from NAR 

that their membership has certainly grown in recent years. 

The lack of data that we have found extends to any kind of measure for the demand for brokerage services. Even though clearly 

housing prices have gone up, more agents have come to work, we 

do not have a good measure of the actual demand for broker services. 

There is some interesting research in this area. For example, 

some researchers have looked at this question of agent productivity 

and found that generally when prices go up, if commission rates 

stay the same, the number of dollars, of course, is going up, and 

that tends to attract more people into the business. 

Chairman NEY. I guess I should ask it this way. If there was an 

over saturation of real estate brokers and agents, would that or 

would that not help because you have more agents, more competition, or does it not run that way? 

Mr. WOOD. The picture that emerged from our research was that 

there is indeed a lot of competition. There is competition to get listings and so forth. It is just that on the basis of the available evidence, which is limited, there does not seem to be much price competition. 

15

Chairman NEY. One question I had actually for all three of you, 

if you want to answer, do you consider the MLS a public utility, 

or a private hybrid? 

Ms. OHLHAUSEN. I will answer first since we just sued the Austin 

Board of Realtors, which is an MLS. We have not treated that as 

a public utility. Instead, it is an association among private competitors, which is a traditional subject of the antitrust laws, agreements among horizontal private competitors. 

Chairman NEY. Mr. McDonald? 

Mr. MCDONALD. We agree, it’s a joint venture among competitors. 

Chairman NEY. Mr. Wood? 

Mr. WOOD. I think GAO has no opinion and would leave it to the 

experts. 

Chairman NEY. Good answer. In my small remaining time, has 

there been any discussion amongst any of you in what you have 

done to look at this issue about total transparency of the MLS? 

Total transparency, including internal listings? I am going in the 

direction that you put some private things on there, you do not 

want somebody in your house because you have a small child, at 

certain times of the day? 

Mr. MCDONALD. Mr. Chairman, I am familiar with that issue. 

There is some information in the MLS database that is by rule 

available only to brokers, and not to the public. A very good example is the example we discussed with NAR, information that the 

children are home alone at a certain time in the afternoons, so buying brokers should not bring potential buyers around. 

One of the questions has been, by putting listing information on 

the Web, do you create a risk that private or secure information 

might get exposed to the public? 

A properly designed Web site will not do that in the same way 

that a brick and mortar broker, a traditional broker, who is providing information on paper to his or her customers will not provide that information. 

Chairman NEY. It is technological? 

Mr. MCDONALD. Right. 

Chairman NEY. Thank you. My time has expired. The gentlelady 

from California, Ms. Lee. 

Ms. LEE. Thank you, Mr. Chairman. Good afternoon. 

Let me ask you, Mr. McDonald, with regard to this question, 

with regard to States. Have any States reported that consumers 

have been led to believe they would receive the full broker services 

when in fact they had to do the actual service themselves? Has 

there been any type of false advertising? 

Mr. MCDONALD. Congresswoman, we have not found any evidence of significant complaints by consumers who thought they 

were purchasing a full-service package of brokerage services but instead, were misled and were actually purchasing only a limitedservice package. 

Ms. LEE. Good. Let me ask you on the Internet piece of this, of 

course, we all recognize that the Internet has really dramatically 

lowered the costs of services and the way consumers purchase 

goods and services and the transaction costs go down ultimately. 

16

What happens to those individuals who do not have access to the 

Internet? Low income individuals. The digital divide is still alive 

and well in America. 

I am concerned whenever we see—this is the way of the world 

now. Do we lose people if they do not have access to the Internet 

in terms of their access to the type of services they should be able 

to benefit from, just as those who have access to the Internet? 

Mr. MCDONALD. Congresswoman Lee, that is a question that certainly goes far beyond the issues that we are discussing today on 

real estate, and it is something that I know Congress has addressed in a number of ways. 

What I can offer you in the real estate situation— 

Ms. LEE. I am talking about in terms of the real estate situation, 

with regard to the services, the basic services that are allowed in 

terms of MLS services. 

Mr. MCDONALD. Yes, ma’am. The fact that real estate listing information is available on the Internet has not led to it being unavailable off the Internet, with a brick-and-mortar broker, one can 

still get information about houses for sale on paper or in a conversation on the telephone. 

In a market in which there is increased competition from new 

broker business models, such as brokers who use the Internet to 

communicate efficiently and cost-effectively with their customers, 

that increases competition across the entire market. One would expect that all brokers, those who use the Internet and those who do 

not, should, in a market that works competitively, work harder to 

provide better quality and lower cost services. That benefits all consumers, those with access to the Internet and those without. 

Ms. LEE. Good. You do not really see a problem there at all, in 

terms of the type of discounts or broker models or services that are 

provided. That is a good thing. 

In so many instances, for example, where job listings are posted 

only on the Internet, you are told go to the Internet, go to our Web 

site, and we will let you know what jobs are out there. That is the 

only way that those notices are posted. 

You are saying with regard to real estate services, the traditional 

services still are available through non-Internet, non-computer 

technology approaches? 

Mr. MCDONALD. That is correct, Congresswoman. 

Ms. LEE. Thank you very much. Thank you, Mr. Chairman. 

Chairman NEY. Mr. Campbell? 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

Mr. Wood, you referenced some statistics in various markets 

from 1978 and 1986, more than 20 years old. You have no more recent statistics than that? 

Mr. WOOD. The most recent empirical data that we could find in 

the study was from Baton Rouge, Louisiana, and that data series 

was from like 1987 to 1993. There is just a real scarcity of current 

data. 

Mr. CAMPBELL. That data really is not applicable today. The 

Internet— 

Mr. WOOD. Right. It is very likely, as I think we stated in our 

report, that commission rates overall seem to have declined. There 

17

is anecdotal evidence that they have declined. One of the factors 

that might be responsible for that is, in fact, the Internet. 

However, we also heard from a number of market participants 

that the phenomenon of a single rate predominating still exists, but 

we just do not have empirical data to show that. 

Mr. CAMPBELL. That was my next question. You then cited that 

commissions had been in the 6- to 7 percent range and now they 

are in the 5- to 6 percent range. Where are you getting that? 

Mr. WOOD. The historical data, the studies that we found with 

actual empirical data, including the FTC’s study, which was the 

most comprehensive, rates of exactly 6 percent and 7 percent were 

the ones that were most commonly found. 

The more recent data comes from an industry source, REAL 

Trends, which derives the data differently. They take basically an 

average. They compute an average based on reported sales from 

the largest brokerages. 

Mr. CAMPBELL. Is your data—the things you have cited, is it residential only, or are you including commercial? 

Mr. WOOD. No. We focused on residential only. 

Mr. CAMPBELL. Why is that? 

Mr. WOOD. That is what we were asked to focus on. 

Mr. CAMPBELL. Mr. McDonald or Ms. Ohlhausen, has your focus 

in this regard been only residential or residential and commercial? 

Ms. OHLHAUSEN. We focused on residential for the consumer, 

consumer protection, competition side of things. 

Mr. CAMPBELL. Mr. McDonald? 

Mr. MCDONALD. Likewise, Congressman, residential only. I believe that is a fairly distinct market from commercial real estate 

brokerage. 

Mr. CAMPBELL. I know in California, at least, if you include 

multi-family residential as commercial, I think you have more than 

a third of all property values in commercial. 

If we are looking at how a market behaves and how competition 

behaves, would there really be much distinction? Might not looking 

at commercial be of some value, at least as a comparison or benchmark? It is still multiple buyers, multiple sellers, and multiple 

property. 

Ms. OHLHAUSEN. I think we would have to examine more closely 

the different characteristics of the marketplace. For example, in 

residential real estate brokerage, it tends to be for the buyer or for 

the seller an infrequent transaction. In the commercial area, it 

might be very different. It might be something that is done much, 

much more often. 

Mr. CAMPBELL. Mr. McDonald, absent State law, which you have 

addressed, both you and Ms. Ohlhausen have talked about some 

situations where perhaps State law was anticompetitive or appeared to be anticompetitive, in most real estate markets, there are 

thousands of agents and dozens of brokers or brokerage firms, 

which arguably you would say wow, that is about as competitive 

as it can get, so there has to be some structure. 

If something is not competitive, there has to be a structure in 

place that is impeding that competition. If it is State law, then it 

is State law. 

18

Other than that—I think I heard it in your testimony. I would 

just like to hear, do you disagree with that statement, and if not, 

what are those vehicles through which competition is impeded? 

Mr. MCDONALD. Congressman Campbell, putting aside State regulation, yes, there are some characteristics of residential real estate brokerage markets that would make you think those markets 

would behave more competitively, and some of those are discussed 

in some detail in the FTC testimony and in the GAO report. 

Of course, there are in most localities a large number of brokers. 

The brokerages are relatively not large. The markets are 

unconcentrated. 

Despite that, we see aspects of the market that do not behave 

competitively, and we have discussed some of those. The best example is the fees that home sellers and buyers pay for brokerage 

services, which are commission-based, and do not seem to fluctuate 

based on what the consumer is getting, based on the quality of the 

service, based on the geography, and based on different parts of the 

country, as Chairman Oxley pointed out. 

That suggests, in terms of price competition, that these markets 

are not behaving competitively. That is one of the reasons, I believe, the GAO was asked to do its report, and one of the reasons 

that the FTC and the DOJ jointly held hearings on real estate competition last year and are preparing a report on that. The markets 

do not seem to behave competitively, and we want to know why. 

Mr. CAMPBELL. I see my time has expired, Mr. Chairman. I guess 

that is my question, if multiple competitors, why not? What gets 

in the way? Thank you. 

Chairman NEY. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. McDonald, you are the Deputy Assistant Attorney General 

for which area? 

Mr. MCDONALD. Congressman Scott, I am a Deputy Assistant Attorney General in the DOJ’s Antitrust Division. 

Mr. SCOTT. You are familiar with cut rate fees. Do you have concerns that cut rate fees would cause a race to the bottom for real 

estate services where there would be more focus on selling larger 

transactions, and where lower income buyers will receive little 

service? 

Mr. MCDONALD. Congressman Scott, that is not a great concern 

of mine for a couple of reasons. One, even though some brokers are 

seeking to discount their fees, on average, the fees remain high. 

Two, there are, today at least, many, many real estate brokers and 

not that many high-dollar transactions. There are plenty of brokers 

for all the work that needs to be done. 

Speaking more generally, in competitive markets, the price that 

a provider of services, like a provider of brokerage services, receives 

is balanced according to supply and demand. You would expect that 

so long as there is demand for brokerage services involving transactions to sell expensive homes or inexpensive homes, the market 

still would provide for services up and down the spectrum. 

Mr. SCOTT. Has the Department of Justice conducted any type of 

survey that would determine what services home buyers typically 

want? 

19

Mr. MCDONALD. Congressman Scott, we have not conducted a 

survey, per se. We have examined that question and have found 

that in the past, traditionally that is, home buyers and sellers have 

purchased a full array of services, everything from listing the home 

in the multiple listing service database, to marketing the home, to 

showing prospective buyers around the home, to exchanging of offers, offers to sell, and representing the customer at closing. 

Today, we find that many home sellers and buyers would like to 

purchase fewer services and pay the broker less. That is one of the 

competitive options that we believe it is important to protect. 

Mr. SCOTT. Given the limited resources of the Department of 

Justice, would you not think that the Department of Justice would 

not help home owners more by spending their limited resources on 

discriminatory practices? 

There probably is no more pointed area of commerce and transaction in our society today where discrimination is so rampant and 

obvious. Redlining, you name it, as well as predatory lending practices. 

Would you not think that given the limited resources of the Department of Justice, there needs to be more focus on remedying the 

discrimination that exists in housing and real estate transactions, 

and the targeted, predatory lending discrimination? These are targeted areas. We know where they are. They are there. 

What is the Department of Justice doing in those areas? 

Mr. MCDONALD. Congressman Scott, I am not especially well 

versed in this area, which is the responsibility of the Civil Rights 

Division. I do know generally that the Civil Rights Division believes that sort of discrimination is a problem and they are addressing it. 

From an antitrust perspective, our view is the more that we can 

promote competitive options, and the more that we can prevent private restraints on competition, the better off are consumers of all 

sorts. 

Mr. SCOTT. Finally, I want to ask this question. A home buyer 

has several real estate service options, including looking at homes 

listed as for sale by the owner, and going to open houses, and 

working directly with a listing agent. 

Do you know what percentage of real estate transactions occur 

without a licensed buyer’s agent? 

Mr. MCDONALD. Congressman Scott, I do not have that number. 

Mr. SCOTT. Is there any way of getting that number? I think it 

would be very important to have that number. Is there any way of 

assessing that number? 

Mr. MCDONALD. I am afraid I do not know the answer to that 

question either, but certainly I will look into it and respond appropriately. 

Chairman NEY. The gentleman’s time has expired. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Chairman NEY. If you could look into that and get the answer 

for Mr. Scott. 

Mr. SCOTT. And provide it for the committee, too. 

Mr. MCDONALD. Yes. 

Chairman NEY. The gentleman from Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

20

Mr. McDonald, are you an attorney? 

Mr. MCDONALD. Yes, Congressman, I am. 

Mr. NEUGEBAUER. Are there any other people on the panel who 

are attorneys, also? 

Ms. OHLHAUSEN. I am, as well. 

Mr. NEUGEBAUER. Would you say that real estate services is a 

professional service? Mr. McDonald? 

Mr. MCDONALD. I have no reason to disagree with that, Congressman. 

Ms. OHLHAUSEN. I agree, as well. 

Mr. NEUGEBAUER. One of the things about buying a home, it is 

probably the largest single investment that a lot of people make. 

Would you say attorneys’ fees over the last 40 or 50 years have 

gone up or down? 

Mr. MCDONALD. Congressman, I have not seen real dollar numbers, but I would not be surprised if they have gone up. 

Ms. OHLHAUSEN. I think Mr. McDonald’s intuition is correct. 

Mr. NEUGEBAUER. Would you say professional services over the 

last 30 or 40 years in engineering have probably gone up? 

Mr. MCDONALD. Congressman, I am sorry. I do not have a feel 

for that. 

Mr. NEUGEBAUER. I think most people would think that those 

services have gone up. Yet, in fact, the data that Mr. Wood shows 

is, in fact, that the amount of percentage commission has actually 

gone down. 

If this is professional services, we have a history here where attorneys’ fees are going up, and the engineering fees are going up. 

In fact, the professional services delivered by professional real estate individuals have actually not gone up, over a fairly inflationary period of 40 to 50 years. 

Would you say that is a true assumption? 

