COMPETITION IN THE REAL ESTATE 

BROKERAGE INDUSTRY 

A Report by the Federal Trade Commission and 

U.S. Department of Justice 

April 2007 
Federal Trade Commission

DEBORAH PLATT MAJORAS Chairman 

PAMELA JONES HARBOUR Commissioner 

JON LEIBOWITZ Commissioner 

WILLIAM E. KOVACIC Commissioner 

J. THOMAS ROSCH Commissioner 

Jeffrey Schmidt, Director, Bureau of Competition 

Lydia B. Parnes, Director, Bureau of Consumer Protection 

Michael A. Salinger, Director, Bureau of Economics 

Maureen K. Ohlhausen, Director, Office of Policy Planning 

William Blumenthal, General Counsel 

Charles Schneider, Executive Director 

Report Contributors: 

James C. Cooper, Deputy Director, Office of Policy Planning 

Gregory P. Luib, Assistant Director, Office of Policy Planning 

Denis A. Breen, Assistant Director, Bureau of Economics 

Daniel S. Hosken, Deputy Assistant Director, Bureau of Economics 

Christopher P. Adams, Bureau of Economics 

David Meyer, Bureau of Economics 

Sean P. Gates, Deputy Assistant Director, Bureau of Competition 

Patrick J. Roach, Deputy Assistant Director, Bureau of Competition 

Peggy Bayer Femenella, Bureau of Competition 

Peter Taylor, Bureau of Competition 

Inquiries concerning this Report should be directed to: 

James C. Cooper, Deputy Director, Office of Policy Planning 

202-326-3367 or jcooper1@ftc.gov
U.S. Department of Justice 

Antitrust Division

THOMAS O. BARNETT Assistant Attorney General 

Dennis W. Carlton Deputy Assistant Attorney General for Economic Analysis 

Scott D. Hammond Deputy Assistant Attorney General for Criminal Enforcement 

Gerald F. Masoudi Deputy Assistant Attorney General for International, Policy 

and Appellate Matters 

David L. Meyer Deputy Assistant Attorney General for Civil Enforcement 

James J. O’Connell, Jr. Chief of Staff 

J. Robert Kramer, II Director of Operations 

Kenneth Heyer Economics Director of Enforcement 

Marc Siegel Director of Criminal Enforcement 

Patricia A. Brink Deputy Director of Operations 

Report Contributors: 

Anne Marie Cushmac, Counsel to the Assistant Attorney General 

W. Robert Majure, Chief, Competition Policy Section 

Matthew Magura, Economist, Economic Regulation Section 

John R. Read, Chief, Litigation III Section 

Nina B. Hale, Assistant Chief, Litigation III Section 

Joyce L. Bartoo, Trial Attorney, Litigation III Section 

Matthew J. Bester, Trial Attorney, Litigation III Section 

William H. Jones, II, Trial Attorney, Litigation III Section 

Christopher M. Ries, Trial Attorney, Litigation III Section 

Amber Buycks, Paralegal, Litigation III Section 

Lucy Malcolm, Paralegal, Litigation III Section 

Dawn Miller, Paralegal, Litigation III Section 

Mary Ethel Kabisch, Administrative Assistant, Litigation III Section 

Inquiries concerning this Report should be directed to: 

John R. Read, Chief, Litigation III Section 

202-307-0468 or John.Read@usdoj.gov 
 TABLE OF CONTENTS

INTRODUCTION ................................................................................................................................................1

CHAPTER I: BACKGROUND .........................................................................................................................4

A. OVERVIEW OF THE TYPICAL REAL ESTATE TRANSACTION .......................................................................4

1. Description of Real Estate Brokers and Agents ..................................................................................4

2. The Seller’s Agreement with the Listing Broker..................................................................................6

3. The Buyer’s Relationship with the Cooperating Broker......................................................................7

4. The Buyer’s Offer, Contingencies, and Closing in a Typical Transaction..........................................8

B. THE MULTIPLE LISTING SERVICE..............................................................................................................9

1. Description of the MLS......................................................................................................................10

2. Why the MLS is Important to Sellers, Buyers, and Brokers ..............................................................12

C. NONTRADITIONAL BUSINESS MODELS....................................................................................................14

1. Full-Service Discount Brokers ..........................................................................................................15

2. Fee-For-Service Brokers...................................................................................................................16

3. Virtual Office Website Brokers..........................................................................................................17

4. Websites that Provide Advertising and Other Services to FSBO Sellers...........................................19

5. Broker Referral Networks..................................................................................................................20

6. Consumers’ Use of Nontraditional Models and FSBOs....................................................................20

CHAPTER II: THE INTERNET’S ROLE IN REAL ESTATE BROKERAGE .........................................22

A. INCREASED CONSUMER ACCESS TO REAL ESTATE-RELATED INFORMATION..........................................22

B. THE INTERNET’S EFFECT ON THE REAL ESTATE INDUSTRY ....................................................................25

C. GAPS IN CONSUMER KNOWLEDGE ..........................................................................................................27

CHAPTER III: COMPETITION AMONG BROKERS ................................................................................30

A. STRUCTURAL FEATURES OF THE REAL ESTATE BROKERAGE INDUSTRY.................................................30

1. Broker Concentration........................................................................................................................30

2. Entry..................................................................................................................................................32

B. THE NATURE OF COMPETITION AMONG BROKERS..................................................................................34

1. Service Dimension.............................................................................................................................34

2. Price Dimension................................................................................................................................34

C. COMMISSION RATES AND FEES: EMPIRICAL EVIDENCE..........................................................................38

D. ONE EXPLANATION OF THE SEEMINGLY CONTRADICTORY DESCRIPTIONS OF BROKER COMPETITION ...45

CHAPTER IV: OBSTACLES TO MORE ROBUST COMPETITION ......................................................49

A. LEGISLATIVE AND REGULATORY RESTRICTIONS ON COMPETITION ........................................................49

1. Anti-Rebate Laws and Regulations....................................................................................................49

2. Minimum-Service Requirements........................................................................................................53

3. Licensing Requirements for Firms that Advertise FSBOs .................................................................62

B. USE OF MLS RULES TO DISADVANTAGE COMPETITORS .........................................................................63

1. Discrimination Against Brokers Entering into Exclusive Agency Listing Contracts ........................63

2. Discrimination Against VOWs ..........................................................................................................65

C. STEERING AS A POSSIBLE OBSTACLE TO GREATER PRICE COMPETITION ...............................................66

1. The Importance of Cooperation in Real Estate Brokerage ...............................................................67

2. Reports That Cooperation Has Been Withheld .................................................................................68

3. Limiting the Effects of Steering .........................................................................................................69

CONCLUSION AND RECOMMENDATIONS..............................................................................................71
1

INTRODUCTION

Competition provides American consumers lower prices, better quality services, 

and greater choice. In the residential real estate industry, competition is vitally important 

because buying or selling a home is one of the most important financial transactions a 

consumer will ever undertake. Given the size of the real estate industry,1

 any restraints 

on competition in real estate brokerage will have significant adverse consequences for 

consumers. Moreover, because real estate broker commissions are typically a percentage 

of the home sales price, the dollar amount charged by real estate brokers has increased 

significantly in recent years as home sales prices have escalated.2 And, because the 

amount home sellers pay their real estate broker is built into the home sales price, both 

home buyers and sellers bear this expense.3

The residential real estate industry has undergone a number of substantial changes 

in recent years. Today, real estate agents and brokers are changing the way they operate 

and are increasingly incorporating the Internet into their business models in a variety of 

ways, such as offering potential buyers the option to view full, detailed multiple listing 

services (“MLSs”) online, using websites to gather “lead” information on potential 

customers, and using the Internet to match home buyers and sellers. The increased ease 

with which home buyers and sellers can perform tasks that once were the exclusive 

domain of real estate agents and brokers likely has been an important factor in the 

increased demand for innovative, non-traditional real estate brokerage services.4

 In fact, 

the Internet has surpassed the yard sign as the most important marketing tool to reach 

consumers.5

 

1

 In 2005 real estate broker commissions exceeded $60 billion. See The Changing Real Estate Market: 

Hearing Before the House Financial Services Subcommittee on Housing and Community Opportunity, 

109th Cong. 1 (2006) [hereinafter Hearing] (testimony of David G. Wood, Director, Financial Markets and 

Community Investment, Government Accounting Office), available at

http://financialservices.house.gov/media/pdf/072506dgw.pdf. 

2

 Between 1998 and 2005, the real median real estate broker commission per transaction grew by 25.5% to 

$11,549. See Table 1 in Chapter III of this Report. 

3

 See Robert W. Hahn et al., Paying Less for Real Estate Brokerage: What Will Make It Happen? 5 

(American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Working Paper 05-11, 2005) 

[hereinafter AEI-Brookings Paper]; GAO, REAL ESTATE BROKERAGE: FACTORS THAT MAY AFFECT PRICE 

COMPETITION (GAO-05-947) 15 n.33 (2005) [hereinafter GAO REPORT]. 

4

 According to one survey, 80 percent of home buyers used the Internet during their home search in 2006, 

and 24 percent of recent home buyers first located the home they bought on the Internet. NAR, 2006

NATIONAL ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS AND SELLERS 34, 38 (2006) [hereinafter 

NAR 2006 SURVEY] (covering 12-month period ending June 2006). In contrast, in 1997 only 2 percent of 

recent home buyers had first located their home on the Internet. Id. at 38. 

5 Id. at 34 (Internet cited by 80% of home buyer respondents, while yard sign cited by 63%). 
2

While there have been many positive developments in the residential real estate 

industry, there are some indications that consumers are not enjoying all of the possible 

benefits of competition in the real estate brokerage industry. A number of developments 

have raised competitive concerns, particularly laws and regulations in some states that 

limit consumer choice of real estate brokerage service offerings and that prohibit rebates 

to consumers, anticompetitive agreements among brokers, and industry practices that 

impede competition. These practices can lead to substantial consumer harm through 

reduced choice of real estate brokerage services, higher fees, and limitations on the 

ability to access information about real estate listings. 

Given how important competition is to consumers in this industry, the Federal 

Trade Commission (“FTC”) and the Department of Justice Antitrust Division (“DOJ”) 

held a public workshop in October 2005 (“Workshop”) to address issues affecting 

competition in the residential real estate brokerage industry.6

 Panelists at the Workshop 

included traditional real estate brokers, brokers offering nontraditional business models, 

state regulators, and academics.7

This Report presents an overview of the information provided and opinions 

expressed at the Workshop, as well as existing literature and studies, and examines some 

of the competitive issues raised at the Workshop and in other proceedings.8 Chapter I 

provides background information on the real estate brokerage industry, including the 

roles that real estate agents and brokers play in a typical real estate transaction; considers 

the importance of MLSs; and examines some of the alternative business models used by 

 

6

 The agenda, transcript, and other information relating to the Workshop are available at the Agencies’ 

websites at http://www.usdoj.gov/atr/public/workshops/reworkshop.htm and 

http://www.ftc.gov/bc/realestate/workshop/index.htm. 

7

 The following people testified at the Workshop: Cathy Whatley, real estate broker and Past President of 

NAR; Robert Hahn, economist and Executive Director, American Enterprise Institute-Brookings Joint 

Center for Regulatory Studies; Aaron Farmer, Owner of Texas Discount Realty; Thomas Kunz, President 

and Chief Executive Officer of Century 21 Real Estate LLC; Colby Sambrotto, Chief Operating Officer of 

ForSaleByOwner.com; Wayne Thorburn, Administrator, Texas Real Estate Commission and Immediate 

Past President of the Association of Real Estate License Law Officials; Steve DelBianco, Executive 

Director, NetChoice Coalition; Thomas Early, President, National Association of Exclusive Buyers’ 

Brokers; Philip Henderson, Vice President, Lending Tree; Geoff Lewis, Senior Vice President and Chief 

Legal Officer, RE/MAX International, Inc; Alexander Perriello, President and Chief Executive Officer, 

Cendant Real Estate Franchise Group; Lawrence Yun, Managing Director of Quantitative Research, NAR; 

Chang-Tai Hsieh, Associate Professor of Economics, University of California. In addition, the Agencies 

received almost 400 submissions in response to their request for public comment in connection with the 

Workshop. 