Mr. MCDONALD. Congressman, I think in terms of gauging competition in these markets, you are looking at the right dimension 

of competition, the price of the fees paid to brokers for brokerage 

services that they provide. 

It is correct that the percentage commission has dropped slightly 

in the last few years from the traditional 6 or so percent to something between five- and five-and-a-half percent. 

Even though the commission percentage has dropped, because 

the price of homes has increased, the actual dollars paid to brokers 

for the services they provide have increased. That is not explained 

by an increase in the cost of providing those services or increase 

in the number of services provided or an increase in the value of 

those services, per se. 

That is one of the reasons we are looking at these markets, to 

try to determine why they are not behaving more competitively. 

Mr. NEUGEBAUER. The reason they have not is because in those 

other instances, for engineers and attorneys, physicians, and those 

kinds of people, they have covered the cost of their increased costs 

of doing business because their product is defined by a different 

unit. They have had to raise the hourly rate. Attorneys, when I got out of school, were getting $25 to $50 an hour, and now they charge $500, $600, $1,000 an hour. They are 

doing that because obviously there is a market for their services, 

21

and secondly, the cost of doing business in 1972, when I got out of 

Texas Tech University, and the cost of doing business today in 

2006, is remarkably different. 

Would you say that is a true assumption? The cost of doing business is more today than in 1972? 

Mr. MCDONALD. Congressman, I could not possibly disagree that 

is true. I am not familiar with—I have not seen any close comparison of the cost of doing business for lawyers and real estate brokers. 

Mr. NEUGEBAUER. Call some of your buddies who have been in 

private practice for a while and ask them what they were billing 

their hours out when they came out of school and what they are 

today. 

I think the issue here is that there are discount brokerages available in just about every market in this country today. Evidently, 

the market place, people that are making the largest single investment decision, are not choosing as much for those people that want 

to list your house for $500 and that is all they are going to pay 

you. 

In fact, every one of these Realtors, they are individual business 

people. They are independent contractors, as defined by the Internal Revenue Service. 

Each one of those has a cost of doing business. Some have chosen 

to be a consolidator of information. That is a prevalent situation in 

the Web business. I have all this information, I will assemble it for 

you, and I will make it available to you, and I will charge you a 

fee for that. 

Some people when they are making an investment decision want 

to know about the soil conditions of that particular home. Is this 

house in a special assessment district? What is the history of this 

neighborhood as far as re-sale? Some people who are spending that 

kind of money want that kind of information. 

Then we have the State legislatures that have increasingly every 

time they meet, and sometimes frequently, have increased the 

amount of risk that it takes for independent business people, because of more and more consumer protectionism. 

In fact, passed laws that you are, in fact, opposing in saying 

when somebody is representing an individual or on one side of the 

transaction or the other of making this very large purchase, we 

want to make sure that they are getting the right information so 

they do not make a poor decision. 

I think the marketplace is very clear and transparent here. You 

can pick up the phone book or a newspaper, and if you want discount real estate services in this country, they are available to you. 

Chairman NEY. Your time has expired. 

Mr. NEUGEBAUER. Thank you. 

Chairman NEY. Mr. Cleaver? 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I received a letter from the Missouri Association of Realtors. 

They raised an issue. I could have answered the question about the 

legal fees rising. I am not a lawyer. I have some empirical evidence. That is not what I wanted to ask. 

The question I received from the Missouri Association of Realtors, they raise an issue that they received complaints when a liVerDate 0ct 09 2002 13:32 Feb 16, 2007 Jkt 031541 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\DOCS\31541.TXT HFIN PsN: TERRIE
22

censee abandons a listing. They would take the listing, place it in 

the MLS, and then walk away, leaving others to sell the property. 

Is that something that is prevalent? Is it something that is growing? Is that something you have ever heard of? 

Ms. OHLHAUSEN. We have asked a number of States about that. 

Thus far, we have not heard from State officials that this is a prevalent problem. I do not know the background of that letter. I do 

not know if that involved the limited-service broker or not. Perhaps 

it did. 

In our inquiries thus far, we have not gotten systematic evidence 

that there seems to be a lot of consumer harm, a lot of these problems occurring in the markets where limited-service brokerage is 

permitted. 

Mr. CLEAVER. Thank you. I am going to ask the Missouri Association of Realtors if they would provide some detailed information, 

if they have it available. 

I would like, if possible, to submit it to you some time after the 

hearing. If this is something that is growing, certainly it is something that the Federal Trade Commission would need to know 

about. 

Ms. OHLHAUSEN. Yes. We certainly would be happy to receive 

that. 

Mr. CLEAVER. My final question is based on what has happened 

in the Gulf Coast area, have there been any particular problems or 

practices that have developed in the aftermath of Katrina and Rita, 

and as survivors begin rebuilding and redeveloping? 

What kind of activities are going on in that area? There is a lot 

of anecdotal information that comes to us about all kinds of practices going on, where poor people are having their property essentially stolen. The real estate agents come in and offer a small 

amount of money for homes, to people who are desperate to sell. 

What is the activity in the Gulf Coast Region? 

Ms. OHLHAUSEN. I would say I have not heard those reports personally. I would say that the FTC is always concerned about any 

kind of fraud that is going on. 

Certainly, if there seems to be some sort of fraud happening, we 

would definitely welcome receiving that information. 

Mr. CLEAVER. Ranking Member Waters—we had a hearing a few 

months back where residents came to Washington from the region. 

Sometimes, in the midst of a lot of pain, which they are in, many 

of them are not getting the proper insurance response, ‘‘proper’’, defined by me, then it becomes easier to see conspiracy and rip off’s. 

I do not know if we had those people here, that they could say 

this happened on February 3rd, and this is the agent who did this. 

I do not know. My curiosity was whether or not complaints were 

coming your way as a result of the massive displacement and people now trying to go back and rebuild or people who have been displaced from their properties. 

Ms. OHLHAUSEN. I know the FTC has been involved with Katrina 

recovery efforts, and has been involved in trying to ameliorate any 

kind of fraud problems that are going on down there. 

I just do not know whether there have been any particular associations with real estate kinds of transactions. 

23

Our Bureau of Consumer Protection has been very heavily involved, as I said, with fraud. They have done it after a number of 

hurricanes in certain areas. 

Mr. CLEAVER. Do you have any knowledge of what they found 

thus far? 

Ms. OHLHAUSEN. I could certainly ask them and get back to you 

with that. 

Mr. CLEAVER. I would appreciate that. Thank you. Thank you, 

Mr. Chairman. 

Chairman NEY. Thank you. The gentlelady from Florida, Ms. 

Ginny Brown-Waite. I am sorry, if you could suspend for a second, 

the gentleman from Texas. 

Mr. NEUGEBAUER. I failed to ask for unanimous consent. I have 

two documents to submit for the record. One from the Texas Association of Realtors, another is a white paper by Mr. Wayne 

Thornburn on, ‘‘Public and Private Restraints to Alternative Business Models for Consumers.’’ 

Chairman NEY. I thank the gentleman. Without objection. 

The gentlelady from Florida, Ms. Brown-Waite. 

Ms. BROWN-WAITE. I thank the gentleman. I also would ask for 

unanimous consent to be able to submit my remarks, my opening 

remarks, for the record. 

Chairman NEY. Without objection. 

Ms. BROWN-WAITE. Thank you, Mr. Chairman. 

Recently in the newspapers in Florida, there was a headline that 

said something like Florida home buyers pay much more for title 

insurance than in any other State. 

I would just like to ask Mr. McDonald, Ms. Ohlhausen, and Mr. 

Wood, representing DOJ, FTC, and GAO, have you all ever been 

concerned about say mortgage insurance, PMI, title insurance 

costs? 

Ms. OHLHAUSEN. There is a slight complication with the FTC because under our jurisdiction, under the McCarran-Ferguson Act, 

there are certain protections for insurance. A number of years ago, 

we did prosecute a suit called Tycor Title Insurance, that had to 

do with competition in this market. It is a market where we have 

had some involvement. 

Mr. MCDONALD. Congresswoman, I am not familiar with any recent allegations of anticompetitive conduct in title insurance markets in Florida, but would be interested if you have some information on that. 

Ms. BROWN-WAITE. I think you can just do a Google search of the 

‘‘title insurance, Florida.’’ I think you will certainly be able to find 

it. 

Mr. Wood? 

Mr. WOOD. We do have some work currently underway looking 

at title insurance. I am not familiar with the details because I am 

not personally involved. I would be glad to find out and supply it 

for the record when we expect a report on that. 

Ms. BROWN-WAITE. The reason I asked is I hear from people 

about these issues. I was a State senator for 10 years. Now, I have 

been in Congress for 4 years. I have not heard complaints about 

Realtors. What I have heard complaints about is the fact that people who sign up with a discount or one cost broker end up going 

24

to the closing without anyone there. The discount broker person expects just his or her commission check to be mailed to them. 

When questions come up at a closing, Realtors, let’s say one of 

the parties is represented by a Realtor, who shows up at the closing, and the other one is represented by a discount company, the 

concern is that the person who is the Realtor is there answering 

questions that the discount broker who is getting a commission certainly should be there to answer. 

They are the kinds of concerns that I hear from constituents. 

Just this past week, actually, on talk radio, one of the financial advice shows, was saying exactly this same phenomenon, that it is a 

very dangerous thing when both of the parties do not have a real 

estate person at the closing. People are finding this out sometimes 

not until the closing, that you are going to be there by yourself. 

There seems to be some concern over that. I do not know about 

the other members, but I am not hearing complaints about the regular ‘‘Realtors.’’ 

As the housing market, and if the housing market nationwide 

cools off, I think you will see people saying, ‘‘Okay, I have my 

house listed for $200,000. I am only going to get $150,000. If I am 

taking this lower amount to sell my house, Mr. or Ms. Realtor, you 

are going to have to take a lower amount.’’ 

Would all of you agree that may very well be a phenomenon, as 

the housing market cools off from that which it was maybe a year 

ago? 

Mr. MCDONALD. Congresswoman, that is what one would expect 

in a market that behaves competitively. One of the curiosities that 

we have tried to report in this hearing is that we have not seen 

such price competition in real estate brokerage. 

If I may speak to your earlier question, it is a question we have 

considered, the consequences of the two parties to a real estate 

transaction appearing at closing and only one of them is represented by a real estate broker because the other has hired a limited-service broker, purchased fewer services, not including appearance at the closing, and was able to pay a lower fee. 

Certainly, it can put the other broker in an awkward position of 

being asked advice by a person to whom that broker does not owe 

any fiduciary duty. 

The two approaches to that could be either to ban limited-service 

brokers, that is to require that every broker provide the full array 

of services, including appearing at closing, which of course, increases the broker’s costs, increases the price that all consumers 

pay, and takes away from consumers the limited choice option. 

The other way to approach that is through regulation that requires full disclosure to the person buying a limited package of brokerage services, so that the consumer is not under the impression 

that he or she is going to have a broker at the closing when in fact 

he or she has contracted not to have a broker at the closing. 

Ms. BROWN-WAITE. I think that is exactly the problem. 

Mr. MCDONALD. Congresswoman, if that is a problem, then fulldisclosure regulations seems, from a competitive perspective, to be 

the right way to approach it. It leaves the competitive option open 

for all consumers, but addresses this disclosure question for those 

who need it. 

25

We have not found evidence that a significant number of consumers buying limited-service options have faced this problem, but 

if there are reports of additional problems out there, we would like 

to know. 

Chairman NEY. Time has expired. The gentleman from Texas, 

Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the ranking 

member as well, and the members of the panel for the information 

you have imparted. 

Let me ask you about the Austin case, if I may, the restraint of 

trade action that was placed against the Austin Board of Realtors. 

In that case, there seems to be an indication that the discount 

brokers were excluded from the MLS listings. Is that true? 

Ms. OHLHAUSEN. The traditional, the exclusive right to sell listings and exclusive agency listings, which are typically associated 

with non-traditional services, were both allowed into the MLS 

database. What the rule that we objected to did was it prohibited 

the MLS from sending the information about the non-traditional 

listings, of the data on it, to a number of publicly accessible Web 

sites, where there was a lot of exposure for these properties. 

Everything was allowed into the MLS, but only the traditional 

listings got this important Internet kind of exposure through the 

MLS. 

Mr. GREEN. Who produces the MLS? 

Ms. OHLHAUSEN. The MLS is a private association of real estate 

agents in certain areas. 

Mr. GREEN. Is there a proprietary right in the product, the work 

product? 

Ms. OHLHAUSEN. I believe there is, but I am not an expert on 

that in particular. 

Mr. GREEN. Mr. McDonald? 

Mr. MCDONALD. The question has been raised whether Realtors 

have a copyright in the listing information, and from an antitrust 

law perspective, that actually does not matter. 

The MLS is a joint venture among brokers. They all contributed 

their listing information, copyrighted or not, to that joint venture. 

Because the joint venture is necessary to compete in that market, 

they are not free to exclude other competitors because of the way 

they compete. 

Mr. GREEN. We have talked about consequences, and sometimes 

it is difficult to talk about unintended consequences. In making 

this change, are we putting ourselves at risk of having some unintended consequences that might be adverse to the best interest of 

the consumer? 

Ms. OHLHAUSEN. By the, ‘‘change,’’ do you mean limited-service 

brokerage, or do you mean the Austin— 

Mr. GREEN. By putting consumers in a position where notwithstanding full disclosure, they find themselves at closings without 

the aid, use and benefit of a broker, where they find themselves 

without the use and benefit of the advice that a broker gives along 

the way that can be of great importance in making a decision about 

the whole process of home purchase. 

Is there not a possibility of some unintended consequences developing as we eliminate the advice that is being conferred right now? 

26

Ms. OHLHAUSEN. There would certainly be a possibility that consumers could be injured, but what we have found is in the markets 

where limited-service brokerage has been allowed, we have not 

seen evidence or been presented with evidence that consumers who 

choose this option are being harmed. 

Mr. GREEN. Have we seen any evidence or do we have empirical 

data to support the notion that the Realtors are being complained 

against to the extent that they merit this additional competition? 

I have not heard you respond to the notion that the gentlelady 

from Florida raised about complaints against Realtors. Do you have 

complaints against them that have been quantified such that we 

can conclude that their services are not up to standard? 

Ms. OHLHAUSEN. Our inquiries have not approached it in that 

way. What we have seen is that regardless of the current competitiveness of the market, we are concerned when a new business 

model, particularly one that offers a lower cost, is being kept out 

of the market, that would reduce competition. 

It is not necessarily that we are saying—we are certainly inquiring about the level of competitiveness currently in the market, but 

our concern is when a competitive business model is being foreclosed from the market and consumers are being denied that 

choice, without any indication that having that choice harms consumers. 

Mr. GREEN. What about the quality of the competitiveness? I 

think competition is great. By the way, I want to see the prices 

down. My concern is the quality of service that is going to be imparted. 

Have you looked at the quality of the service in the new model? 

Have you quantified any opinions about the quality of service? 

Ms. OHLHAUSEN. We have not measured the quality of service directly. Instead, what we have tried to discern is whether consumers 

are being harmed by choosing this lower package of services. Certainly, we believe that the higher level of services should also still 

be available in the market, that it should not be that the market 

is all one thing or the other, it should really reflect the diversity 

of consumer needs in the marketplace. 

Mr. GREEN. Given that we have some other examples, and I will 

try to be nebulous, but at least give you some ideas of what I am 

talking about, where consumers have big businesses that move in, 

they drive prices down. They drive other businesses out of business, and then the prices go up. 

Competition can sometimes eliminate competition to the extent 

that what you really need is no longer available to you. 

Are we concerned about those unintended consequences? 

Chairman NEY. Time has expired. If you would like to answer 

the question, go ahead. 

Ms. OHLHAUSEN. What I would say is to the extent that you are 

concerned about something like predatory pricing or something, 

that is something that the antitrust laws are equipped to address. 

Mr. GREEN. Mr. McDonald, do you have a response? 

Mr. MCDONALD. Congressman, we have not seen any evidence 

that discount brokers have significantly changed the quality of 

service provided by brokers in any locality. 

27

I will add that our enforcement actions are not in response to 

complaints about the quality of services provided by any type of 

broker, but instead, are in response to restraints on competition by 

new broker models. It is competition to provide different kinds of 

services, perhaps even different quality of service. We are trying to 

protect that competition, so consumers can purchase the range of 

services or the quality of service they choose and can pay a price 

appropriate for that. 

Mr. GREEN. Thank you. 

Chairman NEY. Our ranking member has some time she is reclaiming. 

Ms. WATERS. Mr. Chairman, I may be asking the wrong question 

here, but all of this is a non-issue now; is that right? The suit was 

settled; is that right? 

Ms. OHLHAUSEN. The Austin case? 

Ms. WATERS. Yes. 

Ms. OHLHAUSEN. Yes, that was settled in Austin. We do have 

other cases that we are looking at, in other MLS’. 

Ms. WATERS. In what way? As I understand it, when the suit 

was first filed, it was over a policy basically that no longer exists, 

and then there was just one other issue having to do with the listings in these MLS’ that got resolved. 

What else is left? 

Mr. MCDONALD. Ranking Member Waters, in the U.S. vs. National Association of Realtors’ lawsuit, there are two sets of rules 

at issue. The first set of rules is the one that the National Association of Realtors had in place previous to our action. 

Ms. WATERS. I know that. When you filed, it no longer existed. 

You went onto the second problem that you saw, which got worked 

out? 

Mr. MCDONALD. On the morning that we filed the action, NAR 

revised its rules, didn’t eliminate its rules, but revised them. Our 

amended complaint addresses both the original rules and the revised rules. Neither set of rules in our view complies with the antitrust laws. Both, we think, violate the antitrust laws. 

The problem has not gone away because, as to the first set of 

rules, there are some local MLS’ that did adopt them, and those 

are in place, and as to the second set of rules, those, I believe, are 

in abeyance but, but for the lawsuit, would be put in place. 

Ms. WATERS. Having said all that, the lawsuit was settled? 

Mr. MCDONALD. To be clear, the Austin lawsuit was settled, and 

that deals with— 

Ms. WATERS. What is pending now? 

Mr. MCDONALD. The lawsuit that is pending in the Federal District Court in Chicago is the Justice Department’s suit challenging 

the National Association of Realtors’ rules, which apply nationwide. 

That has not been settled. 

Ms. WATERS. Is it calendared? Where is it? 

Mr. MCDONALD. It is in a pre-trial stage. There is a motion to 

dismiss that the National Association of Realtors has filed that is 

briefed and ready for decision by the Federal judge. 

Ms. WATERS. As I understand it and what you are telling us is 

the case that you just dealt with, that dealt with that area, that 

jurisdiction, and now you want to make sure that the rules that 

28

were adopted by the National Association of Realtors are applicable 

to all this country; is that right? 

Mr. MCDONALD. Ranking Member Waters, you are correct that 

the Austin lawsuit, which the Federal Trade Commission brought, 

dealt only with Austin, with a particular kind of rule that applied 

only in Austin. 

The Department of Justice’s lawsuit—sorry, we have two agencies here working on the same kind of matters—the Department of 

Justice’s lawsuit addresses a slightly different kind of rules that 

apply nationwide. 

The Austin matter has been resolved. The nationwide matter has 

not been resolved. 

Ms. WATERS. It seems to me that the settlement of the Austin 

lawsuit indicates that the Realtors have been very cooperative in 

working with you. 

Was there some discussion and an attempt to walk through 

whatever rules you are concerned about nationally prior to going 

back to court? 

Mr. MCDONALD. Preceding the Department of Justice’s filing the 

lawsuit against the National Association of Realtors, there were extensive settlement discussions that did not lead to a satisfactory result. 

Ms. WATERS. Because you did not get the results that you desired, you went back into court, and it is not about the rules, it is 

about settlements that you were not able to get? 

Mr. MCDONALD. In the National Association of Realtors’ matter, 

NAR did not agree to change its rules in a way that we thought 

would bring those rules into compliance with the Federal antitrust 

laws. Therefore, we proceeded to file that lawsuit. 

In the Austin matter, which came up after, I believe, the National Association of Realtors’ lawsuit was filed, in the Austin matter, the Federal Trade Commission investigated a different kind of 

rule, and announced a challenge to that rule. Announced it would 

bring a lawsuit, did so, and the Austin Board of Realtors backed 

down. 

Ms. WATERS. Mr. Chairman, I do not know, because I was a little 

late in coming, whether or not they have described to you exactly 

what it is they are challenging at this point. 

Have you heard that today? Has anybody heard exactly what it 

is they are challenging with the Realtors nationally? 

What is it you do not like about what they are doing? 

Mr. MCDONALD. Ranking Member Waters, let me explain that 

and refer you, if I do not give you enough detail, to my prepared 

testimony. 

The National Association of Realtors’ rules authorize broker 

members of the local MLS’, traditional brokers, to discriminate 

against their fellow brokers who communicate with their customers 

using the Internet, Web-based brokers. 

Ms. WATERS. That has all been solved. I just want to know what 

it is that you are going after now nationally. You solved the local 

issue with Austin; is that right? 

Mr. MCDONALD. Forgive me. I was not clear. The National Association of Realtors’ rule—put aside the Austin rule. It was a different kind of rule that was challenged. 

29

The National Association of Realtors’ rule applies nationwide. It 

applies nationwide in that it requires that each local MLS adopt 

that rule. The rule allows a broker to withhold his customer’s listings from the Web site of competing brokers. 

Ms. WATERS. Mr. Chairman, it seems to me that the same kind 

of work that was done with the National Association of Realtors 

relative to Austin has not been done to resolve whatever the Justice Department and others—questions they may have. 

I just do not quite understand what it is they are saying. They 

are saying in essence that the National Association of Realtors disagreed to do this in any other jurisdiction other than Austin. Is 

that what you are saying? 

Mr. MCDONALD. That is not what I am saying, Congresswoman. 

The National Association of Realtors’ rules that are challenged in 

the Department of Justice’s lawsuit are a different kind of rules 

than the rule that was imposed by the Austin Board of Realtors in 

Austin. 

Ms. WATERS. I asked you to tell me what it was, and you still 

have not told me what the difference is. 

Mr. MCDONALD. In Austin, if I understand it correctly, the local 

Board of Realtors prevented certain kinds of brokers from putting 

their listing information on some public Web sites. 

Ms. WATERS. I got that. 

Mr. MCDONALD. That is the Austin action. The National Association of Realtors’ rule allows brokers, members of the MLS, to withhold their listing information, to withhold it from the Web sites of 

competing brokers. That undercuts competition from brokers who 

use Web sites to communicate with their customers, limits competition from that new business model, and we believe violates the 

antitrust laws. 

That rule, NAR has not agreed to— 

Ms. WATERS. I thought there was some kind of opt-out agreement that everybody basically agreed to, to say that if the Web site 

does not want to participate, they do not have to participate, they 

cannot use the other person’s listing, and they can opt out. I 

thought that was worked out. 

Mr. MCDONALD. You are correct that the rule that I described is 

called an ‘‘opt out.’’ You and I are talking about the same rule. It 

is an agreement among competitors, which is part of what makes 

it unlawful. There has not been an agreement to eliminate those 

rules. Therefore, our lawsuit— 

Ms. WATERS. What you are arguing about now is the opt out socalled agreement between the Realtors and the Web site owners? 

Mr. MCDONALD. The opt-out rule is not an agreement between 

the brokers and the Web site owners. It is a rule imposed by the 

NAR, a trade association, which itself is an organization of competitors, it is a rule that might be favored by traditional brokers 

and opposed by brokers who use Web sites to communicate with 

their customers. 

Ms. WATERS. You still see it as an antitrust issue? 

Mr. MCDONALD. That is correct. 

Ms. WATERS. They are working with it okay, it is all right with 

everybody but you? 

30

Mr. MCDONALD. I think it is probably okay with the National Association of Realtors. 

Ms. WATERS. Nobody is asking you to do this. You just think it 

is not quite what you would like to see; is that right? 

Mr. MCDONALD. It is not our view that we get to decide what 

kinds of competitors get to participate in the market, and what 

kind do not. It is our view that this rule, which undercuts competition from one kind of competitor, is anticompetitive and does violate the antitrust laws. 

Ms. WATERS. It seems to me you are the only one unhappy. 

Chairman NEY. Time has expired. 

Ms. WATERS. Thank you. 

Chairman NEY. Chairman Baker? 

Mr. BAKER. I thank the chairman for the time and for calling 

this hearing. 

Mr. McDonald, I want to come back at it one more time. I know 

you are enjoying this immensely. 

Is the view by your agency, as best I can understand it, that parties ought to be free to contract on terms they negotiate for services 

that are described by terms of the contract, for whatever price may 

be deemed appropriate by both consenting parties? 

Mr. MCDONALD. As a general matter, that is correct, Congressman. 

Mr. BAKER. Where you find people who are prescribing the terms 

that say on the one side, all house painters in America get together 

and say if you are going to give a quote on painting any portion 

of a house, the quote must be for painting the entire house; is that 

correct? 

That would be a collaborative violation of free market principles? 

Mr. MCDONALD. And very likely an antitrust violation. 

Mr. BAKER. If I wanted to hire a guy to paint my front porch, 

and I assume it will cost $200, and he says the price is $1,000, and 

I am going to paint the whole house. I am then constrained if I 

want the porch fixed. I have to pay for this entire service whether 

I want it or not. 

What I have heard members say or represent, I believe, is that 

those who are on the lower rungs of the financial ladder, who may 

not have resources, would be better protected if they have a full 

service agent, because that enables them to pay more of the money 

they do not have. 

Is that the argument? 

Mr. MCDONALD. That is the way I see it, Congressman. 

Mr. BAKER. Let me see if I can understand the way the market 

is working. If I want to sell my home and I am going to refer—

because I know they are going to come up in a little bit and you 

are going to be absent, I suspect, to the Realtors’ testimony, which 

I think goes at issue with the pending litigation—on page one, the 

statement is, ‘‘NAR welcomes all professionals engaged in various 

aspects of the real estate industry.’’ That is a terrific statement. 

On page 14, there is an accusation NAR rebuts saying, ‘‘NAR discriminates against non-traditional discount limited-service 

brokerages. Such assertions are absolutely not true.’’ That is on 

page 14. I think that is a terrific statement. 

31

On page 17, the real estate industry is recognized as, ‘‘The most 

enthusiastic users of the Web.’’ Again, a great statement of technology utilization. 

On page 19, running over to 20, there is the statement that, ‘‘All 

real estate professionals have access to the MLS.’’ That is terrific. 

‘‘In some cases, it may be limited to those who hold membership 

in the Realtor association.’’ That is understandable, perhaps. 

As I read those statements and put them together, it would seem 

to me that if a real estate broker was an Internet operative business, advertising limited service at a low price, was a member of 

the Realtor organization, there should be no impairment with that 

individual Realtor having access to the MLS. 

Have you found that to be the case? 

Mr. MCDONALD. Congressman, I could not agree more that there 

should be no impediment to that Realtor having full access to the 

MLS. Our lawsuit challenges a rule that limits the Realtor’s access, 

in that the Realtor may not be allowed to post on his Web site all 

of the listings that are in the MLS. 

Mr. BAKER. I got it. My point is if you read the statement here 

and the testimony about to be given, it would create the view that 

anyone engaging in any entrepreneurial method of lawfully selling 

real estate, who is a licensed Realtor, who abides by the rules of 

the State jurisdiction in which they are licensed, should have access to the MLS. 

What I hear you saying is, well, that may be the case, but we 

will enable the local broker by operation of national Realtor rule 

to preclude Mr. Campbell’s listings from being given to me for 

whatever reason he may deem. One of the precursors might be that 

I am an Internet user and he may not share his listings with Internet users. 

In another instance, I may be a discount broker. He may not do 

business with discount brokers. 

Is that a fair assessment of the facts? 

Mr. MCDONALD. That is a fair assessment, and our lawsuit challenges one of those situations. 

Mr. BAKER. If one is to get into the real estate business and offer 

a product with lower service charge, with a clear understanding up 

front of what those services are, then it is really left up to the individual broker organization and the business community in which 

he resides to determine who is in the club and who is not. 

Mr. MCDONALD. Subject to violations of the antitrust laws, that 

is correct. 

Mr. BAKER. What you are trying to do is enable people to enter 

into agreements for services they choose from a licensed professional in the trade who may have a different way of doing business 

than the full service organization? 

Mr. MCDONALD. I could not have said it better myself, Congressman. 

Mr. BAKER. Thank you. I yield back my time. 

Chairman NEY. Mr. Sherman? 

Mr. SHERMAN. Thank you, Mr. Chairman, for letting me participate in these hearings. Given the weather outside, I thought I was 

in Sacramento, California. Given the issues here, I wonder whether 

I am in the State legislature. 

32

I kind of wonder what the Federal/Congressional role is here, 

given the fact that professional regulation, whether it is taxidermists or lawyers or real estate agents, is traditionally done at 

the State level. Consumer protection is primarily done at the State 

level. 

Real estate is the least interstate of all commerce. In fact, everything we deal with in life, except real estate, has probably gone 

across the State border before we bought it. 