8

 This Report, however, does not draw on any non-public information gathered during investigations 

conducted by the FTC or DOJ or obtained through litigation brought by the Agencies. The FTC and DOJ 

do not necessarily endorse, support, verify, or agree with the comments, opinions or statements of 

Workshop participants or of others who have published articles regarding the industry that are included in 

this Report. 
3

real estate brokerages. Chapter II discusses the impact of the Internet on the real estate 

brokerage industry and information asymmetries. Chapter III explores the competitive 

structure of the real estate brokerage industry and publicly available evidence concerning 

brokerage commission rates and fees. Chapter IV addresses obstacles to a more 

competitive market environment, including government-imposed impediments, MLS 

rules that can cause anticompetitive effects, and the importance of broker 

interdependence. The final part of the Report offers conclusions and recommendations. 
4

I. BACKGROUND

 This Chapter provides an overview of the traditional real estate transaction and 

the participants involved in the process, discusses the important role of the MLS, and 

examines how the Internet has affected residential real estate brokerage-related services. 

It also identifies and describes certain types of nontraditional real estate business models, 

including: (1) full-service discount brokers; (2) fee-for-service brokers; (3) Virtual 

Office Website (“VOW”) operators; (4) for-sale-by-owner (“FSBO”) facilitators; and (5) 

broker referral networks. 

A. Overview of the Typical Real Estate Transaction 

 At its most basic, real estate brokerage is about matching a home seller with a 

home buyer.9

 As one panelist, who represents a major brokerage franchise, remarked, a 

home seller wants to “negotiate the best possible price in the quickest possible time.”10 

Brokers reduce the transaction costs of matching buyers and sellers and also provide their 

clients with ancillary services related to the transaction. Although there is no legal 

impediment to consumers buying and selling homes on their own, the large majority of 

consumers choose to work with a real estate broker. For example, a recent National 

Association of Realtors (“NAR”) survey found that 84 percent of consumers employ a 

real estate broker to help them sell their home, and the vast majority of these home sellers 

appear to be contracting with real estate brokers to provide assistance on all aspects of the 

transaction.11 Another NAR survey found that nine out of ten buyers use a real estate 

professional during their home searches.12 The Internet also appears to be playing an 

increasingly important role in the real estate transaction. For example, NAR data show 

that the Internet was second only to real estate agents as the most commonly used 

information source for home buyers.13

1. Description of Real Estate Brokers and Agents 

Although the terms may vary by state, there are two principal categories of real 

estate brokerage professionals: “agents” and “brokers.” Generally speaking, agents work 

 

9 See FEDERAL TRADE COMMISSION, THE RESIDENTIAL REAL ESTATE AND BROKERAGE INDUSTRY: LOS 

ANGELES REGIONAL OFFICE STAFF REPORT VOLUMES I AND II AND THE BUTTERS REPORT 9 (1983)

[hereinafter 1983 FTC STAFF REPORT], available at http://www.ftc.gov/bc/realestate/workshop/index.htm. 

10 Kunz, Tr. at 103. Throughout this Report citations to “Tr.” refer to the transcript of the Workshop. 

Speakers are identified by last name. The full transcript is available at 

http://www.ftc.gov/opp/workshops/comprealestate/051209transcript.pdf and 

http://www.usdoj.gov/atr/public/workshops/rewagenda.htm. 

11 NAR 2006 SURVEY, supra note 4, at 67, 68. 

12 NAR, Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents (Jan. 17, 2006), 

http://www.realtor.org/press_room/news_releases/2006/hmbuyersellersurvey06.html. 

13 NAR 2006 SURVEY, supra note 4, at 34. 
5

directly with consumers and brokers supervise agents. Typically, agents solicit listings, 

work with homeowners to sell their homes, and show buyers homes that are likely to 

match their preferences. Instead of working with customers directly, brokers often 

provide agents with branding, advertising, and other services that help the agents 

complete transactions. In terms of branding, the broker may invest in and create a brand 

or affiliate with a national or regional franchisor that provides a brand with certain 

reputational value and an advertising campaign. As for services, brokers may provide 

agents with computers, website hosting, office space, training, and marketing. 

States require real estate brokers and agents to be licensed. These licensing 

statutes form the framework for state regulation and oversight of the profession by 

establishing requirements for licensure (such as minimum age, education, and 

experience) and various requirements and prohibitions regarding business practices and 

conduct. State commissions, frequently composed of real estate brokers, oversee drafting 

of and compliance with these laws and regulations.14

Brokers and agents (hereinafter, “brokers”)15 usually are more informed about the 

local real estate market and the process of a real estate transaction than most home buyers 

and sellers.16 This informational advantage derives from two sources. First, only brokers 

have direct access to the MLS, which is a local or regional joint venture of real estate 

brokers who pool and disseminate information on homes available for sale in their 

particular geographic areas. 17 The MLS provides information both on the homes 

currently for sale in a particular geographic area and past sales data, which typically are 

used in determining a home’s listing price or a buyer’s offer price. Second, most brokers 

have been involved in many more real estate transactions than their clients. This 

experience builds expertise in gauging market conditions and knowledge of the details 

involved in completing a real estate transaction. 

 

14 See PATRICK WOODALL & STEPHEN BROBECK, CONSUMER FEDERATION OF AMERICA, STATE REAL 

ESTATE REGULATION: INDUSTRY DOMINANCE AND ITS CONSUMER COSTS 3 (July 2006), available at

http://www.consumerfed.org/pdfs/CFA_Real_Estate_Commissioner_Report.pdf. 

15 We refer to brokers and agents collectively as “brokers” throughout this Report, except when a 

distinction between the two is necessary to the meaning or when quoting a panelist or author. 

16 See R.C. Rutherford et al., Conflicts Between Principals and Agents: Evidence From Residential 

Brokerage, 76 J. FINANCIAL ECON. 627 (2005); Steven D. Levitt & Chad Syverson, Market Distortions 

When Agents are Better Informed: The Value of Information in Real Estate (NBER Working Paper 11053, 

2005), available at http://www.nber.org/papers/w11053. 

17 The importance of the MLS as the primary source of information about homes currently for sale and 

prices at which comparable homes have sold is discussed in Chapter I.B. of this Report. 
6

2. The Seller’s Agreement with the Listing Broker 

The typical real estate transaction involves several steps. First, if the seller 

chooses to hire a real estate broker rather than selling the home on his or her own, the 

seller contracts with a “listing broker.” A home seller may consider any number of 

brokers before choosing one with whom to list the home, but NAR’s 2006 industry 

survey notes that the majority of sellers contact only one listing broker.18 Once the seller 

has selected a listing broker, they enter into a contractual relationship called a “listing 

agreement” by which the broker agrees to market and sell the home in exchange for a set 

fee, typically in the form of a percentage commission. The commission “rate” is the 

percentage of the home sales price that the broker retains as a commission. Commission 

“fees” are the total dollar amount paid by consumers for real estate brokerage services. 

This contract often specifies the commission the homeowner will pay the listing broker if 

the home is sold within a specified period of time, how the home is to be listed in the 

MLS, and, as discussed below, the share of the commission to be offered by the listing 

broker to a so-called “cooperating broker,” who works with the buyer.19 The listing 

broker typically markets the home, both within his or her brokerage firm and to other 

brokers in the community, by uploading the listing data, including the offer of 

compensation to cooperating brokers, into the MLS database so that the information can 

be disseminated to cooperating brokers, who in turn can inform potential buyers of the 

listing. 

There are three principal types of listing agreements. In the most common of the 

three, an “exclusive right to sell” contract, the listing broker receives a payment if the 

home is sold during the listing period, regardless of who finds a buyer for the home.20 In 

an “exclusive agency” agreement, the listing broker receives payment if any broker finds 

the buyer, but does not receive payment if the seller finds the buyer.21 In an “open 

listing,” a broker has a nonexclusive right to sell the home and receive payment, but other 

brokers or the seller may also sell the home without any payment to the listing broker.22

 

18 See NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers contacted only one agent; 74% of sellers 

found their agent through either a referral or a prior relationship with the agent). 

19 See Whatley, Tr. at 39; Perriello, Tr. at 198-99. In some instances the cooperating and listing agents may 

work for the same brokerage firm. Some states protect parties’ interests in this situation through 

“designated agency,” under which different agents within the brokerage firm are “designated” separately to 

represent the buyer’s and seller’s interests in the transaction. See Ann Morales Olazabal, Redefining 

Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses, 40 HARV. J. ON 

LEGIS. 65, 75 (2003). 

20 See Whatley, Tr. at 35. 

21 Id. at 36. 

22 Id. 
7

3. The Buyer’s Relationship with the Cooperating Broker 

 The broker who works with the buyer is often referred to as the “cooperating 

broker” “or “buyer’s broker.”23 Cooperating brokers typically attempt to find housing 

from the available stock that match buyers’ preferences, show prospective buyers homes 

for sale, provide them information about comparable home sales that have occurred in the 

area, assist prospective buyers in becoming pre-qualified for a certain level of 

financing,24 advise them on making offers, and assist in closing the transaction. Buyers 

typically do not pay their brokers directly.25 Rather, listing brokers compensate 

cooperating brokers according to the terms stated in the MLS listing, which usually 

specifies an unconditional offer of compensation to any broker that is the “procuring 

cause” of the sale.26 For example, a listing broker who charges a 6 percent commission 

may offer to compensate a cooperating broker with 3 percent, half of the listing broker’s 

commission. As one panelist reported, it is common for a listing broker to offer 50 

percent of his or her commission to a broker who provides a buyer who closes on the 

home, although this percentage may vary according to market conditions; in slow 

markets, a listing broker may offer higher compensation to attract scarce buyers, and this 

may be reversed in a hot market.27 Differences in offers of compensation may also arise 

based on local norms for historical reasons.28

 

23 We use the terms “cooperating broker” and “buyer’s broker” interchangeably throughout this Report. 

24 Sellers often want potential buyers to be pre-qualified for the level of financing required to purchase their 

homes. Often, at the recommendation of their brokers, prospective buyers receive a letter of prequalification from a lender or mortgage broker, which is presented at the time of offer. Listing brokers may 

verify the pre-qualification letter. 

25 Although buyers do not pay a direct fee to their brokers, some portion of brokerage fees likely is built 

into the prices of homes for sale. See AEI-Brookings Paper, supra note 3, at 5. Because broker fees are 

paid indirectly, buyers may be less likely to negotiate over them. In fact, commentators have expressed 

concern that some buyers may believe that their brokers’ services are free. See Mark S. Nadel, A Critical 

Assessment of the Standard, Traditional Residential Real Estate Broker Commission Rate Structure, 23, 

American Enterprise Institute-Brookings Joint Center for Regulatory Studies (Oct. 2006), available at

http://www.aei-brookings.org/publications/abstract.php?pid=1119. 

26 “Procuring cause” refers to the efforts of the primary broker, who brings a buyer to the listing and causes 

the transaction to be completed. Cf. BLACK’S LAW DICTIONARY 234 (8th ed. 2004) (defining procuring 

cause as “[t]he efforts of the agent or broker who effects the sale of realty and who is therefore entitled to a 

commission.”). 

27 See Perriello, Tr. at 199 (“[W]hen I was in a market that was very, very slow, it was not uncommon to 

actually have a disproportionate share going to the buyer . . . . So, at that point, if it was say a 6 percent 

commission, I might take 2 percent and offer 4 percent.”). 

28 One Workshop panelist, an economist, expressed concern about the effect of these compensation 

arrangements on competition and on consumers. Hahn, Tr. at 41. Hahn believes that the involvement of 

multiple parties and the “unique” compensation arrangements in real estate transactions make it difficult for 

home buyers and sellers to pay for services according to their needs, and he questioned whether alternative 

business models have had a fair chance to compete under the current structure. AEI-Brookings Paper, 

supra note 3, at 5. 
8

The legal relationship between the buyer and the cooperating broker varies from 

state to state and has changed over time. Until the 1990s it was common for the 

cooperating broker to be a subagent of the listing broker, working on the seller’s behalf.29 

During the 1990s, most states revised their laws to allow buyer representation, and at the 

same time NAR revised its policies, eliminating seller-subagency as a condition of 

participation in the MLS.30 Today, after a decade of agency law reform across the 

country, it is more common for the cooperating broker to owe fiduciary duties solely to 

the buyer.31 In some states, however, a cooperating broker may be a “transaction” broker 

who has limited fiduciary duties to both the buyer and seller and whose role is to assure 

that the transaction proceeds smoothly.32 In all states, brokers are required to disclose to 

buyers the type of relationship that exists so buyers know whom the cooperating broker 

represents, although the timing of this disclosure varies by state.33

 

4. The Buyer’s Offer, Contingencies, and Closing in a Typical Transaction 

 Once a buyer makes an offer on a home, the listing broker may help the seller 

evaluate offers and formulate counteroffers and may negotiate directly with the buyer or 

buyer’s broker. If the seller accepts the offer, the home is “under contract,” and, pursuant 

to contracts containing typical contingencies, several things must occur during a stated 

time period before the transaction closes, such as home inspections, appraisals, securing 

 

29 Royce de R. Barondes & V. Carlos Slawson, Jr., Examining Compliance With Fiduciary Duties: A Study 

of Real Estate Agents, 84 OR. L. REV. 681, 689 (2005). 