One of the methods that I have seen professions use to try to 

deal with competition is to try to limit entrance, limit licensing. 

There are those who accused the American Medical Association 

many years ago of trying to limit the number of doctors in the 

country, limit entry to the field. 

Perhaps the gentleman from Justice could indicate, is there any 

evidence that the Realtors have tried to limit the number of Realtors in the country or denied a license to those who demonstrated 

their qualifications? Do we have a shortage of Realtors that is driving up the price? 

Mr. MCDONALD. Congressman, I am not aware of efforts to limit 

the number of licensed brokers in the country. Our concern relates 

more to restraints on the ability of brokers who want to use new 

business models to compete. 

Mr. SHERMAN. The first rule of creating competition is to have 

enough sellers, and this is a country where we have maybe only 

two or three companies selling data about the creditworthiness of 

individuals. We have only four big accounting firms. We have about 

1.3 million Realtors. At least, we have a lot of competitors out 

there. 

I have been a bit concerned about the argument that somehow 

it is wrong for Realtors to petition State legislatures to make their 

arguments in favor of minimum services. 

Is there any reason to think that the State legislatures are somehow gullible, and we here in the Federal legislature are perceptive 

and brilliant, and for that reason, we should protect State legislatures from the lobbyists of the National Realtors Association or its 

State affiliates? 

Ms. OHLHAUSEN. None of our advocacy comments have been directed at the right or the ability of Realtors to lobby State legislatures. 

Mr. SHERMAN. It is not an anticompetitive practice to go to a 

State capitol and argue in favor of a minimum service law? 

Ms. OHLHAUSEN. To a State legislature, no, it is not. It is protected by an antitrust doctrine called the Noerr Doctrine. 

Mr. SHERMAN. Not to mention the First Amendment and the 

right to petition. 

Ms. OHLHAUSEN. The Noerr Doctrine is an application of the 

First Amendment. 

Mr. SHERMAN. It is a close call whether if I were in a State legislature, I would be in favor of minimum service requirements or not, 

when I think of myself as a buyer, I have done a lot of real estate 

transactions, and I would just as soon not pay for services I do not 

need, and yet at the same time, I would be concerned that the very 

most vulnerable in our society are the ones who might pick the 

cheapest broker and be most in need of professional services. 

33

Is your work at all concerned with the fact that in some States, 

you have to have an attorney involved in the transaction, whereas, 

in California, it seems to be working out well to have escrow agents 

and title insurance companies, not only is it considerably cheaper 

than in States requiring an attorney, but also in my State, you get 

a guarantee that your title search was done right, and even if they 

non-negligently made a mistake, they pay you. 

Here on the East Coast, if your careful attorney fails to be able 

to detect that there is an easement running across your living 

room, then you have an easement running across your living room. 

Are you folks focused at all on whether the Federal Government 

should tell the States that it is wrong to require an attorney? 

Ms. OHLHAUSEN. What we have done is a number of competition 

advocacies, pointing out to States the competitive effects of requiring an attorney at all real estate closings, and the lack of empirical 

evidence that States where non-attorney closings are allowed have 

greater amounts of consumer harm from non-attorney closings. 

Mr. SHERMAN. You share your expertise with State legislatures, 

but generally, leave it to them to decide what their State laws on 

real estate and real estate transactions would be? 

Ms. OHLHAUSEN. That is correct. 

Mr. SHERMAN. One of the things that makes it difficult to have 

a discount in real estate sales is that you are doing business, in 

effect, not only with your own broker, but with the buyer’s broker 

as well. 

I would think you would just negotiate—one of the things that 

would concern me is that I could find a broker who would do it for 

3- or 4 percent, but which buyer’s broker is going to come and look 

at my home if they are only promised 1- or 2 percent commission? 

If I am a buyer, am I allowed to pay my broker and say, look, 

I want to go see all the homes that are for sale by owner, I want 

to go see all the homes that are for sale by discount brokers that 

only pay you 1- or 2 percent, and I will pay you the rest? 

Is there any law that prohibits that? 

Chairman NEY. Time has expired, but if you would like to quickly answer. 

Ms. OHLHAUSEN. I am not aware of any law that would prohibit 

that. 

Mr. SHERMAN. Thank you. 

Chairman NEY. With that, we will conclude the first panel. One 

question, and I do not want to prolong this, we have a second 

panel, but did the inception of the Internet have anything to do 

with looking at this differently than the old days where the Realtor 

had the notebook binder and you had to go look at the property? 

Did the Internet give any different look towards this idea or not 

of looking into this? 

Mr. MCDONALD. Mr. Chairman, the Internet is probably the single most important factor in creating new opportunities for competition, as we have discussed, because it does allow quick and efficient communication of information about homes for sale to customers. 

I think it is the confluence of events that has raised these issues, 

the introduction of Internet technology and the increase in home 

sale prices. 

34

Chairman NEY. Thank you very much. I want to thank the 

panel, all of you, for your time. I think it was very interesting testimony. Thank you. 

We will take a 5 minute recess. 

[Brief recess] 

Chairman NEY. Thank you. We will move onto panel two. If you 

have never testified in Congress, and because at 5:00 p.m., we have 

H.R. 5121, the FHA bill up on the Floor, when the yellow light 

comes on, you have about 45 seconds. When the red light comes on, 

then your testimony will be finished. 

Without objection, all of your statements will be entered into the 

record, and we will have 5 minutes of questions. 

We have Stephen Brobeck, executive director of the Consumer 

Federation of America. The membership includes 300 non-profit organizations. On their behalf, the Federation promotes beneficial 

Government policies affecting the Nation’s consumers. 

Aaron Farmer joins us today from Austin, Texas, where he 

founded Texas Discount Realty. Texas Discount Realty offers a flat 

fee real estate listing service while employing broker agents in five 

major Texas cities. 

Kimberly Gorsuch-Bradbury is senior vice president for Real Estate Networks at LendingTree, a net loan provider, located in 

Charlotte, North Carolina. She is also responsible—I think we are 

going to have a statement in a second here—for developing the 

company’s online real estate loan business, including the Internet 

site realestate.com. 

Glenn Kelman is the chief executive officer at Redfin Corporation 

located in Seattle, Washington. Redfin is an Internet brokerage 

business providing online services for real estate consumers. 

Geoffrey Lewis is a senior vice president and chief legal officer 

at RE/MAX International, headquartered in Greenwood Village; 

they have all those hot air balloons all over the place. The RE/MAX 

franchise network is a global real estate system of franchisee 

owned and operated offices. 

Pat Vredevoogd-Combs is the 2006 president-elect of the National Association of Realtors, a trade organization representing 

more than one million members involved in the residential and 

commercial real estate industry. 

Ms. Vredevoogd-Combs is a broker/owner of AJS Realty, a residential real estate company in Grand Rapids, Michigan. 

We will defer to Mr. Watt. 

Mr. WATT. I am not even on the subcommittee, Mr. Chairman. 

I appreciate you allowing me to welcome Ms. Gorsuch-Bradbury, 

one of my constituents from the Charlotte area to the committee, 

and I am looking forward to hearing her testimony, and I thank 

her for being here. 

Chairman NEY. Thank you, Mr. Watt. 

We will begin with Mr. Brobeck. 

STATEMENT OF STEPHEN BROBECK, EXECUTIVE DIRECTOR, 

CONSUMER FEDERATION OF AMERICA 

Mr. BROBECK. Chairman Ney, Ranking Member Waters, and 

members of the subcommittee, the Consumer Federation of America appreciates the opportunity to share our views on residential 

35

real estate brokerage services, and these views also represent those 

of the American Homeowners Grassroots Alliance. 

From a consumer perspective, this real estate brokerage system 

seems cockamamie. For most firms, information about prices and 

services is not readily available. Their prices, in fact, are high and 

nearly uniform. Brokers offering lower prices and limited services 

are few and far between in most markets. 

Only one comprehensive source of information about houses for 

sale is available, but buyers are limited in the information available to them from the source, especially if they do not work with 

a broker. 

Moreover, complaints about brokerage services are increasing, 

yet there is no independent regulation of the $60 billion plus industry. Practicing brokers control almost all State real estate commissions and boards, as a study we released last week demonstrates. 

There is a relatively simple explanation for a system that seems 

cockamamie to consumers. Working through their trade association, many traditional brokers have tried with much success to control prices and services. In most areas, they try to maintain commission rates of either 6- or 7 percent. When they fail, it is mainly 

because home sellers are increasingly refusing to pay a $24,000 or 

$28,000 commission on the sale of a $400,000 home. 

These traditional brokers have also succeeded in restricting or 

even banning limited service or discount brokers in some areas. 

They do so in three ways. 

First, they have persuaded a number of State legislatures to pass 

anti-rebate and/or minimum service laws. 

Second, through multiple listing services, they restrict information about homes for sale, not only to consumers, but also to nontraditional brokers. 

Third and most importantly, through informal mechanisms, they 

discriminate against non-traditional brokers, especially those that 

discount, rebate, or charge fixed fees. 

The correct term for an industry that effectively controls prices 

and services is a ‘‘cartel.’’ 

Since State regulators have been captured by industry, it is fortunate that the Department of Justice, the Federal Trade Commission, and the Government Accountability Office, have taken the initiative to try to ensure greater real competition and consumer 

choice in this marketplace. 

We urge Congress to give these Federal agencies even stronger 

mandates, authority, and financial support to ensure freer real estate brokerage markets. 

As a first step, Congress could direct one of these agencies, and 

our preference is the Federal Trade Commission, to study industry 

practices carefully. In its 2005 report, the GAO noted that, ‘‘There 

is no comprehensive data on brokerage fees.’’ 

Both Congress and these agencies would benefit greatly if they 

had available the results of a study that focused particular attention on prices and multiple listing services. 

Our written testimony suggests specific types of information that 

would be useful to collect. 

Mr. Chairman, that concludes my oral statement. 

36

[The prepared statement of Mr. Brobeck can be found on page 70 

of the appendix.] 

Chairman NEY. Thank you. 

Mr. Farmer? 

STATEMENT OF AARON FARMER, BROKER/REALTOR, TEXAS 

DISCOUNT REALTY 

Mr. FARMER. My name is Aaron Farmer, and I am a Realtor and 

broker at Texas Discount Realty in Austin, Texas. 

In September of 2002, the Texas Real Estate Commission said, 

through its filings in the Texas Register, that as a real estate 

broker, I should charge a full commission, instead of offering a 

menu of services at reduced fees, and being the first State to pass 

what is now known as the ‘‘minimum services rule.’’ 

I filed suit against this rule, aimed at eliminating limited-services listings, and it was eventually overturned. 

Again in 2005, Texas became one of 10 States to now pass a minimum-services law, over strong objections from FTC and DOJ, and 

despite the fact that there has never been a single consumer complaint in Texas about limited-services listings. 

My business still takes limited-services listings as part of our 

unbundled menu of services listing model. While it is still possible 

to do limited-services listings, the goal of the law, to effectively rebundle the listings, has been somewhat effective. Complying with 

minimum-services laws takes us much more time and energy than 

it did in the past. 

It has also forced many of my agents who perform limited-service 

listings to re-think the way they handle this type of listing. Most 

of my agents will now only offer limited-services listings to experienced investors and/or home owners. 

The uncertainty of the effects of this new law over the last 3-plus 

years has forced me and many other brokers to change the way we 

operate, what we charge, and how we plan or do not plan for the 

future of our business. 

As any businessperson will tell you, uncertainty is bad for business. Uncertainty in the marketplace also creates barriers to innovation. While the barriers created by changes in MLS rules, 

changes to data sharing rules and State sanctioned minimum service laws are well documented; many barriers are felt at a more 

basic level. 

All too often, alternative or innovative brokers encounter discrimination, ridicule, and harassment from traditional agents, who 

are resentful about new competition, new businesses, and new 

businesses which may have different pricing models, are more technology based, or just have different attitudes and business cultures 

than their companies have. 

I have personally heard traditional agents telling potential customers that our company would be going out of business soon, or 

that what we are doing is against the law, which is false, of course. 

Traditional agents have told sellers that other agents would not 

show their home if they listed with us. We have yard signs stolen 

from front yards, and recently, had a whole billboard ripped out of 

the ground. 

37

I have even seen a traditional agent ridicule one of my agents 

at a Realtor tour event for being a discount agent and offering reduced fees. 

The closest thing I have to a smoking gun to this type of activity 

is an e-mail sent to one of our agents recently, after he was asked 

to stop advertising in the Waxahachie Texas Daily Newspaper’s 

HOMES Magazine. Waxahachie is a suburb of Dallas. 

The whole e-mail is attached to my written comments as Exhibit 

2. The following is an excerpt of the e-mail from the sales department of this newspaper, and I quote: 

‘‘I was told by several real estate agents in Ellis County that 

they would not advertise with HOMES Magazine if we let Texas 

Discount Realty advertise. I was also told by several agents that 

our competitors would never let Texas Discount Realty advertise in 

their products.’’ 

These actions of conspiracy and discrimination have prompted 

my agent to ask if he could operate under a different name and 

even explore leaving my brokerage altogether. 

Fear of these types of bully tactics has the effect of preventing 

other brokers and agents who might otherwise consider trying an 

innovative model from doing so, thus, stifling innovation. 

In an effort to combat some of these barriers to entry, I have become a founding member of the American Real Estate Broker Alliance, or AREBA. AREBA can be found at areba.org, and is a national alliance of flat fee limited-services real estate brokers and 

agents formed in 2006 who advocate innovation, free market competition, full disclosure, informed consent, and consumers’ rights to 

choose their level of desired brokerage services. 

AREBA believes anticompetitive practices which discriminate 

against my members must be prohibited. 

In conclusion, I would like to applaud the actions taken by the 

FTC and the DOJ to fight barriers to innovation in the real estate 

industry. However, I would urge them to take an even closer look 

and study the bullying that sometimes goes on by agents at companies, which tend to create barriers to innovation on a State and 

even local level. 

Until the attitudes and actions of local brokers and agents 

change, barriers to innovation will continue to exist. 

I would like to thank the committee for asking me to testify 

today. Thank you. 

[The prepared statement of Mr. Farmer can be found on page 82 

of the appendix.] 

Chairman NEY. Thank you. Your experience of the stolen signs 

and ripped down billboards—welcome to the world of Congressional 

campaigns. It is what happens to us—in about 100 days, especially 

to the incumbents. We do not do that, but they do it to us. 

Ms. Bradbury? 

STATEMENT OF KIMBERLY GORSUCH-BRADBURY, SENIOR 

VICE PRESIDENT, REAL ESTATE NETWORKS, LENDINGTREE, 

LLC 

Ms. GORSUCH-BRADBURY. Good afternoon, Chairman Ney, Ranking Member Waters, and members of the subcommittee. 