30 See Olazabal, supra note 19, at 74-75. Olazabal notes that the subagency regime was not a creature of 

state law, but rather was a result of most MLSs permitting listing brokers to split commissions only with 

cooperating agents who agreed to be a subagent of the seller. Id. at 70. Some have argued that subagency 

was created by members of NAR in order to restrict access to the MLS. As one study explains: 

the designation of subagency in an MLS transaction allowed the NAR to argue that sellers and 

listing brokers would only want to extend subagency to ethical cooperating brokers. Brokers not 

bound by NAR's Code of Ethics therefore could not be trusted with the responsibility of 

subagency. Bundling the requirement of subagency with the MLS therefore gave the NAR a 

justification for limiting access to the MLS to NAR members . . . . 

Thomas J. Miceli et al., Restructuring Agency Relationships in the Real Estate Brokerage Industry: An 

Economic Analysis, 20 J. REAL ESTATE RESEARCH 30, 34-35 (2000). 

31 Whatley, Tr. at 38-39; NAR 2006 SURVEY, supra note 4, at 48 (64 percent of buyers reported that they 

worked with an agent who represented their interests alone); see also Christopher Curran & Joel Schrag, 

Does it Matter Whom and Agent Serves? Evidence from Recent Changes in Real Estate Agency Law, 43 J.

L. & ECON. 265, 269 (2000) (“In recent years it has become more common for buyers to employ a buyer’s 

agent, rather than a traditional seller’s agent”). 

32 Id. 

33 See Olazabal, supra note 19, at 91-100; see also Early, Tr. at 169 (discussing the timing of disclosure of 

agency relationship in many states as having been changed from “first meaningful contact” to “as soon as 

practical but no later than the writing of an offer,” and how this can give rise to procuring cause issues). 
9

buyer financing, assuring the title to the home is clear, and conducting necessary 

repairs.34 Both listing and cooperating brokers typically work together to assure that all 

contingencies are satisfied, allowing the closing to occur as scheduled. As one brokerpanelist explained, in addition to real estate brokers, many other actors are necessary to 

assure a successful closing, including the mortgage lender, the insurance agent, the home 

inspector, the termite inspector, the surveyor, the appraiser, the closing attorney (in some 

states), the title company, and the escrow agent.35 According to this panelist, the seller’s 

broker and the buyer’s broker “will work together to make sure that all parts of the 

transaction are facilitated appropriately,” including “working through the transaction 

itself, meeting the home inspector, helping the seller and/or the buyer understand what 

the results of the inspection were, overseeing repairs, making sure that things that are 

necessarily time-sensitive get responded to in a time-sensitive manner.”36

Once all contingencies have been satisfied, the parties proceed to closing, where 

they exchange purchase money and title to the home. One panelist noted that, in her 

experience as a broker, lenders’ increased use of technology has streamlined the 

mortgage process, causing the average time from contract to closing to fall from fortyfive to sixty days, to thirty days.37 The HUD-1 form required by the Real Estate 

Settlement Protection Act (“RESPA”) is a centerpiece of the closing and requires a 

detailed listing of the flow of funds from buyer to seller and the use of funds, including 

selling and buying expenses associated with the transaction and the amount of 

commission paid to each broker. Although they typically do not play an active role at 

this stage, brokers often accompany their clients to the closing.38 The brokers are paid 

their commission at closing. 

B. The Multiple Listing Service 

Access to the MLS is one of the most important services that real estate brokers 

traditionally have offered. The 1983 FTC Report traces the evolution of the exchange of 

home information by brokers, from the weekly in-person “exchanges” of the Nineteenth 

Century to the formation of the modern MLS.39 The MLS has evolved still further since 

 

34 Repairs may be ordered by the lender as a condition for financing or requested by the home buyer after 

the results of inspection. How the cost of such repairs is split is often the subject of additional negotiation. 

35 Whatley, Tr. at 26. Detailed discussion of the ancillary services often provided in connection with real 

estate transactions was beyond the scope of the Workshop and, likewise, is beyond the scope of this Report. 

36 Id. at 27-28. Whatley analogized the real estate transaction to a play where each actor has a role and 

knows the script; the play would be disrupted if an actor were to enter at the wrong time or forget his or her 

lines. See id. at 26-27. 

37 Id. at 161-62. 

38 See NAR, THE 2005 NATIONAL ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS AND SELLERS 58 

(2006) [hereinafter NAR 2005 SURVEY] (71% of sellers report that their agent attended the closing). 

39 1983 FTC STAFF REPORT, supra note 9, at 107-116. 
10

1983, reflecting the rapid pace of technological developments during this period.40 The 

following two sections describe the present-day MLS and discuss its importance to home 

sellers, buyers, and brokers. 

1. Description of the MLS

The MLS is a local or regional joint venture of real estate brokers, typically 

operated by a local group of brokers affiliated with NAR, who pool and disseminate 

information on homes available for sale in their particular geographic areas.41 The MLS 

combines its members’ home listings information into a database, usually in electronic 

form. The MLS then makes these data available to all brokers who are members of the 

MLS.42 By listing information on a home in the MLS, a broker can market it to a large 

set of potential buyers. A cooperating broker likewise can search the MLS to provide a 

home buyer with information about all the listed homes in the area that match the buyer’s 

housing needs. 

MLSs are the primary source of home listings information because they contain 

real time information on virtually every home listed for sale in a given area, except FSBO 

homes. Most MLSs require that a member broker, upon acceptance of a listing, enter the 

listing into the MLS database within a short period of time, e.g., twenty-four to seventytwo hours. Although the specific data fields on each listing are determined by the 

individual MLS, they typically include detailed descriptions of the homes for sale, the 

asking price, the offer of compensation that will be paid to a cooperating broker who 

finds a suitable buyer,43 and the name of the listing broker. The MLS allows broker-

 

40 Illustrative of the continued changes is a court’s description of a local MLS as it progressed from 

distribution of an index card for each property listing to computerized downloads of digitized photographs.

See Montgomery County Ass’n of Realtors, Inc. v. Realty Photo Master Corp., 783 F. Supp. 952, 955 (D. 

Md. 1992). 

41 NAR’s 1,600 local and state member boards control approximately 80 percent of the approximately 

1,000 MLSs in the United States. See Amended Complaint at 5, United States v. Nat’l Ass’n of Realtors

(N.D. Ill. Oct. 4, 2005). 

42 See GAO REPORT, supra note 3, at 6 (explaining the structure and purpose of the MLS). 

43 The MLS facilitates the offering of unilateral offers of compensation to cooperating brokers, according to 

NAR. NAR, HANDBOOK ON MULTIPLE LISTING POLICY 50 (2006). NAR’s President-Elect has stated: 

An MLS is a cooperative venture between real estate brokers in which brokers share 

information on their listings with other competing brokers along with an offer to 

compensate them in the event they sell the listing. The MLS provides sellers with the 

advantage of listing with one brokerage firm but having exposure to all buyers working 

with other brokers in the community. It benefits buyers because they only need to work 

with one broker but have access to the properties listed by all of the other brokers who 

participate in the MLS. It is a business to business cooperative created by real estate 

professionals to enable them to share information relating to properties they list for sale, 

and to research and present property-related information to their clients seeking to buy 

real estate properties. 
11

members to search and filter homes based on detailed criteria, including property and 

neighborhood information, offers made on the home, prior sales history, and days on the 

market.44 In addition to the database of currently available homes, an MLS maintains a 

database of homes sold through the MLS. Brokers can use this database to provide their 

clients with information on sales of comparable homes so that the clients can more 

accurately value their homes or determine the amount to bid on a home. 

 The MLS also operates an arbitration mechanism to resolve compensation 

disputes between listing and cooperating brokers. For example, if a cooperating broker 

secures a buyer for a transaction and can establish through arbitration that he or she was 

the “procuring cause” of the sale, then the listing broker is liable for the cooperative 

compensation.45

One panelist who is a real estate broker and past president of NAR described the 

MLS as “a broker-to-broker information exchange that provides an opportunity for 

cooperation and compensation.”46 Another panelist, however, described the MLS as a 

“club” that can limit membership and access to MLS listings to firms that conduct 

business in a particular manner, thereby limiting consumer choice.47 This panelist, an 

economist, stressed that when competitors cooperate, as in an MLS, the rules governing 

that cooperation and the conditions under which the cooperation occurs must be 

examined closely.48

 Hearing, supra note 1, at 18-19 (testimony of Pat Vredevoogd-Combs, President-Elect, NAR), available at

http://financialservices.house.gov/media/pdf/072506pvc.pdf. 

44 See Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. 2006) (finding that the 

features and information available through the MLS at issue are not available through any other service). 

45 See supra note 26. To enforce his or her right to payment, the cooperating broker may bring a complaint 

to the MLS’s arbitration system. See NAR, CODE OF ETHICS AND STANDARDS OF PRACTICE OF THE 

NATIONAL ASSOCIATION OF REALTORS, STANDARD OF PRACTICE 17-4 (effective Jan. 1, 2006), available at

http://www.realtor.org/mempolweb.nsf/pages/code. 

46 Whatley, Tr. at 30. 

47 Hahn, Tr. at 32. Hahn’s concerns are more fully developed in his AEI-Brookings Paper, where he 

describes how the cooperative relationship among brokers in an MLS has the potential to give rise to 

uniformity in services provided and brokerage fees charged. AEI-Brookings Paper, supra note 3 at 8-10. 

Other analysts have expressed similar views. See Lawrence J. White, The Residential Real Estate 

Brokerage Industry: What Would More Vigorous Competition Look Like? 6 (New York University School 

of Law, New York University Law and Economics Working Papers 51, 2006); GAO REPORT, supra note 3,

at 3, 12-13 (MLS may encourage price conformity by, for example, by requiring that each listing state the 

fee split that the cooperating broker will receive. Because, all else being equal, brokers have less incentive 

to show properties that offer them a lower commission, brokers may refrain from offering less than the 

prevailing commission.). 

48 Hahn, Tr. at 32-36. 
12

2. Why the MLS is Important to Sellers, Buyers, and Brokers 

As the primary source of information about homes currently for sale and the 

prices at which other, comparable homes have been sold, the MLS is an extraordinarily 

important resource for sellers, buyers and brokers.49 Home sellers benefit from exposure 

of their listings to a wide audience of potential buyers, increasing the probability of 

selling their homes quickly and at an optimal price for those sellers.50 In addition, sellers, 

through their brokers, can use the MLS information on comparable homes to decide 

whether to sell their homes and, if so, at what price.51 According to NAR’s 2006 survey 

of home buyers and sellers, 88 percent of sellers reported that their home was listed in the 

MLS.52

Buyers also benefit from the MLS because they can go to a single source (that is, 

a single broker) for information regarding the vast majority of homes for sale within a 

given area, instead of visiting multiple brokerages to obtain such information. Access to 

the largest number of potentially appropriate homes for sale allows buyers to maximize 

their chances of finding a home that most closely matches their desired characteristics.53

MLSs are so important to the operation of real estate markets that, as a practical 

matter, any broker who wishes to compete effectively in a market must participate in the 

local MLS.54 As previously noted, brokers using the MLS reduce the costs of matching 

buyers and sellers and can market their service to a large set of potential clients. Further, 

by stating up-front the compensation being offered to a cooperating broker, the MLS can 

 

49 See Whatley, Tr. at 31 (“The MLS is strategically one of the most valuable things to me”). 

50 NAR, Public Comment 208, at 5 (comment). Throughout this Report citations to “Public Comments” 

refer to comments submitted in response to the Agencies’ Federal Register Notice inviting comments on 

the topics addressed at the Workshop. 70 Fed. Reg. 53,362 (Sept. 8, 2005). The public comment numbers 

cited in this Report refer to those found on the FTC’s website. Some parties submitted a cover letter with 

the public comment. Citations to submissions by these parties contain a parenthetical reference either to 

the “comment” or the “cover letter.” The public comments are available at 

http://www.ftc.gov/os/comments/realestatecompetition/index.htm and 

http://www.usdoj.gov/atr/public/workshops/reworkshop_rewcomments.htm. See also Whatley, Tr. at 160-

61 (although the Internet provides useful information to buyers and sellers of real estate, by the time 

properties are advertised on the Internet, they may be gone already; thus, the MLS is crucial). 