38

My name is Kimberly Gorsuch-Bradbury, and I am a senior vice 

president of Real Estate Networks at LendingTree. We appreciate 

this opportunity to share our views of the changing real estate 

market. 

LendingTree was founded on the idea that better choice and competition can empower both consumers and lenders. We have built 

relationships with over 300 lenders around the country, with large 

lenders, such as Citibank and BankOne, but also with many, many 

smaller lenders who built their businesses around LendingTree. 

Here is how it works. A borrower fills out one simple form and 

almost instantly gets up to four offers from lenders. The consumer 

uses this information to comparison shop and negotiate the best 

deal. 

While the value to consumers is clear, a key to our success is 

that it is also valuable to our lender partners. Our partners have 

funded well over $140 billion in loans through LendingTree since 

its inception. 

We have applied a similar approach to real estate brokerage, enabling choice and competition. We operate RealEstate.com, where 

we have built a network of over 500 local real estate brokers and 

12,000 real estate agents across the country. 

Consumers can use our Web site to learn about homes for sale, 

get an automated home price check, learn about the process of buying or selling a home, and much, much more. 

Our goal is to provide consumers with the information, tools and 

resources they need to be smart and confident buyers, but when 

the consumer is ready, we also connect them with a local professional on our network. 

We firmly believe that the real estate professional is essential. 

Many consumers want professional assistance for such an important transaction. 

Switching gears, today, I would like to talk about two challenges 

facing our industry. The first relates to fee for service brokerages, 

which many of the other witnesses have spoken about. These companies offer real estate services that are unbundled. Some of them 

allow a consumer to choose services from a menu, giving them the 

flexibility to purchase just the services they need. 

For instance, a consumer may ask for a broker to place their 

home in a multiple listing service, but handle the rest of the transaction on her own, or she might ask for help in pricing the home 

and handling open houses, but select a lawyer to handle price negotiation and contracting. 

The point is that the services are flexible and she has a choice. 

While this innovation should be applauded, last year, we saw 

many States considering new licensing laws that impaired these 

new brokerages. Unfortunately, around 10 States have adopted 

new licensing laws that force all brokers to follow the traditional 

model of providing full service brokerage. 

That is like saying when a consumer goes to McDonald’s for a 

coke, the law requires them to buy the burger and the fries. 

We believe Government should encourage new competition from 

innovators and not limit it. 

A second challenge to innovation comes from the anti-rebate 

laws. One of the ways that many brokers, including 

39

RealEstate.com, attract consumers is by offering a rebate on close 

transactions. This effectively lowers the cost of brokerage for the 

consumer. Since inception, we have provided nearly $60 million in 

savings through rebates. 

Of course, consumers are delighted with this result, but importantly, it also works for our partners. 

Since the year 2000, our brokers have closed almost 40,000 sales 

with our assistance, and that is a lot of transactions. 

As you heard from prior witnesses, the competition authorities 

view anti-rebate laws as barriers to competition. Consumer advocates report no complaints or problems in the 39 States that allow 

rebates, and yet 11 States still block or limit them. 

Prohibiting rebates means millions of dollars in lost savings for 

consumers. For example, in New Jersey alone, consumers could 

have saved nearly $200 million last year if rebates were permitted. 

That is a lot of money. 

In summary, real estate brokerage is a business of enormous importance to both consumers and the economy. Moreover, it is a 

business in which innovation offers great promise. Removing barriers such as those described today will result in a more efficient 

and more productive housing market. 

We thank the committee for examining competition in real estate, and we hope that your continued efforts will lead to a freer 

marketplace, with fewer competitive obstacles, where innovation 

can flourish. 

Thank you for the privilege of testifying today, and I will be 

happy to answer your questions. 

[The prepared statement of Ms. Gorsuch-Bradbury can be found 

on page 91 of the appendix.] 

Chairman NEY. Thank you. 

Mr. Kelman? 

STATEMENT OF GLENN KELMAN, PRESIDENT AND CEO, 

REDFIN CORPORATION 

Mr. KELMAN. Good afternoon, Chairman Ney, Ranking Member 

Waters, and members of the subcommittee. Thank you for inviting 

me to testify. 

I am Glenn Kelman, president and CEO of Redfin, America’s 

first online national broker of real estate. 

I am here today to ask that Congress ensure Internet innovators 

get equal access to listing data, and that it regulate State laws designed to limit consumer choice. 

In 2004, Redfin was the first company to show real estate listings on an online map, like MapQuest. In 2006, we launched 

Redfin Direct, a service to allow home buyers to buy a home online. 

Clients find properties to tour on our Web site, draft an offer via 

our online forms, and rely on us to handle the negotiations. The average client saves $10,000 because we refund two-thirds 

of our commission. 

As one of the first online brokerages for buyers and sellers, we 

have a unique perspective on how the industry is stifling innovation. A brokerage that does not employ field agents is a radically 

new service at a radically new price, and it has engendered resistance on a radically new scale. 

40

Competing agents have threatened us with violence and tried to 

intimidate our clients, concocting grade school legal mumbo jumbo 

about the perils of Internet service. 

We expected a combative reception, but it is the industry’s impunity that has come as a shock. 

We have drafted complaints to the State commission, only to realize that the commissioners ran the brokerages we were complaining about. We posted photos of agents who were blocking our 

customers to a Web site that we called the Hall of Shame, only to 

have Realtors apply to join. 

The industry has failed to regulate itself. 

Despite all this, we have represented clients on hundreds of offers over the past 6 months. Our client satisfaction rate is 98 percent. We have been featured in the Wall Street Journal, the New 

York Times, Business Week, and on National Public Radio. 

We are on pace to refund nearly $1 million in commissions in our 

first 6 months. 

This begs the question, if Redfin is so great, why has there not 

been a Redfin before, a national e-trade of real estate? 

The Realtors would have you believe it is because real estate consumers do not want e-commerce, but the truth is different. I came 

to Redfin as an experienced entrepreneur, having co-founded a software company raising six rounds of financing and taking it public. 

Funding Redfin should have been very easy. It was not. Everyone 

in Silicon Valley knows that Realtors control the listing services, 

the MLS, and that many States have effectively outlawed online 

brokerages. Investors who put $6 million into a Web site in Sweden that lets 

you dress up a Barbie doll will not touch online real estate. 

The only reason we could raise money was because of our friends 

in the first panel, the Department of Justice. We cited that ruling 

over and over again, and it became the basis for investors to believe that for the first time, you really could have an online brokerage. 

We feel that without Congressional action, the Department of 

Justice will at some point shift its attention elsewhere, and real estate innovators like Redfin will be left high and dry, without access 

to the listings because the Realtors have cut us off. 

Listing services stifle innovation not just in business models, but 

in how Web sites share data. I do not think we have focused on 

this enough today. You can find out more on the Internet about an 

eBay beanie baby than you can about a $1 million home. 

Multiple listing services have told us we cannot allow public commentary on a listing. We cannot let people search by time on market. We cannot display for sale by owner listings alongside commission properties, and that we have to register our users. 

Rules like this are a thousand tiny shackles on Internet businesses. Imagine if Amazon got legal threats when a customer published a ho-hum book review. Imagine if Google had to register its 

users before they could perform a search on some types of data. 

The Internet would be a gigantic marketing brochure rather than 

a useful consumer tool, and it would be a less powerful engine for 

economic growth. 

This is exactly what is happening in online real estate today. 

41

Redfin must ask that Congress act to give brokerages of all types 

equal and unfettered access to listing data, and authorize the Federal Trade Commission to regulate States’ minimum service and 

anti-rebate laws, so consumers can make their own choices about 

commissions. 

No other proposal before Congress could save American families 

more money, and none would do more to improve real estate service. 

If you let innovators innovate without fear of losing listing access, service will be much better than any of us in this room can 

say or imagine. 

Thank you for letting me testify. It has been an honor. 

[The prepared statement of Mr. Kelman can be found on page 97 

of the appendix.] 

Chairman NEY. Thank you. 

Mr. Lewis? 

STATEMENT OF GEOFFREY D. LEWIS, SENIOR VICE PRESIDENT AND CHIEF LEGAL OFFICER, RE/MAX INTERNATIONAL, 

INC. 

Mr. LEWIS. Chairman Ney, Ranking Member Waters, and members of the subcommittee, my name is Geoff Lewis, and I am senior 

vice president of RE/MAX International. Thank you for allowing 

me to testify today on behalf of RE/MAX. 

RE/MAX International is not engaged in the brokerage business, 

and we do not belong to any MLS. We are a franchiser of real estate brokerages. Neither I nor RE/MAX International claim to 

speak on behalf of our independent brokers or agents. 

Let me address the issue of commission rates. It is often overlooked that full service agents work on a success basis. If the seller 

does not sell his house, he pays nothing, and the agent gets a zero 

percent commission. If a buyer does not buy a house, the agent gets 

a zero percent commission. 

When an agent does earn a commission, it often comes several 

months after he has expended his time and money with no guarantee of a closing on a sale. Realtors drill a lot of dry wells. 

In cases where successful transactions are completed, full service 

commission rates have been trending down over the past decade. 

They have gone from 6.1 percent in 1991 to the current average 

rate of 5.1 percent. That is not a 1 percent decrease; it is a 16 percent decrease. 

With the rapid rise in housing prices recently, many have questioned why commission rates have not come down further. The answer is that agent income has not increased correspondingly. 

The median gross income for real estate professionals in 2004, as 

reported by the National Association of Realtors, was $38,000 for 

sales agents and $53,000 for brokers. That is gross commission income, without health care and retirement benefits, which are paid 

for by the agent. That is also before the agent pays for advertising, 

Web site hosting, gasoline, and other expenses. 

Over the past 2 years, agent gross income is down 6 percent. The 

lack of increase in agent gross income, despite rising housing 

prices, is due to the large increase in the number of agents in the 

industry. 

42

NAR reported a 26 percent increase in membership over the past 

2 years, and a 40 percent increase over the past 5 years. In 1995, 

NAR reported having 1.2 million members. 

These agents are being drawn in by the increase in housing 

prices, but as a result of the increase in the number of agents 

searching for transactions, the average number of transactions per 

agent is decreasing. 

This countervailing force puts resistance on the ability of commissions to continue to come down further. Nonetheless, as I have 

described, commissions have been coming down. 

Let me address Internet companies and new business models. It 

is easy to say that the Internet has brought down costs in other 

industries, so it should do the same for real estate, but not all industries are the same. 

The Internet has not decreased prices for doctors, accountants, 

attorneys, newspaper subscriptions, landscaping contractors, or a 

myriad of other businesses, nor has it done so for Government services. 

Not every business is going to be impacted by the Internet the 

same as airline ticket vendors, stock brokers, or book sellers. After 

all, these industries are selling commodities. Real estate agents are 

selling unique properties and providing individualized service. 

The Internet has enabled hundreds of real estate companies with 

new business models. These companies offer rebates, flat fee services, and discounted commissions. 

A quick Internet search will reveal any number of national/regional companies providing these services in every market. New 

companies appear on a daily basis. Internet giants, Google, Yahoo! 

and eBay have all jumped into the business of allowing home sellers to list their homes on online classified ads. Media titans, including Tribune Company, Washington Post, Belo Corporation, and 

Gannett have formed an online classified service that has a primary focus on real estate. 

It should also be noted that in the last few years, we have seen 

one of the hottest real estate markets in history. In parts of the 

country, sellers have been able to attract multiple offers the instant 

their home goes on the market. Some sellers receive above their 

asking price. It is not surprising in these markets that many sellers have been tempted to avoid full service brokers in favor of limited-service providers or discount brokers. 

It is these same conditions that have caused the explosion in new 

business models. 

It should be noted that since the beginning of the year, the market has returned to more normal levels. Inventories and time on 

market have increased considerably over the last year. 

Let me conclude by making one comment about the MLS, and 

that is that the MLS no longer has the exclusivity it once did for 

real estate listings. The Internet has enabled many new Web sites 

that allow brokers or individual home sellers to upload property information for free. 

Chairman NEY. Time has expired, if you would like to conclude. 

Mr. LEWIS. These are all alternatives to the MLS, and with more 

than 80 percent of consumers using the Internet in real estate 

transactions, all of these services are available to them. 

43

Thank you very much. 

[The prepared statement of Mr. Lewis can be found on page 101 

of the appendix.] 

Chairman NEY. Thank you. 

Ms. Vredevoogd-Combs? 

STATEMENT OF PAT VREDEVOOGD-COMBS, 2006 PRESIDENTELECT, NATIONAL ASSOCIATION OF REALTORS 

Ms. VREDEVOOGD-COMBS. Chairman Ney, Ranking Member Waters, and members of the subcommittee, thank you for the opportunity to testify on the changing real estate market. 

My name is Pat Vredevoogd-Combs, and I am a broker/owner 

and partner of AJS Realty in Grand Rapids, Michigan. I actually 

sell real estate as my primary income. 

As the 2006 President-Elect of the National Association of Realtors, I am here to present the views of our 1.3 million members, 

who are engaged in all aspects of the real estate industry. 

Those who have criticized the real estate industry often oversimplify the issue by looking at real estate as one national market. 

Real estate is local. With that in mind, I want to highlight three 

positive developments we are seeing in today’s changing market. 

First, competition is thriving. A recent study of 12 local real estate markets conducted by Steve Sawyer, associate professor at the 

Pennsylvania State University, found that competition within each 

market is fierce, including competition among agents affiliated with 

the same firm. 

The report sends an important message for all industry critics; 

there is no such thing as a national real estate market. Agents 

compete fiercely for listings from potential sellers, for potential 

buyers, and many times for both. Likewise, all brokers compete for 

the best real estate agents. Their competitive edge is based on a 

host of factors, including quality, reputation, service, and price. 

The overwhelming majority of industry participants are non-salaried, independent contractors. In other words, they are self-employed. Fifty percent of these contractors are affiliated with an 

independent non-franchised firm. 

As home sales slow to a more reasonable pace, competition will 

likely increase among all service providers. NAR encourages and 

promotes fair competition. 

Our members represent almost every conceivable business model 

including full service, limited service, so-called discount models, 

Internet brokers, and others. 

Second, the price of real estate services varies. The latest research from REAL Trends, which Mr. Oxley referred to, actually 

indicates that commission rates decreased 16 percent from 1991 to 

2004. 

RISMedia’s 2006 power broker report and survey confirms this 

view, noting that the top 500 real estate brokers anticipate the average commission rate will decline to 4.9 percent this year. 

NAR has a long-standing antitrust compliance policy, which says 

that each firm independently decides the price of services provided 

by Realtors. Again, a lot of factors determine the price for real estate services in a competitive market. There is no national commission rate. 

44

Third, consumers can access more property and transaction information through the Internet, thanks in large part to Realtors. According to our surveys, the number of Realtors with Web sites has 

increased 129 percent over the past 5 years, and nearly 90 percent 

of Realtors and their firms have Web sites with searchable property listings. 

NAR also created and operates realtor.com, giving consumers national access to local markets through the Internet. More than 900 

local multiple listing services are powerful forces for competition. 

A listing placed by the newest rookie agent can reach just as many 

other brokers as the seasoned professional. 

Participation in an MLS is readily available to all real estate professionals, operating all kinds of brokerage business models. 

If the MLS system were restructured to prohibit listing brokers 

from marketing a property as they and their clients see fit, some 

brokers would pull out and create their own systems. This would 

hurt small and new competitors. 

Again, NAR favors competition in real estate. 

To clarify some of the other testimony, there is no minimum 

service legislation that only gives one a choice of either no service 

or full service. Every minimum service legislation out there, and 

everything that we see, is unbundled. You do not have to either 

paint the whole house or nothing at all, and you do not have to buy 

a Coke or a Coke and french fries and a burger. You can unbundle 

those services wherever you are. 

In conclusion, real estate is in many local markets. The best assessment of a competitive landscape is based on the local experience. In an economy in which large national corporations, such as 

Wal-Mart and Microsoft, increasingly dominate, real estate stands 

apart. It is one of the best industries for entrepreneurs, and it offers consumers a wide array of choices in both service and the price 

they pay for the service. 

Realtors are proud to be part of a competitive and growing industry that accounts for roughly 20 percent of our Nation’s gross domestic product. 

Chairman NEY. Your time has expired. 

Ms. VREDEVOOGD-COMBS. On behalf of our 1.3 million members, 

I again thank you for the opportunity to share our views with you. 

Thank you. 

[The prepared statement of Ms. Vredevoogd-Combs can be found 

on page 153 of the appendix.] 

Chairman NEY. Thank you very much. 

I want to start with Mr. Kelman. From your point of view, do you 

see a Federal solution to this vis-a-vis the Congress with a law? 

Mr. KELMAN. I am not a legislator, but we feel that there are so 

many States where we cannot compete, where we have to go market by market, on our hands and knees, and beg the MLS for access to the data; they knock us up with all these ticky tacky rules 

about what we can and cannot display, and it really limits our ability to compete. 

That is why we feel a Federal law that just provides open, unfettered access to the MLS would be really important if you wanted 

to have a truly free market. 

45

Chairman NEY. Thank you. Mr. Lewis, as I have heard today 

from the first panel, and I am really frankly so confused on this, 

if you have more Realtors, you have a surplus of Realtors, or 

maybe not a surplus but more Realtors, would there not be competition? Would not the commissions go down? They seem to be at 

6 percent, unless you have a hot market. 

Can you explain that? It does not seem like that variable works. 

Mr. LEWIS. I think the number of Realtors in the industry is an 

indication of what a free and competitive market it is, and that 

there are no barriers to entry. 

When you look at average Realtor income, gross commission income, perhaps one of the factors for why commission rates have not 

come down lower than they have is that some Realtors would not 

be able to survive at anything less than current market rates. 

Chairman NEY. Let me ask another question for anybody who 

would like to answer, regarding online services. If you have the online service, your companies you represent, and right now, people 

look at those as that is where I can go to get my best deal possible, 

and I know how they operate, if you became part of the listing, the 

MLS, what happens to the person who wants to have full service 

from you, be there at the closing, do this, do that? What happens 

there? 

Mr. KELMAN. Maybe I can answer that. First of all, to address 

your concern and Ranking Member Waters’ concern, our goal is to 

actually provide better service than a traditional Realtor from offer 

to close. We are at the closing. We negotiate. We handle everything. 

What we do not do— 

Chairman NEY. I am sorry, not to interrupt you, you would physically have someone show up at the closing? 

Mr. KELMAN. That is correct. What we do not do is the taxi service, where we drive you around looking for homes. 

The average Internet consumer finds a home 3 times faster than 

someone who is not using the Internet. Typically, what we hear 

customers say is that I can find the home on my own, what I want 

you to do is to win the deal, and protect my interests. 

Chairman NEY. How do they get into that house? 

Mr. KELMAN. They get into the house in one of three ways. They 

visit an open house. They contact the seller. They contact the listing agent, or we can provide the tour by their request. 

Chairman NEY. There is no open house, say there is no open 

house. They would have the alternative to directly contact the seller? 

Mr. KELMAN. Or the listing agent. 

Chairman NEY. Does that not concern you, the direct contact 

with the seller? 

Mr. KELMAN. We understand that when our clients need the listing agent, as an example, who represents the seller, that many 

times, the listing agent will persuade the buyer just to work with 

him or her on both sides of the deal. 

Many of the folks want our advocacy, want our support. 

Chairman NEY. I am sorry. I should clarify. Not so much on the 

collusion. I just sold our house last year and we moved to the central part of the district. I bought a house. 

46

Sometimes if you get the buyer and seller together, you can have 

a horrific argument when the buyer says I think you painted this 

house terribly, what do you mean. Pretty soon, they are at odds 

and you cannot communicate. 

In the absence of a physical person, is what I am saying. 

Mr. KELMAN. Generally, the most common ways people see the 

house are through a listing agent or through an open house. The 

agent who represents the seller will show the house. 

There have been cases where someone has been selling the house 

on their own, and the buyer and seller meet directly. That is not 

always the case. 

I think the important thing to remember is that it is a choice. 

There are going to be people who want full service and we direct 

them to traditional Realtors every week. There are people who 

want Internet service, who say I can find the home on my own; I 

want you to close it for me. We feel actually that we do a better 

job in part because instead of having an agent who is waiting every 

2 months to do a deal, we have professional real estate agents 

working in each market that have really high deal flow. 

Chairman NEY. My time has expired. Ranking member? 

Ms. WATERS. I was just sitting here thinking about the real estate business, and beginning to ask myself why I have been very 

pleased with those people I have met and worked with. 

First of all, I like it the way it is because it has opened up opportunities for a lot of women to become entrepreneurs and to earn a 

living. Women who oftentimes find themselves divorced and needing a way to earn some money, or people who oftentimes retire 

without a lot of retirement income, and so forth have been able to 

start their careers in real estate. The same thing is true of minorities, being able to get into a business, and through their own initiative earn a living, is a powerful idea. 

That is one thing that attracts me to this business and gives me 

an appreciation for what it has done for a lot of folks who perhaps 

would not have opportunities in other businesses. 

The other thing is, as I started talking earlier today about the 

complications of some of these sales, I was just sitting here thinking about a purchase that I was involved in where there was damage to the property from water that had not been reported by the 

seller of the property for a lot of reasons. 

When I started to look for insurance, and I started explaining to 

them about this big hole in the ceiling, they wanted to know if it 

was water damage, whatever, and then I could not get any insurance. 

The real estate agent that I was working with was connected to 

a lot of people in this industry, and therefore, was able to not only 

get a contractor to come out and do the evaluation so that I could 

tell the bank about the cost—they were going to hold back on the 

cost until I did the repairs—but also they helped to get the insurance. 

It was just a lot of convenient assistance from this full service 

Realtor; I was extremely appreciative for it. It is not to say that 

everybody needs that. For those people who do, we certainly want 

to have it available; it is critical. 

47

This claim that there is this exclusion and conspiracy to keep 

discount brokers from being able to market their product, to sell 

their products, is incredible. I do not spend a lot of time on the 

Internet, but I look from time to time, and even before I bought the 

last house, I looked to see what was available. 

It seems to me that it is about what is being described here. 

There are a lot of real estate opportunities. I liked looking at some 

of the Web sites of these creative entrepreneur women in particular, sometimes two of them team up on the sales, and they 

present themselves, and they describe what they do. 

There are a lot of Web sites like that. Where is the exclusion and 

discrimination, Mr. Kelman? 

Mr. KELMAN. First of all, we have no animus against real estate 

agents. We are real estate agents ourselves. We hire women and 

minorities in the same proportion that you would see in the traditional industry. 

The exclusion comes when you apply to enter a new market, 

there are many agents and many brokerages, but when you are offering your services at a different price point, the listing service is 

looking for a way to deny you access. 

We have gotten multiple calls and letters from every listing service that we belong to trying to prevent us from displaying information. 

Ms. WATERS. When they call you, what do they say? You better 

not do what? 

Mr. KELMAN. They will say you cannot publish any commentary 

about a listing, to which we say but every other broker does what 

we are doing, why are you coming after us, or they will say you 

cannot let people search for homes that have been on the market 

a long time, so we allow you to do a search where you can say show 

me houses that have not sold in 90 days. The real estate industry 

does not like that. 

Ms. WATERS. If you do a search in the way they do not like, what 

happens to you? 

Mr. KELMAN. Nothing happens to the consumer, but that is the 

leverage point in this industry, the MLS threatens to cut off access 

to the brokerage, to us. 

Ms. WATERS. Have they cut off access to you? 

Mr. KELMAN. No, but we have had to— 

Ms. WATERS. Who do you know where they have cut it off? 

Mr. KELMAN. Before starting Redfin, we talked to E-Realty, 

which was the start-up that tried to be Redfin, before Redfin. He 

said that if it was not for the Department of Justice, we would go 

out of business in exactly the same way he did. 

Ms. WATERS. It is just talk? Someone else came here today and 

talked about being bullied. You know, that is life. People talk. They 

threaten. That is the marketplace working. So what? 

Mr. KELMAN. When you get a letter that tells you to take down 

a feature from the site that is very popular and useful for consumers, and then instead of building new features for the site, you 

have to re-engineer your site, it is material to a small business. 

Ms. WATERS. What if you do not take it down? 

Mr. KELMAN. If you lose MLS access, you will go out of business. 

48

Ms. WATERS. You have not lost it. I hear a lot of talk about what 

they say or how they are in collusion against us, and they bully 

me, and I do not like the way they talk to me, but— 

Mr. KELMAN. I am not here to whine. I love my job. I love this 

business. It is growing like gangbusters. 

Ms. WATERS. You want us to stop people from bullying you; is 

that right? 

Mr. KELMAN. All we want is fair, open access to the MLS. 

Ms. WATERS. But you have it. You do not like the fact that there 

are people who do not like what you do, and they may say to you 

I do not like what you do and you better not do this, and you better 

not do that, but they have not stopped you, have they? 

Mr. KELMAN. There are companies that are out of business that 

we could have called here. We feel that if we did not comply with 

their rules, they would pull our access and it would be the third 

rail for our business. 

Ms. WATERS. Unless you have a list, unless you can tell us who 

those companies are, they do not exist. 

Mr. KELMAN. Why don’t we produce for the record the letters 

that we get from the MLS about— 

Ms. WATERS. No, that will not do it. I want the result of the letters. I want people who are out of business because they got a letter. 

Mr. KELMAN. Since I am in business, I cannot do it. 

Ms. WATERS. I know. You are doing okay. They bully you. 

Mr. KELMAN. There are States we cannot go into. We would be 

doing much better. We know 70 percent of consumers, as surveyed 

by the Wall Street Journal, are angry about their commissions. 

Fifty percent of the people— 

Ms. WATERS. I am really angry about the price I pay for gas. I 

am really, really angry. There are a lot of prices that I am angry 

about. I am angry about insurance costs. I am angry about a lot 

of things. 

Mr. KELMAN. I agree. 

Chairman NEY. Time has expired. 

Ms. WATERS. Thank you. 

Chairman NEY. I am going to ditto on that gas part. 

Mr. Miller? 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. 

This is really interesting. I have been in the building industry for 

over 35 years, which means I am older than heck, and I admit it. 

I have done a lot of real estate transactions over the years. I do 

not believe I have ever paid 6 percent for anything I ever wanted 

to list. I would always go to the Realtor and say, I will pay this 

amount for the listing agent, and this amount for the selling agent. 

I never had anybody say no. 

You can go to a Realtor and say I will pay you 2 percent to list, 

and I will pay you 2 percent to sell, but you know when you say 

2 percent to sell, there are some selling agents out there who might 

say I would rather sell property where I can get 3 percent. You 

take a chance. 

I really enjoyed the testimony and it sounded like LendingTree, 

you are doing pretty well. I have heard your name. You guys are 

doing pretty good out there. You have the right to go out and adVerDate 0ct 09 2002 13:32 Feb 16, 2007 Jkt 031541 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 F:\DOCS\31541.TXT HFIN PsN: TERRIE
49

vertise, I will list your home for 1 percent or I will sell your home 

for this amount. 

Can you not do that today? 

Ms. GORSUCH-BRADBURY. No. That is not our business model 

today. What we do is we cooperate with brokers. We have a network of 500 brokers and 12,000 agents. We provide a marketing 

service for them. 

Mr. MILLER OF CALIFORNIA. What is that marketing service? 

Ms. GORSUCH-BRADBURY. A marketing service—LendingTree spends approximately $170 million a year in advertising, and part 

of that is directed at attracting consumers who need the services 

of a real estate broker. 

Mr. MILLER OF CALIFORNIA. Are you telling me you cannot be 

flexible in your rates? 

Ms. GORSUCH-BRADBURY. We refer those consumers to our broker 

partners, and part of what we offer— 

Mr. MILLER OF CALIFORNIA. Then what do you want? I heard 

your testimony. I do not know what you want. Do you want free 

access to the MLS? Is that what you want? What do you want? 

Ms. GORSUCH-BRADBURY. Our belief is that real estate is a very 

important industry, obviously, both to consumers and to the economy. We believe it is too important to be— 

Mr. MILLER OF CALIFORNIA. What do you want? 

Ms. GORSUCH-BRADBURY. We would like to make sure that the 

markets are free and there are not— 

Mr. MILLER OF CALIFORNIA. That the MLS is available to you 

free, is that what you are asking for? 

Ms. GORSUCH-BRADBURY. We believe— 

Mr. MILLER OF CALIFORNIA. Yes or no? 

Ms. GORSUCH-BRADBURY. We believe that the rules should be— 

Mr. MILLER OF CALIFORNIA. Yes or no, you want it free or you 

do not want it free? You can join an MLS if you want to as a licensed broker, you can join an MLS? 

Ms. GORSUCH-BRADBURY. There are some MLS’ who would block 

our access to it. 

Mr. MILLER OF CALIFORNIA. As a licensed broker? 

Ms. GORSUCH-BRADBURY. Yes. 