51 John H. Crockett, Competition and Efficiency in Transacting: The Case of Residential Real Estate 

Brokerage, 10 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 209, 211 

(1982). 

52 See NAR 2006 SURVEY, supra note 4, at 77. 

53 1983 FTC STAFF REPORT, supra note 9, at 31. 

54 See United States v. Realty Multi-List, 629 F.2d 1351, 1370 (5th Cir. 1980) (membership in the MLS 

becomes essential to a broker’s ability to compete effectively on equal terms); GAO REPORT, supra note 3, 

at 12. See also Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312 (7th Cir. 2006); Thompson v. 

Metropolitan Multi-List, Inc., 934 F.2d 1566 (11th Cir. 1991). 
13

reduce the costs associated with listing brokers having to negotiate separately with each 

potential cooperating broker.55 As a result, the use of an MLS can substantially reduce 

transaction costs.56

 The efficiencies associated with use of an MLS in the real estate industry are well 

documented in the real estate, legal, and economic literature57 and in court decisions.58 In 

the seminal case, United States v. Realty Multi-List, Inc., the Fifth Circuit described the 

various benefits offered by an MLS.59 First, the MLS reduces the “obstacles brokers 

must face in adjusting supply to demand: market imperfections are overcome in that 

information and communication barriers are reduced, along with the easing of the built-in 

geographical barrier confronting the buyer-seller relationship. Moreover, a realistic price 

structure is engendered. In effect, real estate becomes by virtue of the multiple listing 

service ‘a more liquid commodity.’”60 Second, sellers benefit from wider exposure of 

their listings, while buyers benefit from reduced search costs.61 Finally, the court noted 

that “[t]he broker is particularly benefited by having immediate access to a large number 

 

55 See Whatley, Tr. at 39-40. 

56 White, supra note 47, at 4. According to NAR, the MLS has been especially beneficial to smaller 

brokers, because it “levels the playing field” on which brokers compete. See NAR, Public Comment 208, 

at 5 (comment) (“Brokerages of different sizes and business models are able to compete on a level playing 

field because most real estate professionals and firms share their detailed property listing information . . . 

through the local or regional [MLS].”). See also Yun, Tr. at 223-24 (describing how the MLS puts small 

and large brokers “on equal footing”). 

57 See, e.g., William C. Erxleben, In Search of Price and Service Competition in Residential Real Estate 

Brokerage: Breaking the Cartel, 56 WASH. L. REV. 179, 184-185 (1981); Crockett, supra note 51, at 211. 

For a discussion of the positive network effects associated with MLSs, see 13 HERBERT HOVENKAMP,

ANTITRUST LAW ¶¶ 2220b4, 2223b3 (2d ed. 2005): 

A real estate multiple listing service may also be subject to network externalities. As 

each real estate broker is added to the system the consequences are (1) that the new 

broker is entitled to sell the houses listed on the system by other members, thus 

increasing the chances of sale; and (2) existing members are entitled to sell the houses 

listed by the new broker, thus giving each broker a larger inventory of houses to show. A 

larger multiple listing service would generally have an advantage over a smaller service, 

for the person listing a house for sale presumably wishes to be placed in contact with as 

many potential buyers as possible. As a result, most municipalities have a single multiple 

listing service, and virtually all real estate brokers except perhaps a few highly 

specialized ones are members. 

Id. ¶ 2220b4, at 343. 

58 See, e.g., Reifert, 450 F.3d at 317; Metropolitan Multi-List, 934 F.2d at 1579-80; Realty Multi-List, 629 

F.2d at 1356. 

59 Realty Multi-List, 629 F.2d 1351 (5th Cir. 1980). 

60 Id. at 1356. 

61 Id.
14

of listings and at the same time by being furnished with a method for quickly and 

expansively exposing his own listings to a broader market.”62

Due to these significant efficiencies and procompetitive features, the Fifth Circuit 

held that the alleged MLS-related restrictions at issue should not be condemned as per se

illegal.63 At the same time, the Court held that the efficiencies and benefits flowing from 

the MLS, combined with other factors, resulted in the MLS having market power in a 

relevant antitrust market, thereby simplifying the rule of reason inquiry concerning the 

legality of restrictions imposed by the MLS and its members.64

C. Nontraditional Business Models 

 

Although the data show that most consumers currently contract with a broker that 

supplies the full range of services traditionally offered by brokers, many consumers 

prefer to use brokers whose business models are alternatives to the traditional one. Some 

consumers may also choose to work with non-brokers who offer services that will 

facilitate the marketing and sale of their homes. The growing popularity of some of these 

new business models is likely linked to consumers’ increasing use of, and comfort with, 

the Internet. In this Section we discuss the following non-traditional business models: 

(1) full-service discount brokers; (2) fee-for service brokers; (3) VOW brokers; (4) 

websites that provide advertising and other assistance to sellers who choose not to use a 

broker; and (5) referral networks.65

 

62 Id.

63 Id. at 1369. Subsequent decisions largely have followed this approach. See, e.g., Metropolitan MultiList, 934 F.2d at 1579-80; Austin Bd. of Realtors v. E-Realty, Inc., No. Civ. A-00-CA-154 JN, 2000 WL 

34239114, at *4 (W.D. Tex. Mar. 30, 2000). A discussion of the various private litigation involving 

alleged MLS-related restraints is beyond the scope of this Report. 

64 Realty Multi-List, 629 F.2d at 1373-74 (citing A. Austin, Real Estate Boards and Multiple Listing 

Systems as Restraints of Trade, 70 COLUMBIA L. REV. 1325, 1346 (1970)); accord Metropolitan Multi-List,

934 F.2d at 1580 (“Market power turns on the number of brokers who use the service, the total dollar 

amount of annual listings, and a comparison of the rate of sales using the multilisting service to the market 

as a whole.”); see also, e.g., Reifert v. South Central Wisconsin MLS Corp., 450 F.3d 312, 317 (7th Cir. 

2006) (“In short, it is impossible to perform the tasks of a real estate agent or appraiser in the relevant 

geographic area without using [the defendant MLS]. Thus, it possesses sufficient market power to restrain 

competition.”); Austin Bd. of Realtors, 2000 WL 34239114, at *4 n.4 (“It is undisputed that ABOR has 

significant market power in the relevant product market for residential real estate brokerage services in the 

Austin metropolitan area and exclusive access to the MLS Data which is essential to effective competition 

in this market.”); 1983 FTC STAFF REPORT, supra note 9, at 37 (“At the MLS level, there is, in fact, no 

effective competition at the present time, and almost all brokers are, therefore, members of one system in 

each local community.”) In the twenty-five years since the Realty Multi-List case, the Agencies have 

brought a number of antitrust cases involving anticompetitive effects associated with an MLS. 

65 There is some overlap between the categories because certain business models fit into more than one 

category. For example, a VOW operator may or may not also be a discount broker. 
15

1. Full-Service Discount Brokers 

 Discount brokers offer buyers and sellers full-service real estate brokerage 

services at a price lower than the prevailing commission fees.66 For example, a discount 

broker may offer all of the services provided by a traditional broker for a 3 or 4 percent 

commission in an area where 6 to 7 percent is the prevailing rate. In addition, in states 

that do not prohibit them, brokers may offer rebates (i.e. cash payments) and 

inducements, such as gift certificates, coupons, vouchers, and discounted or free services 

relating to buying and selling a home, to buyers and sellers.67 These are incentives that 

typically are offered by cooperating brokers to home buyers to encourage them to use the 

brokers’ services. For example, 1% Realty offers buyers a rebate of approximately 1 

percent of the purchase price in states that have not prohibited rebates.68 Brokers 

sometimes also pay rebates to home sellers. For example, home sellers who are referred 

by one broker to another broker sometimes receive rebates. Additionally, some listing 

brokers pay their clients secret rebates rather than offering a lower listing commission in 

order to disguise discounting.69

Rebates are an important form of price competition under the traditional structure 

of real estate transactions because the seller and seller’s broker, not the buyer’s broker, 

determine the amount of the buyer’s broker’s commission via the listing agreement. 

Without rebates, if the buyer’s broker were simply to reduce his or her commission, the 

savings would go to the seller’s broker, not to the home buyer. As one panelist 

explained: the mechanics of the typical real estate transaction make it difficult for a 

buyer’s broker to reduce the price of his or her services because the “custom of the 

industry” is for the listing broker to split his or her commission with the buyer’s broker.70 

Rebates, therefore, can be powerful tools for price competition between brokers. And by 

returning money to home buyers, rebates can also benefit home sellers, because buyers 

will have more to spend on the home as opposed to commission payments. 

 

66 See GAO REPORT, supra note 3, at 19.

67 We refer to all such rebates and inducements generally as “rebates” throughout this Report. State laws 

and state real estate commission regulations prohibiting rebates are referred to generally as “rebate 

prohibitions” or “rebate bans.” State anti-rebate laws and regulations and their effect on price competition 

and consumer choice are discussed in Chapter IV.A.1 of this Report. 

68 See 1% Realty, Buying a New Home, http://www.onepercentusa.com/buy.htm (last visited Mar. 27, 

2007). 

69 See, e.g., Glenn Roberts, Jr., “Secret Agents” Quietly Offer Real Estate Rebates, INMAN NEWS, Mar. 7, 

2006 (describing secret real estate agent referral service operating in Maryland, Virginia, and the District of 

Columbia that offers – outside of the settlement and thus off the books – sellers a 1.5% rebate and buyers 

all of the commission received by the agent above 1.5%). 

70 Henderson, Tr. at 155. 
16

2. Fee-For-Service Brokers 

 Fee-for-service brokers – sometimes also referred to as “flat-fee” brokers or 

“limited-service” brokers – represent a departure from traditional full-service brokers 

who typically charge a commission based on the sales price in return for a bundle of 

services. Fee-for-service brokers offer home sellers the option to purchase less than the 

full bundle of services traditional brokers provide. Different fee-for-service brokers may 

offer different arrays of services, and home sellers can pick and choose the services they 

wish to procure from the provider or providers of their choice. Most fee-for-service 

brokers offer sellers two or more service packages, and many offer an additional itemized 

list of optional services. This business model is likely to benefit consumers who do not 

want to forgo broker assistance completely but who feel comfortable handling many 

aspects of the transaction without such assistance. 

Fee-for-service brokers often offer an MLS-only package, which allows 

consumers, who are not permitted by MLS rules to list their homes in the MLS on their 

own, to list their homes in the MLS by contracting with a broker who is a member of the 

local MLS.71 For a flat fee (e.g., $500), the broker would list the home in the local MLS 

and make an offer of compensation in the MLS to other brokers who may cooperate in 

the sale of the home. The broker typically would retain the flat fee whether or not the 

home ultimately sells. If a cooperating broker ultimately secures a buyer for the home, 

he or she would receive the cooperating commission.72 A seller who finds a buyer 

without the help of a cooperative broker, however, would not pay this compensation. 

MLS-only packages offered by fee-for-service brokers typically include other 

services provided via the MLS. These include advertising the seller’s listing on Internet 

websites that home buyers search directly (e.g., Realtor.com73) and on other MLS 

members’ websites. Additionally, fee-for-service brokers typically provide the client 

additional selling aids, such as yard signs, online advertisements, and a lock-box to allow 

buyers’ agents to show the home when the seller is not present. 