Mr. MILLER OF CALIFORNIA. Redfin, you seem to be having no 

problem participating in MLS’. 

Mr. KELMAN. We apply to be in each MLS, and sometimes the 

application goes through easily. Other times, we have to make 

changes to our site that we feel are not in the interest of the consumer. 

Mr. MILLER OF CALIFORNIA. You are a discount broker? 

Mr. KELMAN. We consider ourselves an online broker. 

Mr. MILLER OF CALIFORNIA. You could go out and spend all the 

money in the world you want to and advertise, we are going to 

offer you this online service and we are going to save you money, 

we are going to cut the rates for listings, we are going to cut the 

rates for the selling agent, you can do that currently, can you not? 

Mr. KELMAN. We would just say that within the industry, it is 

indisputable that— 

Mr. MILLER OF CALIFORNIA. I am having trouble getting the answer to a simple question. 

50

If I want to come and list a house with you and give you 2 percent to list and 2 percent to sell, you can accept that or you can 

deny that? 

Mr. KELMAN. Of course, we can. 

Mr. MILLER OF CALIFORNIA. You can advertise that. 

Mr. KELMAN. Of course, we can. 

Mr. MILLER OF CALIFORNIA. What do you want then? 

Mr. KELMAN. What we want is to be able to go into States where 

that is not legal. 

Mr. MILLER OF CALIFORNIA. Let’s talk about California. How are 

you doing in California? 

Mr. KELMAN. We are doing well. 

Mr. MILLER OF CALIFORNIA. What corrections do you want made 

in California? 

Mr. KELMAN. The main issue is that you can display far more information about every product except a home on an Internet site. 

Mr. MILLER OF CALIFORNIA. There should be some restrictions as 

to telephone numbers and addresses and stuff. Those should not be 

necessarily on an Internet site. 

Mr. KELMAN. We agree completely that for privacy concerns and 

security concerns, but there are other reasons that the MLS restricts access to information. 

Mr. MILLER OF CALIFORNIA. What information? 

Mr. KELMAN. For example, they do not want you to search by 

how long a house is on the market. They do not want people to be 

able to add commentary on a house. 

Mr. MILLER OF CALIFORNIA. They do not want you to search? 

Mr. KELMAN. They do not want a consumer to be able to find 

houses— 

Mr. MILLER OF CALIFORNIA. They do not want you to list on your 

Web site that these are homes that have been on the market for 

over 90 days, so you are probably going to get a better deal on the 

price. Who would want that? 

Mr. KELMAN. Consumers definitely want that. 

Mr. MILLER OF CALIFORNIA. If I was selling my property, I certainly would not want it, because then you become distressed property. 

Mr. KELMAN. We understand it is not in the seller’s interest, but 

it is in the buyer’s interest. 

Mr. MILLER OF CALIFORNIA. You are telling me that an individual who contracts with a Realtor expecting his information to be 

put on an MLS and being treated fairly has no rights to what you 

should do with that information? 

Mr. KELMAN. I would not go that far. 

Mr. MILLER OF CALIFORNIA. That is what you just told me. It 

might not be in the seller’s interest, but it is in the buyer’s interest. 

You are going to put a seller in a situation where they own a home 

and that home has been on the market for over 90 days, somebody 

who might advertise it says oh, I have a home, they probably want 

to sell it in a bad way because it has been listed for a long time 

and we can probably get a better deal on this property. 

I would not want my home listed like that. 

Mr. KELMAN. If I could respond to that, I have been an executive 

at a publicly traded company. We sold our stock on the market. 

51

There was plenty of information that we did not want buyers to 

have, but for free market to function effectively, we feel that just 

because the seller does not want to expose certain types of information, it does not mean that the information should not be available. 

Mr. MILLER OF CALIFORNIA. Do all of you discount brokers—this 

is a stupid question—you have an opportunity to form your own 

listing service. You could call it Cut Rate Listing Service. You could 

get every broker who wants to be involved and every individual out 

there who sells real estate to list with Cut Rate Listing Service, 

could you not? 

Mr. KELMAN. We could, and if it was practical, we would. 

Mr. MILLER OF CALIFORNIA. Why not do that? At some point in 

time, some Realtor came up with an idea, hey, let’s start working 

together because when you list a piece of property, I do not know 

about it. When I list a piece of property, you do not know about 

it. There is going to be a cost associated with developing some type 

of a service, but let’s do that, and we will all pay for advertising 

and we will list it and then pay to be a member of that and we 

will set guidelines and rules to be a participant in that. 

Somebody did that. What it sounds like is you are coming along 

today and saying yes, they did that and yes, they set up guidelines, 

I just do not like them. 

The nice thing about America is if you do not like what somebody 

is doing, you can do something different. Why would you not go 

out, if there is going to be this huge demand out there for your 

service, based on you are going to give them a better deal, but you 

are going to provide all these services, but you are going to tell 

them that if your home is on the market over 90 days, we will 

probably let people know you have distressed property, why not go 

out to the American people and start advertising like some Realtor 

did at some point in time, and create your own service? 

If it really is as good as you are telling me, you are going to have 

more business and make more money than you are ever going to 

be able to spend. 

Mr. KELMAN. What we are disagreeing about, with all due respect, is whether or not the MLS asserts monopoly power. In our 

view and in the view of everyone, I think, at this table, people on 

either side of this issue, not having access to MLS data— 

Mr. MILLER OF CALIFORNIA. You do have access to data. What 

you do not have is the ability to use that data in a negative way 

that would impact a seller, and you have real estate brokers and 

agents that acted in good faith when they signed an agreement to 

sell somebody’s property that now they are being impugned in 

some fashion, their property is being impugned, because their property might be categorized as distressed, and you think that you 

have a right that supersedes the right of that seller who should 

have some control over the property they listed. 

That is where you and I disagree. That is why I think if you 

want to come up with a service that lists all those things, that people know they can take a chance at having their property categorized as distressed, and you think the American people want 

that, I think you would do really well. 

I do not believe people in this country who are selling their 

homes want their homes listed like that, to be put in categories 

52

that makes it appear that it is distressed property, and they cannot 

sell it. I do not think they want that. 

If I was going to sell my house, I darn sure would not sign with 

somebody who was going to do that with my property. 

You are saying, irrespectful of the understanding that a seller 

has with an agent or broker they listed with, that you want to go 

out and change the rules under which they entered into an agreement, and create your own rules, that you think benefits somebody 

who is not even a participant in the original contract. 

I have a real problem with that. That is just me as an individual 

saying if I was selling a property—if I was going out and trying to 

steal property, maybe as a shark, I think that is cool, because then 

I know who is hurting. 

The person who should have some control and some rights is the 

person who signed the original contract. 

Chairman NEY. Time has expired. 

Mr. MILLER OF CALIFORNIA. I think you are trying to supersede 

that. Good luck in the future. 

Chairman NEY. Time has expired. We have to move on. Would 

you like to answer? 

Mr. KELMAN. Just briefly. 

Mr. MILLER OF CALIFORNIA. I am not your enemy. I just disagree 

with you. 

Mr. KELMAN. I am shaking in my boots. I am a little nervous 

about this. All I was going to say is that an example that is proseller would be we have sellers who volunteer information about 

how the roof is and how the furnace is, and what their favorite 

room in the house is, and they provide enriched information around 

the listing, and the MLS has asked us to stop doing that. 

Mr. MILLER OF CALIFORNIA. Mr. Chairman, I ask unanimous consent to submit a letter for the record. 

Chairman NEY. Without objection. 

Mr. Davis? 

Mr. DAVIS. Thank you, Mr. Chairman. 

Mr. Kelman, some of the frustration is a function of the fact that 

some of your testimony has been a little bit nebulous, so let me try 

to clarify a little bit. 

How many States right now, Mr. Kelman, would you contend 

contain restrictions against your access to the MLS? 

Mr. KELMAN. Arguably, a dozen. 

Mr. DAVIS. Twelve. Presumably, in all those dozen States, you 

have the capacity to either go in and file a conventional legal claim 

under State law, or I suppose in some cases, under Federal law, 

or you have the capacity to go to the State legislatures in those 

States. 

The root of the problem, as I see it, given that Congress has 

frankly just not gotten that involved in this area, Congress has just 

not waded into regulation of the real estate industry, it is something that for years upon years has been essentially the province 

of State law, given the ample number of options that you have politically and legally, I do not see a strong case for Congress to intervene. 

Where am I wrong? 

53

Mr. KELMAN. We are a 30 person business that has five law 

firms. I do not have an administrative assistant. There is no P.R. 

agency. 

Mr. DAVIS. The problem with that argument, Mr. Kelman—this 

is how I understand your argument. You are saying that you do not 

have the ideal perfect access to this market that you would desire. 

All of us can attest that there are third parties in America who do 

not have the ideal access to the political market they desire. 

There are small mom and pop retail stores in Birmingham, Alabama, who do not have the ideal access to the market they would 

desire. That is just kind of the tough breaks of capitalism sometimes. 

I understand you do not have all that you desire and do not have 

the playing field that you want. That is a common right in this society. 

Tell me the case for Congressional intervention in this instance 

as opposed to all those others. 

Mr. KELMAN. First of all— 

Mr. DAVIS. Why should we guarantee a perfect access or market 

so you can do exactly what you want to do the way you want to 

do it? 

Mr. KELMAN. First of all, I do not think any legislation should 

be crafted to benefit Redfin or any other online broker, discount 

broker. It just seems like we are having a conversation today about 

how the real estate industry will be affected instead of how the 

consumer will be affected. 

It seems self evident to us that if you were to lower the barriers 

to entry for companies operating at a different price point and prevent blackballing and prevent discrimination— 

Mr. DAVIS. Those are all good goals, Mr. Kelman. Tell me why 

the current antitrust laws and all kinds of legal remedies available 

at the State level do not accomplish exactly that goal right now. 

Mr. KELMAN. They do not prevent discrimination from buyers 

that are working with low fee brokerages. They do not nationally 

apply to allow low fee brokerages to compete in different States. 

Mr. DAVIS. Let me raise a different set of concerns. One of the 

policy rationales that Congress has to consider is whether doing 

what you want would serve a pro-competitive agenda, and second 

of all, would it open up the real estate markets to people who are 

not a part of it right now. 

What is the economic profile from an income standpoint of people 

who utilize your service? 

Mr. KELMAN. In our case, it is actually people who are buying 

houses more expensive than the median, and other types of discounters that do not operate through the Internet primarily, it is 

below the median. In our case, it is above the median price. Zip Realty would be an example of a company that operates well below 

the median. 

Mr. DAVIS. Is there any identifiable class of people you are reaching who you think are somehow not being served by the conventional Realtors in this country? 

Mr. KELMAN. People who can find homes on their own using the 

Internet. 

54

Mr. DAVIS. People can find homes on their own using the paper 

right now. I am trying to identify some class of consumers who are 

not being served. 

Presumably, the individuals you talk about also can find access 

and service through the conventional real estate market and make 

the same range of choices they want, can they not? 

Mr. KELMAN. All I am trying to do is characterize how we think 

about our market, and what we hear from the people who buy our 

service is, I found the home on my own, and I did not want to pay 

an agent 3 percent. They come to us and they use our online service to draft the offer, and to handle negotiations and closings. 

Mr. DAVIS. Right. The response to that would be that is exactly 

right, you have provided this alternative service to people who 

want to take advantage of it. It still raises the question of what 

extra regulatory tilt you want. 

Let me ask another set of questions. What is the default rate? 

Have you monitored default rates of people who engage your service? 

Mr. KELMAN. We do. Generally, it is 3 percent and 3 percent. 

Just to respond to your other question, it seems like Congress is 

not sensitive to the amount of blackballing that is going on. 

Our customers, as we testified, and as you have heard Mr. Farmer testify, feel like they are going through an experience that is 

completely extra legal, where there is no remedy for them when 

people refuse to show them properties, when they get hostile messages and things like that. It is just a very difficult climate for a 

consumer to operate in. 

Mr. DAVIS. For the consumer to operate in or for your industry 

to operate in? I guess there is a difference. 

Mr. KELMAN. We are trying to take the point of view of the consumer here. 

Mr. DAVIS. Let me follow along those lines. One of the arguments 

you heard raised by Mr. Green in the earlier panel and by others 

is obviously, do not consumers often benefit from having to go 

through brokers, do they not benefit from going through a third 

party. Does that not give them information they would not have? 

You have dismissed that and you said if someone wants the 

physical presence at closing, we will provide that. 

Let’s say you do that, you provide a physical presence at the closing. 

Mr. KELMAN. We do. 

Mr. DAVIS. What duty of care do you owe in that instance to the 

buyer? 

Mr. KELMAN. In that case, our duty is to offer better service from 

offer to close than a traditional agent. We specialize in the legalities, in the negotiations. 

I think in the more general case, I would refer to the testimony 

earlier today that you should disclose what you do and then give 

people the choice to buy what they want. 

Mr. DAVIS. Let me try to wrap this up. The concern that I think 

some of us have is, I think all of us would acknowledge that no, 

the real estate market does not work perfectly in terms of reaching 

underserved populations, in terms of reaching people who may be 

victimized by predatory lending, all those kinds of things. 

55

What is completely unclear to me is how your service does any 

better, or how your service meets any of these gaps. I am not trying 

to run you out of business. For the Federal Government to weigh 

in on these issues, when frankly they seem to be somewhat peripheral, somewhat limited to a few instances and in a few States, I 

do not see a compelling Federal rationale for that, when you cannot 

identify to me a population of people that you would reach or who 

are not reached by the conventional market, and frankly, when you 

do not indicate to me that you would mitigate any wrong that is 

happening in the current market. 

That is just my two cents’ worth. 

Mr. KELMAN. Current market—the current market is served by 

agents in a comprehensive way. People just pay too much. When 

they try to get a discount, there is anticompetitive behavior that 

is hostile. 

Mr. DAVIS. Mr. Kelman, what is a little bit bizarre about your 

argument, you are saying you want to cut some of the transactional 

layers that are involved in the real estate transaction. The real estate transaction is probably one of the most acute financial decisions someone can make over the course of his or her economic life. 

It would seem that, given how acute that risk is, you would 

want, frankly, as many guardrails built into the process as possible, and as much intermediation built into the process as possible. 

If you do not want to shorten steps, because if you shorten steps, 

you may cut information out. People may make enormously erroneous choices. 

Mr. KELMAN. We would hold there are people who need those 

guardrails, and want those guardrails, but we also believe in free 

markets rather than a paternalistic approach, and we would just 

suggest there are people who feel confident to find the home— 

Mr. DAVIS. I am not saying you should go out of business. The 

ultimate question is whether the Federal Government ought to 

weigh in and do more than we are doing. I think all of us conservatives and liberals believe if you are coming to Congress wanting 

something, the burden is on you to tell us why we need it. 