 In addition to the MLS-only package, many fee-for-service brokers offer other 

services. The Agencies’ review of fee-for-service broker websites indicates that most 

 

71 See, e.g., Rules and Regulations of North Texas Real Estate Information Systems, Inc. §§ 5.01-5.02 

(amended Sept. 21, 2005), available at http://www.ntreis.net/documents/Documents_262006124924. 

72 See, e.g., FSBOAdvertisingService.com, Houston Texas Realtor Flat Fee MLS, 

http://www.fsboadvertisingservice.com/flat-fee-mls-MLSTX3.asp (last visited April 20, 2007) (2-3 percent 

commission for broker that finds a buyer); ifoundahome.net, 

http://www.ifoundahome.net/Listingwork/SBasicListing.htm (last visited April 20, 2007) (allowing home 

sellers to offer “a 3% commission or more” to buyers’ brokers); TexasDiscountRealty.com, Flat Fee 

Listing, http://www.texasdiscountrealty.com/flatfee.htm (last visited April 20, 2007) (3 percent commission 

for a broker that finds a buyer).

73 REALTOR.com, http://www.realtor.com (last visited April 20, 2007) (according to its website, 

REALTOR.com is the “Official Site of the National Association of REALTORS”). 
17

offer at least two tiers of service and the complete array of traditional services at a 

reduced commission. Thus, consumers who purchase the MLS-only package, but later 

feel they need more assistance with their transaction, typically can obtain it from their 

broker for an additional fee. For example, one Workshop participant who operates a flatfee brokerage stated that about 30 percent of his clients who sign up for a flat-fee listing 

eventually purchase additional brokerage services.74 This panelist’s website offers the 

flat-fee listing at $595, but also offers two other packages: “flat-fee plus,” which costs an 

additional $1,500 and includes negotiation and post-contractual assistance, and fullservice brokerage for a discounted percentage fee.75 Further, many fee-for-service 

brokers allow their clients to cancel their listing agreement at any time, leaving 

consumers free to pursue other brokerage or non-brokerage options if they become 

dissatisfied with the broker’s service. 

 Although many brokers who specialize in the fee-for-service option are not 

affiliated with major national brokerage chains, some brokers who are affiliated with 

such chains offer fee-for-service or flat fee brokerage options.76 Although brokers using 

these models have existed since the 1970s, industry participants told GAO that the 

Internet has allowed such brokerages to grow in numbers and size in recent years, in part 

because they can market their services to a larger population of buyers and sellers.77

3. Virtual Office Website Brokers 

VOWs are Internet websites through which brokers offer brokerage services 

online to their registered clients.78 The unique feature of VOW operators is that these 

brokers offer their clients the ability to search online the same MLS information that 

other brokers provide to their clients through other delivery methods, such as hand 

delivery, mail, fax, or email.79 Under NAR rules, VOWs may provide clients with more 

MLS information than can be provided by publicly accessible broker websites that are 

governed by NAR’s Internet Data Exchange (“IDX”) policy, discussed in Chapter II. 

 

74 See Farmer, Tr. at 107-08. 

75 See TexasDiscountRealty.com, Home Sellers, http://www.texasdiscountrealty.com/sellers1.htm (last 

visited April 20, 2007). 

76 See Kunz, Tr. at 101 (noting that several types of business models operate under the Century 21 

franchise). 

77 See GAO REPORT, supra note 3, at 19-20. 

78 See Testimony Summary of Russell Capper, President and Chief Executive Officer, eRealty, Inc. before 

Federal Trade Commission Office of Policy and Planning Public Workshop on E-Commerce 2 (2002), 

available at http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/capper.pdf. 

79 Id.
18

Access to the VOW and its listings search features is limited to prospective 

buyers or sellers who have entered into an agreement with the VOW operator that 

includes a terms-of-use agreement.80 The VOW permits clients to search the database at 

their leisure until they are ready to contact their broker for assistance in viewing the 

home, making an offer, etc. While many buyers may see this as a benefit that allows them 

greater control over their home-buying process, brokers may also benefit. For example, 

brokers may reduce the time they spend servicing each customer face-to-face because 

customers conduct a portion of the time-consuming listings searches on their own.81 

Although brokers offering VOWs differ from other brokerages in their innovative uses of 

the Internet, in other respects they operate like other brokers. VOW brokerages typically 

maintain physical offices in the markets in which they operate, staff those offices with 

licensed brokers who participate in their local MLSs, and represent both buyers and 

sellers.82

 

 One panelist who worked with eRealty, an early discount broker that operated a 

VOW,83 described aspects of its business model. eRealty was a licensed brokerage and 

employed licensed agents.84 It provided the ability to search MLS data online to bona 

fide buyers who had registered for a password, monitored the MLS, and reported to its 

clients when any listing came up that fit a profile that the client had pre-established.85 In 

this way, the VOW model allows consumers to substitute their search effort for that of a 

broker: 

 

The e-Realty model . . . allows the client to initially bypass the Realtor by 

becoming a client of e-Realty and conducting his own search. . . . 

Therefore e-Realty can often charge a lower commission than traditional 

Realtors since there has been no time expended searching through the 

MLS.86

eRealty also would “communicate instantly through email or any device [clients] needed 

to assist [them] with scheduling of appointments and the whole scheduling of the 

 

80 Id. 

81 Id. at 1. 

82 Id. 

83 Prudential Real Estate purchased eRealty. See Blanche Evans, Prudential Neutralizes eRealty, Buys 

Technologies, REALTY TIMES, Jan. 29, 2004, available at

http://realtytimes.com/rtapages/20040129_erealty.htm. 

84 DelBianco, Tr. at 182. 

85 Id. at 182-83. 

86 Austin Bd. of Realtors v. E-Realty, Inc., No. Civ. A-00-CA-154JN, 2000 WL 34239114, at *2 (W.D. Tex. 

Mar. 30, 2000). 
19

transaction all the way through to close.”87 eRealty gave a 1 percent rebate to buyers and 

also took listings from home sellers.88

 The panelist emphasized that this business model took the MLS “a step beyond” 

cooperation and compensation in a business-to-business exchange and used the “power of 

the information in [the MLS] to better serve consumers.”89 As he explained, consumers 

“expect systems, servers, to do the grunt work of searching for homes, gathering data on 

schools and neighborhoods, monitoring new listings, and the reporting whenever a listing 

fits their profile, [and] scheduling appointments . . . to help them see the home.”90

4. Websites that Provide Advertising and Other Services to FSBO Sellers 

 Some consumers choose to sell their homes without any assistance from a real 

estate broker. These sellers are referred to as “for-sale-by-owners” or “FSBOs,” and they 

market their homes themselves by placing ads in local media, posting signs, and 

conducting their own open houses. MLSs do not allow FSBO homes to be listed in the 

local MLS because a listing broker member is not involved. FSBOs often offer payment 

to a broker representing a buyer. 

Several companies offer services to help FSBO sellers. For example, there are 

several websites devoted to advertising FSBO homes.91 One Workshop panelist 

representing a major FSBO website explained that his company allows home sellers to 

post color photos, virtual tours, and 3,000-word descriptions that are searchable by 

potential home buyers.92 According to this panelist, the industry average price for this 

service is a flat fee of approximately $300. These websites often will also provide 

potential home buyers with general information on neighborhoods, such as 

demographics, crime rates, and school quality. Further, many provide links to ancillary 

service providers, such as title insurance companies, escrow services, and home 

 

87 DelBianco, Tr. at 182. 

88 Id. 

89 Id. 

90 Id. at 186. 

91 Examples of FSBO websites include: ForSaleByOwner.com, http://www.forsalebyowner.com (last 

visited April 20, 2007); FSBO.com, http://www.fsbo.com (last visited April 20, 2007); craigslist.org, 

http://sfbay.craigslist.org/hhh (last visited April 20, 2007); and HomesByOwner.com, 

http://www.homesbyowner.com (last visited April 20, 2007). See Thorburn, Tr. at 97-98 (noting the 

variety of tools available to FSBOs). See also GAO REPORT, supra note 3, at 20. 

92 Sambrotto, Tr. at 86. 
20

inspectors, and also provide sample forms related to real estate transactions, such as 

sample purchase or lease agreements.93

5. Broker Referral Networks 

 Some national Internet websites aggregate some of the MLS data from across the 

country and allow potential home buyers to search the databases. After the potential 

buyer has searched the information online and is ready to visit homes in a particular area, 

the website refers him or her to a local broker. This broker pays a referral fee – typically 

a portion of the commission – to the referral website that aggregated the MLS data. The 

referral website may then rebate a portion of its referral fee to the consumer, if state law 

or regulations do not prohibit rebates. 

 Other referral websites do not display aggregated listings, but use Internet 

marketing to advertise their referral services and rebates to consumers. One panelist 

represented RealEstate.com, a business that uses the Internet to build a network of local 

brokers and agents.94 Participating brokers and agents pay a cooperative brokerage fee to 

the company for referrals, and RealEstate.com cultivates buyers by using online tools and 

information and, where permitted, by offering the buyer a rebate.95 The buyers are then 

referred to the local broker for further assistance.96 As this panelist noted, the Internet 

and the new business models are “about unleashing brokers to have the ability to use new 

methods and tools to expand, to succeed and to succeed in this market that is 

competitive.”97

 6. Consumers’ Use of Nontraditional Models and FSBOs 

 According to NAR’s 2006 Profile of Home Buyers and Sellers, 83 percent of 

home sellers who retained a broker used one who provided the traditional “full” array of 

services; 8 percent hired a broker who listed the seller’s home in the MLS and performed 

few, if any, additional services; and 9 percent hired a broker to provide a broader array of 

services, but short of full-service.98

 

93 See ForSaleByOwner.com Corp. v. Zinnemann, 347 F. Supp. 2d 868, 870-71 (E.D. Cal. 2004) (providing 

a general description of the ForSaleByOwner.com business model). 

94 Henderson, Tr. at 154. 

95 Id. at 155. 

96 This assistance can include: locating and arranging for inspection of properties by prospective buyers; 

providing prospective buyers with information such as relative property values and most recent selling 

prices; helping in the negotiation process; and helping to schedule and prepare for closing of the 

transaction. 

97 Henderson, Tr. at 156-57. 

98 NAR 2006 SURVEY, supra note 4, at 77. 
21

 NAR data show that the number of FSBOs – consumers who sell their homes 

without the assistance of a real estate professional – has been declining. NAR’s 2006 

Survey estimated that FSBOs account for about 12 percent of home sellers, with an 

additional 5 percent of sellers first trying the FSBO route, but then retaining a broker to 

complete the sale.99 NAR’s 2005 data estimated FSBOs at approximately 13 to 14 

percent, and noted that this number has been steady since 2001, and is lower than it was 

for the 1990s: 19 percent in 1991; 17 percent in 1993; 15 percent in 1995; 18 percent in 

1997; and 16 percent in 1999.100

 

99 Id. at 80, 68. 

100 NAR 2005 SURVEY, supra note 38, at 59. 
22

II. THE INTERNET’S ROLE IN REAL ESTATE BROKERAGE

The Internet has had a significant impact on the real estate industry, leading to a 

diversification of business models to serve consumers. Some have suggested, however, 

that the industry has not yet experienced the sort of sweeping benefits to consumers in the 

form of cost savings and service enhancements that have been seen in other industries 

from the use of the Internet and other technology.101 This Chapter examines how the 

Internet has increased consumer access to information about real estate and how this 

increased access has in turn affected consumer behavior. This Chapter also discusses the 

Internet as a means of providing real estate brokerage and related services to consumers. 

Finally, this Chapter addresses gaps in consumer knowledge that may exist despite the 

extensive information now available on the Internet. 

A. Increased Consumer Access to Real Estate-Related Information 

 

By reducing the cost of transmitting and searching information, the Internet has 

enabled consumers more easily to educate themselves about all facets of home buying 

and selling. For example, before the introduction of the Internet, consumers had to learn 

about homes for sale through real estate brokers, or through various offline marketing 

vehicles, such as yard signs, newspaper advertisements, or real estate magazines. These 

techniques are still important and commonly used, but consumers now have access to 

listing information from a variety of online sources as well. Many brokers market 

listings online through their own websites and give their MLSs permission to place their 

listings on Realtor.com.102 Consumers can view these listings before contacting or 

forming a relationship with a particular broker.

The source of listings for many of these advertising websites is the MLS. In 

accordance with NAR rules, the MLSs create an “Internet Data Exchange (“IDX”), a 

datafeed that participating brokers may use for their individual advertising websites. 

Broker IDX websites enable home sellers to get greater exposure for their listings, and 

enable home buyers to search listings, both on national IDX websites (e.g., Remax.com), 

and on broker websites focused in a local area. According to a NAR survey of home 

buyers and sellers, broker IDX websites were among the top three most popular websites 

searched by buyers, with 40% of buyers conducting their home searches on these 

websites.103 In addition, many MLSs contribute the IDX datafeed to some of the most 

popular publicly accessible websites like Realtor.com, a national website that NAR owns. 

Although these IDX websites, as explained more fully below, provide critically 

important avenues for brokers to advertise their listings to potential buyers and their 

 

101 See Hahn, Tr. at 29-30; AEI-Brookings Paper, supra note 3, at 13 n.49; Nadel, supra note 25, at 4-5. 

102 See Perriello, Tr. at 149; Lewis, Tr. at 174 (noting that all traditional companies “have a significant 

online presence”). 

103 NAR 2006 SURVEY, supra note 4, at 44. 
23

agents, these websites are not a substitute for the MLS. In contrast to VOWs and to 

brokers’ “brick and mortar” offices, websites that rely on an IDX datafeed contain less 

information than the actual MLS database, and that information may be out of date.104 If 

a broker opts to not participate in the IDX, which NAR’s rules allow, none of the 

broker’s listings are included on the IDX datafeed, and he or she cannot operate a website 

based on an IDX datafeed. Therefore, IDX datafeeds may contain listings on fewer than 

all of the homes listed for sale in the MLS’s area. IDX datafeeds can also be less 

complete than the full MLS listings database because each MLS determines which 

datafields to include in the IDX datafeed. For example, it is not uncommon for MLSs to 

withhold the home address, a critical piece of information for brokerage clients, from the 

IDX datafeed. Some MLSs also withhold such datafields as the detailed description of 

the home or the property disclosures. Finally, IDX-based websites often will be missing 

some homes that recently have been listed for sale and include some that are no longer 

for sale because there often is a delay between an update of MLS data and when those 

changes are reflected in the IDX datafeed. 

Panelists representing traditional brokers acknowledged that the listings 

information provided via an IDX datafeed is limited. For example, one panelist 

explained that “what you see in the MLS is more detailed information [than is displayed 

on IDX websites], but again, [brokers] have access to that [information in the MLS], and 

[brokers] can provide that to the consumer.”105 The same panelist elaborated on the 

advantages of MLS data: 

Anyone who is a member of the realtor organization, whether they are a 

discount broker, a limited service broker or a full-service broker, have 

their listings in the Multiple Listing Service, and in that broker-to-broker 

cooperative environment, that is real time information for me to be able to 

deliver to my customer or client, the buyer, and real time is important, 

especially if you happen to be in a seller’s market, because the advertising 

vehicles [i.e. IDX websites] that are out there on the internet are not real 

time, and by the time even that a consumer might be able to see something 

online, it could be gone.106

As this panelist explained, access to full MLS, rather than limited IDX datafeeds, is 

“extremely valuable” because it allows agents to tell consumers “the minute that 

something is listed, ‘Let me tell you, there was a new listing that just popped up, it’s 

matched your criteria, I think we ought to go out and look at it.’”107

 

104 See Whatley, Tr. at 160-61. 

105 Id. at 210-11. 

106 Id. at 161. 

107 Id. 
24

 In addition to listing information derived from MLSs, consumers also can view 

homes for sale on third-party advertising websites such as Craigslist.com, and on a 

variety of websites that promote homes that are for-sale-by-owner.108 Further, the 

Internet helps consumers to educate themselves about other areas of home buying and 

selling. For example, consumers can use the Internet to research brokers,109 mortgage 

and lending options,110 and recent home sales and home valuations in their community.111 

Consumers also can find information about schools, crime, and other variables related to 

home purchase decisions through a host of online sources, including websites hosted by 

their municipalities. 

Several Workshop panelists and commenters remarked on how the Internet has 

expanded the amount of information available to consumers, making them more 

knowledgeable as they enter into real estate transactions. One commenter concluded: 

“Today’s sellers and buyers are more educated and more knowledgeable thanks almost 

entirely to the growth of the [I]nternet.”112 A panelist described the Internet as “a very 

highly effective marketing tool as well as a tremendous information resource and 

communication tool.”113 Another commenter observed: 

More individuals are researching available properties for sale. Buyers can 

themselves gather key bits of information about property location, flood 

history, contract status, room dimensions, etc. Sellers are better able to 

determine comparable prices for similar houses, helping them to gauge the 

appropriateness of a listing price suggested by an agent.114

 

108 E.g., ForSaleByOwner.com, http://www.forsalebyowner.com (last visited April 20, 2007); FSBO.com, 

http://www.fsbo.com (last visited April 20, 2007); and HomesByOwner.com, 

http://www.homesbyowner.com (last visited April 20, 2007). 

109 See, e.g., JustRealEstate.org, http://www.justrealestate.org (last visited April 20, 2007). 

110 See, e.g., Mortgage101.com, http://www.mortgage101.com (last visited April 20, 2007). 

111 See, e.g., Zillow.com, http://www.zillow.com (last visited April 20, 2007). 

112 Shortt, Public Comment 311, at 1. 

113 Perriello, Tr. at 149. See also Whatley, Tr. at 160-61 (noting that consumers now may research online 

not only homes for sale, but also the entire buying and selling process). 

114 American Bankers Association, Public Comment 10, at 3 (comment). See also Perriello, Tr. at 149 

(listing several features of real estate websites, including property photos, virtual tours, rich text, mapping 

functionality, and neighborhood information); Sambrotto, Tr. at 86 (“The [I]nternet is an ideal platform for 

marketing real estate. You can post color photos. You can post virtual tours. . . . And you can have that 

information easily searched and frequently searched by buyers from their own homes on the [I]nternet.”). 
25

One panelist opined that “a generation of Americans are now comfortably and constantly 

connected to the [I]nternet and to [eC]ommerce. They instinctively start with the 

[I]nternet before they search to buy anything. They do extensive research online.”115

 Industry-produced data appear to support this view. A recent NAR survey of 

home sellers and buyers concluded that “[t]he most significant trend in the home search 

process is the increasing importance of the Internet as a source of information about 

homes and the characteristics of different communities.”116 Among the evidence 

supporting this conclusion is the finding that in 2006, 80 percent of home buyers used the 

Internet during their home searches (up from 71 percent in 2003).117 In addition, in 2005 

and 2006, 24 percent of recent home buyers first found the home that they purchased on 

the Internet – up from only 2 percent in 1997.118 Conversely, the number of buyers 

reporting real estate agents as the first source of such information has decreased from 50 

percent in 1997 to 36 percent in 2005 and 2006.119 Among the most popular websites 

used by home buyers in their searches were Realtor.com (52 percent of respondents), 

MLS websites (53 percent), and real estate company websites (41 percent).120 Features 

ranked as most useful among home buyers searching for a home on the Internet were 

photos (identified as very useful by 83 percent of home buyers), detailed property 

information (81 percent), and virtual tours (60 percent).121 Brokers surveyed by NAR 

cite the Internet more frequently than any other method, including yard signs, as a way to 

market homes.122

B. The Internet’s Effect on the Real Estate Industry 

 By placing more information in the hands of consumers, the Internet has 

facilitated the growth of nontraditional business models – such as fee-for-service brokers, 

VOWs, and broker referral networks – that allow consumers opportunities to substitute 

their efforts for those of the broker, in many cases in return for lower fees. These lower 

fees reflect the lower cost of serving consumers who are “easier to serve” because they 

 

115 DelBianco, Tr. at 185. 

116 NAR 2005 SURVEY, supra note 38, at 29. 

117 NAR 2006 SURVEY, supra note 4, at 37. 

118 Id. at 38, 29.

119 Id. 

120 Id. at 44. 

121 Id.

122 NAR 2005 SURVEY, supra note 38, at 65 (Internet cited by 84% of broker respondents, while yard sign 

cited by 79%). 
26

perform substantial online research themselves.123 According to one commenter, “With 

individuals assuming more of the responsibility to gather and assess information, less 

time and effort is required by real estate agents in assessing market conditions (for 

sellers) and in identifying and showing houses [(for buyers)]. The cost of an agent’s 

service, therefore, should go down reflecting this shift in burden.”124

Consumers differ in their willingness, ability and opportunity to use the Internet 

to perform functions traditionally provided by brokers. While many consumers may be 

willing to perform search tasks themselves, they may be more likely to continue to rely 

on brokers for assistance related to the transaction process because it involves expertise 

derived from broker experience.125 For buyers, this may mean performing much of their 

early search by themselves online and contacting a broker only after they have become 

familiar with market offerings and are ready to start placing offers on homes. For sellers, 

this may mean setting their own sales price and relying on the wide online exposure of 

MLS listings rather than broker effort to market their home, and hiring an agent only to 

list their home in the MLS and for assistance in closing the transaction. 

While the Internet clearly has had a significant impact on the real estate industry, 

one Workshop panelist, an economist, opined that the real estate brokerage industry has 

not experienced the types of technology gains benefiting consumers that have been seen 

in other service industries, such as making airline and other travel reservations and 

buying and selling stocks.126 Several factors may be limiting wider use of the Internet. 

The resistance of some traditional brokers to dealing with firms that more fully or 

innovatively use the Internet is one factor that could limit realization of the Internet’s full 

potential.127 Restrictions on the availability of real estate listing information can also 

limit the economic benefits that Internet use provides.128

 

123 DelBianco, Tr. at 185. 

124 American Bankers Association, Public Comment 10, at 3 (comment). 

125 See Steve Sawyer et al., Redefining Access: Uses and Roles of Information and Communication 

Technologies in the US Residential Real Estate Industry from 1995 to 2005, 20 J. INFORMATION TECH. 213, 

217 (2005) (contending that brokers provide value in three areas – information intermediation, process 

knowledge, and social capital in supporting closing needs of buyers and sellers – and that even though an 

online MLS gives buyers greater access to relevant information, most buyers will still need assistance in 

making sense of this information). 

126 See Hahn, Tr. at 29-30; AEI-Brookings Paper, supra note 3, at 13 n.49; Nadel, supra note 25, at 4-5. 

127 See GAO REPORT, supra note 3, at 13-14, 21. This factor is discussed in detail in Chapter IV of this 

Report. 

128 GAO found that a “key factor” in the expansion of the Internet is the extent to which information about 

properties listed in an MLS is widely available. GAO REPORT, supra note 3, at 17, 20-21. See also AEIBrookings Paper, supra note 3, at 12 (access to the MLS is a “potential bottleneck” in the large positive 

impact that the Internet could have for home buyers and sellers). 
27

C. Gaps in Consumer Knowledge 

 Even with the significant amount of information currently available on the 

Internet, there may be gaps in knowledge by some consumers in several important areas 

that may result in real estate brokerage markets functioning less efficiently. First, it 

appears that many consumers are not fully apprised of their marketplace options. For 

example, the most recent NAR survey of home sellers and buyers found that the majority 

of home sellers contact only one listing agent before hiring one to assist with the sale of 

their home.129 Further, there is evidence that some consumers of brokerage services are 

not necessarily aware that commission rates are negotiable.130 This may be especially 

true of buyers who pay for their brokers’ services indirectly via the purchase price of the 

home.131 Although some Workshop comments suggest that consumers’ awareness of 

their ability to negotiate over the price and terms of brokerage services is increasing,132

perhaps due to the increasing numbers of discount brokers that have entered the industry 

over the past few years, some consumers do not negotiate over commission rates. 

Second, consumers may be unaware of the possibility that their brokers may have 

conflicting interests that lead them not to provide the consumer with the best possible 

advice. As discussed in more detail in Chapter IV, brokers have certain incentives to 

“steer” consumers toward those homes that offer the highest cooperating broker 

commission payment and away from homes listed by brokers known to charge home 

sellers discounted commission rates. In this manner, brokers can take advantage of their 

superior knowledge of market conditions by steering clients away from home listings that 

otherwise match the criteria identified by the consumers, but provide lower financial 

gains for the broker than other homes.133

 

129 NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers contacted only one agent; 74% of sellers found 

their agent through either a referral or a prior relationship with the agent). 