I am getting mean looks from my chairman. 

Chairman NEY. Actually, I have to tell you something. This is 

the second time this has happened. The majority staff over here, 

I think they liked your questions. They accidently bumped the 

clock and you re-set for 5 minutes. I kind of think they favor you. 

Mr. Cleaver? 

Mr. CLEAVER. Thank you, Mr. Chairman. I did think that was 

lengthy. 

I would just like to ask the panel, I am a Democrat, and I am 

very much interested in getting access to the Republican mailing 

list for contributors in my district. I want to know what you think 

should be done to allow me access. 

Mr. KELMAN. We do not contribute to Republicans or Democrats. 

We read an article in the New York Times and called Clinton. 

Mr. CLEAVER. There is nothing that would cause me to believe 

that I deserve to get that access. 

Mr. BROBECK. Can I respond to that question? 

Mr. CLEAVER. Yes, please. 

56

Mr. BROBECK. The problem today is that sellers are under enormous pressure to list with a multiple listing service. If they do not 

list with the local multiple listing service, they are going to be disadvantaged in trying to sell their home for an adequate price. 

It is sort of a critical mass question. Microsoft and others tried 

to develop alternative listing services and failed because they could 

not reach the critical mass. 

We would like nothing better than to have every seller list on 

two or three different listing services. If that were the case—you 

probably saw the article in the New York Times several months 

ago that in Madison, Wisconsin, and it just surprised me a great 

deal, they achieved critical mass with 20 percent of the market. I 

would have guessed you would have needed 40 percent. 

Maybe it is much lower. We need some alternatives to the multiple listing service. Now that we do not have them, it is essentially 

functioning as a monopoly. 

We are not criticizing the Realtors. They worked very hard to 

build it up and it is an extraordinary useful information source. It 

does have a monopolistic character. 

Either we need alternatives or we need some kind of oversight. 

As our report we released last week indicated, the practicing brokers are controlling virtually all of the State commissions, so we 

would prefer, as in insurance, independent commissioners to regulate the industry. 

If in fact the States turned around and decided to regulate this 

effectively, and I have to say for the ranking member that California is relatively independent of the industry—it is one of two or 

three States that has the most effective, not really effective, but the 

most effective State regulation. 

Absent that, there needs to be a Federal regulatory role. We propose the fairly modest step of a careful study of prices and the way 

multiple listing services function, so that this committee would 

have available information, adequate information, to make sound 

decisions about policies. 

Mr. CLEAVER. Thank you. Mr. Farmer, I am from Waxahachie. 

I read the e-mail. My colleague, Mr. Davis, was a prosecutor before 

he became a Member of Congress. I just asked him a few questions 

before he left. 

I do not understand why you could not, or the Daily Light did 

not, simply contact the Texas Attorney General’s Office. I have a 

cousin who actually works in that office. I was trying to e-mail him 

from here on my Blackberry to find out would they investigate that 

kind of charge. 

I do not understand why this cannot be dealt with by the State 

Attorney General or is there a request for greater oversight by the 

Federal Trade Commission, or do you need some kind of involvement from the Department of Justice. 

Mr. FARMER. I am not asking anyone to do anything. I am just 

showing this as evidence of the things we go through on a daily 

basis. To be honest with you, I am not asking Congress—I do not 

think there should be any Federal regulation of the real estate industry. I think it should stay on a State level. 

Mr. CLEAVER. I do, too. 

57

Mr. FARMER. As far as this letter, we got this back in November. 

DOJ, I told them about it, and then DOJ actually asked me about 

it. I talked to my agent about it. He was kind of in fear of any kind 

of reprisal. 

As you know, Waxahachie is still a pretty small town. He was 

born and raised there, grew up there. It is still kind of a good old 

boy system. He is in fear of kind of what might happen when this 

came out. I did convince him, hey, this is the right forum for me 

to present this. 

I am not asking anybody to do anything. I have never asked anybody to do anything about it. 

Chairman NEY. Time has expired. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Chairman NEY. Mr. Sherman? 

Mr. SHERMAN. Thank you, Mr. Chairman. Mr. Lewis, we have 

Mr. Brobeck here suggesting that we get this big investigation and 

report. What would be the advantage or disadvantage of implementing his suggestion? 

Mr. LEWIS. There are over 800 multiple listing services in the 

country today. It is a very fragmented market. The point I made 

earlier, any home seller, whether it is a for sale by owner, using 

a fee for service provider, a discount broker, a full service broker, 

today, they can up load their property listing to Google, to Yahoo!, 

to eBay, to Craig’s List, PropsMart, and Trulia. There are new Web 

sites popping up every day. 

There is no limit on the amount of exposure that a home seller 

gets. The MLS is no longer the exclusive preserve that it once was. 

Mr. SHERMAN. He wants us to do this study. Are you saying it 

is just unnecessary because it would be a study of the MLS which 

is kind of like studying Yahoo! and Google is taking over anyway? 

Mr. LEWIS. I do not think it is as relevant as he is suggesting. 

Mr. SHERMAN. First of all, I want to thank all the panelists for 

coming to us, in large part, I guess, on the theory that wisdom and 

justice will come from Washington when it has not come from State 

legislatures. I am dumbfounded by such a belief, and doubt very 

much whether we are going to do or could do any better job. 

I have run out of specific questions. I do want to make the point 

that this price competition, I have seen not so much in the middle 

class district I represent now, but I used to represent Malibu, and 

as you might know, nobody gets 6 percent in Malibu, never got 6 

percent in Malibu. We have seen Realtors compete on the basis of 

price. 

I am just going to refer to Ms. Vredevoogd-Combs, whether you 

have any additional comments. 

Ms. VREDEVOOGD-COMBS. Yes. Thank you very much. 

One of the things that is just so obvious to me as I am listening 

to this, because I sell real estate every day and because I am in 

a marketplace in Grand Rapids, Michigan, that is just a little bit 

different than the California market, we have been seeing a down 

market for the last few years. 

It has been very interesting. 

Mr. SHERMAN. Even the last few years when the whole country 

is going up? 

58

Ms. VREDEVOOGD-COMBS. Yes. Welcome to Michigan. We have 

some great values for you over there. Waterfront property. 

Mr. SHERMAN. Does this mean you are raising your percentage 

rates so you can make as much on each sale? It has been suggested 

that we should cut the rate when house prices go up. Your house 

prices are going down. Are you raising your rates? 

Ms. VREDEVOOGD-COMBS. Our house prices are going down and 

we are not raising rates. I will tell you, in Grand Rapids, Michigan, 

every conceivable type of brokerage is out there. 

The first thing anyone asks you, even in a down market, is what 

is your commission rate, and what are you going to charge, and 

what are you going to co-op that with? 

I will tell you that there are discount brokers. There are Internet 

brokers. 

The other thing is I have to spend more money because I am on 

the Internet than I ever did just because I was doing print advertising. 

Mr. SHERMAN. The Internet is more expensive than print advertising? 

Ms. VREDEVOOGD-COMBS. It is an additional thing that I have to 

pay for. I have my own Web site. In the mid-1980’s, I had my own 

Web site built. I was the first person in Grand Rapids to have a 

Web site. Of course, nobody saw it because nobody had the Internet. 

I also had an e-mail address, and nobody e-mailed me because 

nobody had e-mail. 

I started in that. I have been selling real estate since 1971. I 

have seen a lot of changes in the marketplace. It costs money to 

be on the Internet. Those of us who are in brokerage have to take 

into consideration not only the fact that we are in brokerage and 

we earn a commission and we are independent contractors, but we 

also have to pay for our own advertising. We have to pay for our 

own Internet. It is just an added cost. 

The other part is that there are a lot of free places you can go 

on the Internet. We can put them, just as Mr. Lewis said, I can 

put my listings up free on a number of sites. The listings that I 

have right now probably are on 15 or 16 sites. People can find them 

all over the place, in addition to the MLS, and our MLS happens 

to be open to the public, so people can go on our MLS site and 

search for houses. 

I think the market is much more open than it ever has been. We 

work with and cooperate with people who are doing all sorts of brokerage business. 

Mr. SHERMAN. I do not know which person to address this question to, but if you have a menu of services rather than the one fixed 

rate, I think one of the witnesses testified that they offer a menu 

of services, what is on that menu? What service would I buy independently of another, and what are the entrees that sell well, and 

what are the side dishes that sell poorly? 

Mr. FARMER. We have three different listing options when you 

list your home with us. We have a limited-service listing that used 

to be our most popular, now after the new State laws, it is not the 

most popular any more. It can still be done, but it is much more 

tedious. 

59

The most popular one is the one where we actually help with 

contract negotiations and basically, from the time a buyer is found, 

all the way through closing. It is essentially a full service listing. 

We charge a flat rate of $1,500, plus $495 at the time of listing for 

that. 

Mr. SHERMAN. That is full service. 

Mr. FARMER. We do not do any additional marketing of the property. We do have a full service option. We will do open houses, and 

we will make flyers, and we will do newspaper ads, and we will do 

whatever they want. 

Chairman NEY. Time has expired. 

Mr. SHERMAN. Thank you. 

Chairman NEY. By the way, we are waiting for the votes. If you 

have additional questions, we can do it. 

I wanted to also recognize Kara Mundy. It is her last day. Kara, 

do you want to raise your hand? Thank you. It is her last hearing, 

it is not her last day, as an intern from Ohio State. I wanted to 

mention that, a graduate of Ohio State. 

The question I had, I want to ask the Realtors. What is wrong 

with Mr. Kelman or Redfin, LendingTree, why can’t they come to 

the Realtors and say, okay, I want to be part of this MLS and I 

am going to pay a fee like other Realtors would do to join, and do 

it nationally instead of going State by State and district by district? 

Ms. VREDEVOOGD-COMBS. All of our MLS’ are local. They are not 

national at all. We have MLS rules that are national rules. Some 

of those, or actually most of those rules are optional. 

Chairman NEY. That is what DOJ is objecting to, the national 

rules, correct? 

Ms. VREDEVOOGD-COMBS. We have some national rules, and 

those are really there to protect our MLS’, so they do not get sued 

by the DOJ. 

Chairman NEY. DOJ is objecting to the rules? 

Ms. VREDEVOOGD-COMBS. Objecting to some of the optional rules 

that were set out prior to—those have been changed now—that is 

what they are objecting to. 

Chairman NEY. None of your rules could override a State law, no 

matter what association? 

Ms. VREDEVOOGD-COMBS. No. 

Chairman NEY. The State law would come in and undo a rule, 

and that would be the law of the land? 

Ms. VREDEVOOGD-COMBS. You have to abide by State laws, but 

every one of our MLS’ is local. The only thing the National Association of Realtors does is we promulgate various rules and regulations for MLS’, and most of them are optional, if they want to do 

those, they can, and if they do want to do those, we set out the 

wording for them. 

Chairman NEY. Are there any groups, online groups, online companies, that can go all over the entire United States? I think there 

are 1,000 MLS’. 

Ms. VREDEVOOGD-COMBS. All real estate is local. You have to join 

your local association. That is the beauty of the real estate industry. 

Chairman NEY. How much does it cost to join that local, do you 

know, on average? 

60

Ms. VREDEVOOGD-COMBS. I do not. Maybe these guys do. 

Mr. FARMER. I belong to nine different MLS’ in Texas. Every one 

of them has different rules, standards, and practices. Some of them 

make you go to orientation. I have to drive from Austin to Amarillo, which is about—I do not have to drive but I have to go to 

Amarillo to go to that board’s orientation. Some MLS’ have orientation, and some do not. It is very tedious. 

I am not here to complain about the MLS rules. I know that is 

part of the business and part of my job. 

Generally, it is going to run you, MLS fees alone will generally 

run you about $500 to $700 a year, and then additional dues as far 

as NAR, TAR, and local board dues, another $500 a year or so. 

Around $1,000 to $1,500, depending on the board, a year to belong 

to an MLS. 

Chairman NEY. Did you want to comment? 

Ms. GORSUCH-BRADBURY. I think one of the issues is you need to 

go and join each of those MLS’ individually, which by the way, 

realestate.com is completely fine with. I think one of the key points 

that probably several of us have tried to convey is that we are fine 

joining the MLS’ and we are fine abiding by the rules. 

What we want to know, or have assurance of, is that when we 

join, we will not be discriminated against based on our business 

model. We want to have equal access as long as we are playing by 

the licensing rules and we are playing by all the MLS rules. We 

want to have the rules enforced equally so that we have a chance 

to compete fairly. 

What that does is it allows us to innovate knowing that we will 

have access to the key information, which is the listings. 

I think you have to think of an MLS as a market maker. That 

is where real estate is transacted. It is where buyers and sellers 

find each other. If, for whatever reason, we are excluded from that, 

it is very hard to compete. 

Chairman NEY. Yes? 

Ms. VREDEVOOGD-COMBS. Just a comment. All of our MLS’ are 

independent, and we welcome everybody to join these MLS’ if they 

are licensed in that State, and if they do business as a brokerage, 

they are welcome. Our arms are open. What we are finding is that 

we want to do business in every way, but they all have to follow 

the same rules that we do in our businesses, too. I think they agree 

with that. 

Chairman NEY. Do you agree with that? 

Ms. GORSUCH-BRADBURY. We do agree, but with all respect, I do 

not think the rules are necessarily enforced equally by all the 

MLS’. 

Mr. FARMER. I agree except for when MLS’ go—when you create 

a business model, then they go and change the rules. That is what 

has happened in Austin. That is what the State of Texas has tried 

to do with minimum service laws. 

When you go and join and then some boards see this new competition and start changing the rules on you. That is what I object 

to. 

Chairman NEY. Mr. Kelman? 

61

Mr. KELMAN. I was only going to reference again E-Realty. That 

is a company where the CEO testified before Congress saying that 

he felt his company was being discriminated against by the MLS’. 

In conversations with him, we have heard that his business 

would apply to be in the MLS. The application would be put on a 

slow boat to China. The MLS would confer with the National Association of Realtors. This was the issue he testified to 4 years ago. 

In talking to him now, he said that he did not think Congress 

would act, but the Department of Justice would at least dampen 

the bullying effect of the National Association of Realtors. 

Chairman NEY. Thank you. Very interesting panel. I appreciate 

the testimony and look forward to talking with you all in the future. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses, and to 

place their responses in the record. 

The hearing is adjourned. 

[Whereupon, at 5:29 p.m., the subcommittee was adjourned.] 

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July 25, 2006

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