130 See, e.g., Paul Anglin & Richard Arnott, Are Brokers’ Commission Rates on Home Sales Too High? A 

Conceptual Analysis, 27 REAL ESTATE ECONOMICS 719, 721 (1999) (“Another factor in sustaining a 

collusive commission rate is that many sellers do not realize that the commission rate is negotiable.”); 1983

FTC STAFF REPORT, supra note 9, at 66, 68-69 (reporting that as many as three-fifths of recent sellers and 

three-fifths of recent buyers may have been unaware of the negotiability of commission rates). 

131 Some commentators have argued that buyers may have the misimpression that their brokers’ services 

are free. See Nadel, supra note 25 at 23. 

132 See, e.g., Lord, Public Comment 254, at 1 (“The competition is fierce the majority of time that an agent 

has a listing appointment . . . they are confronted with the question how much can you reduce your 

commission? It is a standard question now.”); Paulsen, Public Comment 364, at 1 (“If the public felt there 

was a set fee I would not be asked what my rate is to sell a house. And trust me, everyone asks.”). 

133 See Barry, Public Comment 19, at 57 (reporting that, because the public sources of property listings 

never show the commission offered by the listing brokers, buyers are unaware that their agents have 

screened out listings with lower commission offerings); WOODALL & BROBECK, supra note 14, at 5 (“home 

buyers will not have access to this information about the splits, so they cannot check to see whether their 

broker is steering them away from houses carrying lower splits”); White, supra note 47, at 5 n.13 (“in a 

milieu where there is a great deal of uncertainty as to which house will best fit the demands of a buyer and 

which buyers are true prospects for a seller, it may be difficult for the client to determine that her agent is 
28

 Home buyers’ increasing use of the Internet may limit brokers’ ability to steer 

buyers away from discounters’ listings without their knowledge. As noted above, 80 

percent of consumers use the Internet to search for homes in 2006.134 To the extent that 

consumers have greater knowledge of the stock of housing for sale than they used to, 

brokers will be less able to exclude a particular listing from home buyers’ searches 

without their knowledge. If a home buyer finds a discounter’s listing on his or her own 

that appears to be a good match, a broker likely will either have to show the home buyer 

the discounter’s listing or explain why he or she will not.135

 In addition, consumers also may be unaware that when they pay their broker a 

commission based solely on a percentage of the sales price at closing (as most do 

today),136 the broker’s financial incentives are not necessarily aligned with the 

consumer’s. On the sell side of the transaction, the consumer’s interest is to sell the 

home at the highest possible price. Even though an agent’s commission increases with 

the price of the home, he or she likely retains no more than 1 to 2 percent of the sales 

price (after paying the cooperating broker and the agent’s brokerage firm).137 Therefore, 

the agent may be less willing than the consumer to take the risks associated with getting a 

higher sales price, such as waiting for what might be a better offer and perhaps having to 

do additional work.138 Likewise on the buy side of the transaction, the broker may be less 

 steering in a disadvantageous way”); 1983 FTC STAFF REPORT, supra note 9, at 75 (“Because many buyers 

think they are seeing all the properties a broker or salesperson knows to be on the market, the practice of 

steering coupled to the general practice of denying consumers direct access to information from a MLS 

may mislead buyers.”). 

134 See supra notes 117-118 and accompanying text. 

135 Another gap in consumers’ knowledge – albeit one that does not necessarily affect competition in the 

real estate brokerage industry – may be that consumers are not fully informed as to what, if any, duties they 

are owed by their broker. This can occur if the broker fails to disclose such information to the client as 

legally required. States typically require agents to disclose to their clients the duties that they owe to their 

clients under state law. See, e.g., VA. CODE ANN. § 54.1-2131(E) (2007). Without full and timely 

disclosure a customer may reveal sensitive information, such as the buyer’s maximum offer or the seller’s 

minimum price, to a broker who is actually representing the party on the other side of the transaction. 

136 See NAR 2006 SURVEY, supra note 4, at 78 (75 percent of home sellers surveyed reported that the 

listing agent was compensated with a percentage of the sales price of the home). 

137 See Rutherford et al., supra note 16, at 629 (“Given that the agent receives a small portion of the 

transaction price as commission, the agent’s goal of maximizing the expected commission may diverge 

from the seller’s goal of maximizing the selling price. Furthermore, given that the targeted selling price 

will impact the time the asset stays on the market, the agent’s desired time on the market may diverge from 

that of the seller.”). 

138 See Levitt & Syverson, supra note 16, at 6 (noting that if an agent receives 1.5 percent of the sales price 

and incurred weekly costs of $200 to keep a home on the market, “the agent would be indifferent between 

selling the house today or waiting one more week and receiving an offer $13,333 higher with certainty.”). 

Both Rutherford et al. and Levitt & Syverson find empirical evidence consistent with a principal-agent 

conflict between sellers and agents. Specifically, both studies find that homes owned by agents sell for 

more than other homes, even after controlling for housing characteristics that are likely to affect prices. 
29

interested than the consumer in negotiating the lowest possible sales price because a 

lower sales price translates into a lower commission for the broker, likely requires 

additional work, and may increase the risk that the transaction falls through with no 

commission paid to the broker. Consumers may be unaware of these potential conflicts 

of interest. Some commentators have posited that alternative payment structures may 

better align consumer and broker interests.139

 

139 See Chang-Tai Hsieh & Enrico Moretti, Can Free Entry Be Inefficient? Fixed Commissions and Social 

Waste in the Real Estate Industry, 111 JOURNAL OF POLITICAL ECONOMY 1076, 1088 n.17 (2003) 

(suggesting that it is a “puzzle” why brokerage contracts are not “non-linear,” where the agent receives a 

fixed fee and a commission for any price above some minimum value); Levitt & Syverson, supra note 16, 

at 20-21 (suggesting a non-linear compensation scheme, but noting that it may be difficult to implement 

because the homeowner is less informed than the agent about the home’s market value); see also Nadel, 

supra note 25, at 43-60 (suggesting a fee-for-service rate structure). 
30

III. COMPETITION AMONG BROKERS

Real estate brokers compete to attract customers in different ways based on price 

and non-price dimensions. To compete on price, they can offer lower commissions to 

home sellers and, where permitted, rebates to home buyers. On the service dimension, 

they can offer more assistance or convenience to customers. Brokers also compete for 

customers by marketing their services to potential buyers and sellers in various ways. 

Although consumers benefit to some extent from all of these forms of 

competition, the available data suggest that brokers may compete less on price than 

would be expected in a competitive market. Even though national average commission 

rates have fallen steadily since 1991 and commission rates appear to vary inversely with 

housing prices, it appears that rates are sufficiently inflexible to cause commission fees to 

move in tandem with housing prices. The recent run-up in housing prices illustrates this 

phenomenon: from 1998 to 2005, housing prices rose 37 percent in real terms and, 

although national average commission rates appear to have fallen from 5.5 percent to 5 

percent, average brokerage fees per transaction rose 26 percent in real terms during the 

same period.140 At the same time, the efficiencies generated by the Internet and other 

technological advances suggest that broker costs should be falling. The evidence also 

suggests that rising per-sale profits for brokers induce entry by new brokers so that the 

average number of sales per broker declines. 

This Chapter explores evidence concerning competition among brokers. Section 

A examines the structural features of the real estate brokerage industry. Section B 

describes the nature of competition among brokers and views about the current state of 

competition presented by Workshop panelists and commenters. Section C presents the 

available data on actual commission rates and fees. Section D reports one panelist’s 

attempt to make sense of the evidence presented in Sections A through C. 

A. Structural Features of the Real Estate Brokerage Industry 

 Although a detailed exploration of all industry characteristics was beyond the 

scope of the ‘Workshop, participants focused on a variety of characteristics, including 

broker concentration and entry into the industry. 

1. Broker Concentration141

Competition among brokers is primarily local because real estate is fixed in a 

geographic location, and buyers and sellers often want some in-person interaction with a 

broker who has experience and expertise relevant to that particular location. For 

example, a broker in Alexandria, Virginia, competes with other brokers able to meet the 

 

140 See infra Chapter III.C. 

141 Although this section reports a variety of statistics that purport to measure “market share,” this Report 

makes no attempt to define a relevant antitrust market for this, or any other, analysis. 
31

needs of consumers who are buying and selling homes in the area; this is likely to include 

other brokerage firms located in and around Alexandria, but not those located in 

California. Recent research supported by NAR states that “the U.S. real estate industry is 

a collection of many local real estate markets.”142

Although nationwide market shares provide little information about local market 

concentration, national-level data do demonstrate that there are many brokerage firms and 

agents, and that most brokerage offices consist of a small number of agents. According 

to a Workshop panelist, there are approximately 98,000 brokerage firms operating over 

200,000 local offices in the United States.143 These offices provide potential employment 

for approximately 2.5 million real estate licensees (of which more than 1.2 million are 

members of NAR).144 In 2004, 96 percent of brokerage offices in the United States 

employed ten or fewer agents.145 From 1983 to 1999, the portion of brokerage offices 

with five or fewer agents increased from 51 percent to 60 percent.146 In contrast, the 

portion of offices with a sales force of more than 50 agents never exceeded 5 percent 

during that time period.147

There is conflicting information regarding the percentage of home sales 

nationwide accounted for by the largest real estate firms. NAR reported in its public 

comment that in 2004 the top ten brokerage firms in the United States had a combined 

9.1 percent market share, the top twenty firms had a 10.9 percent share, the top 100 firms 

had a 17 percent share, and the top 500 firms had a 26.6 percent share.148 In addition, 

according to NAR, the two largest brokerage firms in the industry had only 4.1 percent 

and 1.7 percent market shares, respectively.149 The market shares reported by NAR 

 

142 See, e.g., STEVE SAWYER, LOCAL REAL ESTATE MARKET COMPETITION: EVIDENCE AND INSIGHT FROM 

AN ANALYSIS OF 12 LOCAL MARKETS 3 (2005), available at

http://www.realtor.org/publicaffairsweb.nsf/Pages/Sawyer05?OpenDocument (noting existence of “micromarkets” within metropolitan areas. For example, within the Washington, DC metropolitan area, there is 

little or no competition among buyers, sellers, and real estate agents across the micro-markets of 

Montgomery County, MD, Fairfax County, VA, and southwest Washington, DC). 

143 Yun, Tr. at 220. 

144 Id.; NAR, Public Comment 208, at 3 (comment). 

145 Lawrence Yun, Ph.D., Senior Economist, National Association of Realtors, Presentation at the Federal 

Trade Commission & Department of Justice Public Workshop: Competition Policy and the Real Estate 

Industry, Real Estate Brokerage Industry: Structure-Conduct-Performance, at 9 (Oct. 25, 

2005)[hereinafter Yun Presentation], available at 

http://www.ftc.gov/opp/workshops/comprealestate/yun.pdf. 

146 Id. 

147 Id.

148 NAR, Public Comment 208, at 7 (comment). 

149 Id.
32

appear to be based on the nationwide shares of individual brokerage firms, most of which 

do not have a nationwide presence. However, in many cases, individual brokerage firms 

exist under common ownership or as part of a franchise system. For example, Realogy – 

through its franchises and wholly-owned brokerages – claims to have “participated in 

approximately one of every four domestic homes sold through a brokerage in 2005.”150

In any case, competition among brokerages tends to be local, and brokerage 

shares calculated at the local level can be far higher than those suggested by national 

data.151 For example, in Re/Max International, Inc. v. Realty One, Inc., the plaintiff’s 

expert presented “essentially unchallenged” testimony explaining that “[i]n a majority of 

the 161 cities and towns in northeast Ohio, the [two] defendants’ combined market share 

exceeds 50%.”152 In Mid-America Real Estate Co. v. Iowa Realty Co., the court found 

that one company accounted for over 50 percent of all residential real estate transactions 

in Des Moines, Iowa, (when FSBO sales are considered) or approximately 60 percent of 

all sales completed through the local MLS in Des Moines.153 In a study of the State 

College, Pennsylvania, area, researchers found that “the largest brokerage firm 

maintained 31% of the listings and 30% of the sales. The second largest brokerage firm 

accounted for 22% of the listings and 20% of the sales. Each of the next four largest 

firms enjoyed less than 10% of the listings and sales.”154 A study of real estate 

transactions obtained from the Lincoln, Nebraska, MLS reported that although homes in 

the sample were listed by fifteen brokerage firms, “[t]wo of these firms listed 75% of the 

properties in the sample, with the remaining listings fairly evenly distributed between the 

other thirteen firms.”155

2. Entry 

 The requirements for becoming a real estate licensee (i.e. an agent) do not appear 

to be substantial. A 1983 FTC Staff Report on the real estate brokerage industry 

 

150 REALOGY, REALOGY BUSINESS OVERVIEW 4 (Dec. 2006), available at http://library.corporateir.net/library/19/198/198414/items/223251/RealogyDecember06%20Final.pdf. 

151 NAR, Public Comment 208, at 6 (“In a few markets, some firms may have a larger than usual market 

share, but market shares are known to change measurably from one year to the next.”). 

152 Re/Max Int’l, Inc. v. Realty One, Inc., 173 F.3d 995, 1003 (6th Cir. 1999). 

153 Mid-America Real Estate Co. v. Iowa Realty Co., No. 4:04-CV-10175, 2004 WL 1280895, at *8-*9 & 

n.5 (S.D. Iowa 2004), rev’d on other grounds, 406 F.3d 969 (8th Cir. 2005). 

154 Shiawee X. Yang & Abdullah Yavas, Bigger is Not Better: Brokerage and Time on the Market, 10 J.

REAL ESTATE RES. 23, 27-28 (1995). The authors used a sample of 388 home sales in calendar year 1991 

from the multiple listing service. Id. at 27. 

155 James E. Larson & Won J. Park, Non-Uniform Percentage Brokerage Commissions and Real Estate 

Market Performance,” 17 JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS 

ASSOCIATION 422, 428-29 (1989). The authors use a sample of 669 single family home transactions 

covering the first nine months of 1986 obtained from the Lincoln, Nebraska MLS. See id. at 427-28. 
33

observed that “the nearly universal opinion is that there are no significant barriers to 

entry, if entry is construed as gaining a license in order to practice.”156 Namely, an 

individual agent primarily needs to meet state licensing requirements and affiliate with a 

licensed broker. Several Workshop panelists expressed a similar view. According to one 

panelist, “there are no significant barriers to entry or expansion in the residential real 

estate industry. As a result, there has been a dramatic number of new agents and new 

entrants into the industry in recent years.”157 Another panelist, a NAR economist, stated 

that in 2004 “253,000 [licensees] entered the market, became realtor members, and 

127,000 dropped out, indicating that the market is fairly dynamic, that there’s free entry, 

free exit.”158 He noted that between 1998 and 2005, while the number of home sales 

increased about 50 percent, the number of NAR members increased about 67 percent.159

 

Some commenters stressed the ease with which one can become an agent. For 

example, one industry participant stated: “Becoming a real estate agent is far too easy 

and too fast for what the service contemplates: The sale of what for many people is both 

their most important asset, and the one thing that physically binds their family together: a 

home.”160

Brokerage entry appears to be more difficult than agent entry. At a minimum, an 

entrant that wants to establish a brokerage must hire or become a licensed broker.161 

Additionally, an entering broker may require an agent workforce, office space, office 

staff, and advertising of their listings to establish name recognition. Establishing such 

name recognition could be aided by affiliating with a national franchise (e.g., Prudential 

or Re/Max). The examples of relatively high local market shares for brokerages 

described above suggest that agent entry is more common than brokerage entry. 

 

156 1983 FTC STAFF REPORT, supra note 9, at 102. As described infra, however, this is not necessarily the 

case with respect to the entry of new business models in the real estate brokerage industry. See infra

Chapter IV. 

157 Perriello, Tr. at 146. See also Lewis, Tr. at 172 (“There are no barriers to entry in our industry . . . .”); 

Hsieh, Tr. at 235 (“there’s relatively free entry into the profession and into the real estate brokerage 

business . . . .”). The ability of novice entrants to attract clients relative to more experienced agents was not 

discussed at the Workshop and, likewise, is not addressed in this Report. 

158 Yun, Tr. at 220. 

159 Yun Presentation, supra note 145, at 5, 7. 

160 Daniels, Public Comment 92, at 1. 

161 NAR, Public Comment 208, at 5 (“An agent can obtain a broker’s license, usually after having been in 

business for several years, and passing a broker’s license exam. The exact requirements vary by state.”). 
34

B. The Nature of Competition Among Brokers 

Brokers compete for clients on several dimensions by offering the most attractive 

service and price combination.162

1. Service Dimension 

Competition among brokers based on service to consumers includes a wide range 

of possibilities. Brokers can provide varying degrees of assistance to buyers, such as 

performing MLS searches for homes for the buyer or allowing a buyer on-line access to 

MLS data to perform such searches on his or her own. They can provide varying levels 

of service to sellers in marketing their homes, such as holding open houses more or less 

frequently. To facilitate a particular transaction, “[b]rokers can help sellers (and buyers) 

to varying degrees throughout the entire transaction process: helping the seller set the 

asking price, guiding buyers when they formulate their offers, providing guidance 

through the maze of paperwork faced by buyers and sellers and recommending reliable 

inspectors, lawyers, mortgage brokers, etc.”163 Additionally, brokers expend varying 

degrees of effort involving a wide range of activity, including marketing their own 

services to potential buyers and sellers. Broker marketing can include paid 

advertisements in television, radio, print, or online media; informal networking to meet 

potential buyers and sellers; and giving away pumpkins at Halloween.

2. Price Dimension 

Competition among brokers on price primarily occurs through lower commission 

fees and rebates. In the majority of transactions, the commission fee is determined by 

multiplying the commission rate negotiated in the listing contract by the home’s actual 

selling price. In other cases, brokers may charge a flat commission fee for certain 

services or bundles of services. Alternatively, brokers may adopt a combination of flat 

fees and a commission rate. Since cooperating brokers do not directly participate in 

negotiating listing contracts, rebates offer a way for them to compete on price.164

There were contrasting views among Workshop participants and commenters 

about the extent to which brokers compete on the price dimension. The FTC’s last report 

on real estate brokerage, twenty-three years ago, stated: 

 

162 One author has described the service that brokers provide as not merely a completed match of buyer and 

seller, but rather “a completed transaction at some level of service provided to the parties involved.” 

Geoffrey K. Turnbull, Real Estate Brokers, Nonprice Competition and the Housing Market, 24 REAL 

ESTATE ECONOMICS 293, 295 (1996). 

163 Id. The extent to which brokers supply these services “provides the margin for nonprice competition 

among brokers.” Id. 

164 As discussed in Chapter I of this Report, rebates are a meaningful component of price competition 

between brokers in states that do not prohibit rebates. Anti-rebate laws are discussed in more detail in 

Chapter IV of this Report. 
35

The evidence indicates that brokerage commission rates are quite uniform 

within local markets. In most markets, the prevailing rate is either 6 or 7 

percent. Furthermore, the dollar value of commission fees per transaction 

has increased very substantially in recent years when compared to the 

general rate of inflation or the incomes of other white collar workers. At 

the same time, there is at least some evidence that brokerage industry 

productivity apparently has declined in recent years. . . . Available 

statistics, therefore, strongly suggest that forces other than free 

competition are affecting the level at which commission rates are set.165

Some claim that things have not changed.166 Some commenters observe that the 

relative inflexibility of commission rates coupled with rising home prices has caused 

consumers to pay more in commissions, and that if brokers competed more on 

commission rates, commission fees would be lower.167 Moreover, citing consumers’ 

increasing use of the Internet in real estate transactions and the substantial savings that 

the Internet has brought to consumers across numerous service industries,168 some 

 

165 1983 FTC STAFF REPORT, supra note 9, at 64. See also id. at 55 (“[W]e found local markets to 

consistently have commission modes at either six or seven percent. These are the ‘normal’ modes for 

virtually all markets, regardless of how they might vary from one another, and nationwide a very high 

percentage of real estate brokerage transactions occurred at a commission rate of one or the other. . . . The 

degree of rate uniformity we found clearly is inconsistent with a market characterized by the particular kind 

of vigorous competition common in many other markets.”). 

166 See, e.g., Hsieh, Tr. at 261 (“[I]f you go back to the FTC report from more than 20 years ago, things 

really have not changed that much.”); Bourgoin, Public Comment 30 at 1 (“[T]he FTC did a study which 

was completed and published in 1983. [I]t is apparent that the activity within this study is still ongoing 

within the industry.”); Abdullah Yavas, Impossibility of a Competitive Equilibrium in the Real Estate 

Brokerage Industry, 21 J. REAL ESTATE RES. 187, 187 (2001) (“A number of studies have argued that the 

uniformity of the commission rate across different properties and regions is an indication of collusive 

behavior.”); Richard J. Buttimer, Jr., A Contingent Claims Analysis of Real Estate Listing Agreements, 16 J. 

REAL ESTATE FIN. & ECON. 257, 257 (1998) (“Much of the literature argues that there is . . . some collusion 

between brokers through the [MLS] . . . The primary evidence presented is the near-uniformity of 

commission rates in a given market. A common argument is that the effort required to sell a house is not a 

linear function of the sales price and that if there is not collusion among brokers, there should be, at the 

very least, variation in commission rates across house price ranges within a given market.”). 

167 See, e.g., American Bankers Association, Public Comment 10, at 1 (cover letter) (“[b]y any standard, the 

real estate brokerage market is considerably less competitive than it should be and commissions are 

artificially high.”); White, supra note 47, at 2 (“[A] more competitive outcome would surely mean that 

average fees would be lower than they are today and that ‘the 6% (or 7%) commission’ would be unlikely 

to remain as the modal fee.”); John C. Weicher, The Price of Residential Real Estate Brokerage Services: A 

Review of the Evidence, Such At It Is 1 (presented at AAI Conference on Competition in the Residential 

Real Estate Brokerage Industry Nov. 8, 2005) (noting “a fairly widespread view that brokerage is not a 

competitive industry...” based several perceptions, including: (1) excessive commission rates that are 

“sticky downward” even as technology reduces brokers’ costs; (2) commission rates are higher in the 

United States than in many other developed countries; (3) lobbying efforts by NAR and state Realtor 

associations in favor of state laws restricting competition; (4) NAR’s successful lobbying of Congress to 

prohibit banks from entering the real estate brokerage business; and (5) NAR-imposed restrictions on 

discount and Internet brokers’ access to the MLS). 
36

commenters maintain that the Internet should also be reducing the costs of providing real 

estate brokerage services.169

 In its comment, the American Bankers Association (“Association”) observed that 

“[one] would expect to see variations in brokerage commissions across geographical 

regions as the supply and demand varies dramatically across the United States, but little if 

any variation exists.”170 If the market were competitive, according to the Association, 

commissions could fall as much as by half.171 The Association calculated that, assuming 

the standard of living is the same today as it was in 1990, when the average commission 

was 6.1 percent, the commission rate necessary to generate the same real return today 

would be only 4.34 percent.172

In contrast to the views of the Association, NAR173 reported in its public comment 

that the residential real estate brokerage industry is “fiercely competitive” and that 

commission rates “are set by market forces in order to attract clients.”174 NAR rests its 

conclusion in large part on particular attributes of the industry, which, according to NAR, 

 168 See, e.g., GAO REPORT, GAO-03-749, Airline Ticketing: Impact of Changes in the Airline Ticket 

Distribution Industry (July 2003) (discussing how Internet distribution lowered transaction costs in the sale 

of airline tickets), available at http://www.gao.gov/new.items/d03749.pdf; GAO REPORT, GAO/GGD-00-

43, Online Trading: Better Investor Protection Information Needed on Broker’s Web Sites (May 2000) 

(discussing how Internet brokerages charge far less commission per trade on securities), available at

http://www.gao.gov/new.items/gg00043.pdf. 

169 See Hahn, Tr. at 89; American Bankers Association, Public Comment 10, at 3. 

170 American Bankers Association, Public Comment 10, at 3 (comment). 

171 Id. at 1. 

172 Id. at 4. A 2002 study analyzing commission rates in the United States and several other countries 

concluded that U.S. commission rates “should equal something closer to 3.0% versus the common 6% or 

7% fee.” Natalya Delcoure & Norm G. Miller, International Residential Real Estate Brokerage Fees and 

Implications for the US Brokerage Industry, 5 INTERNATIONAL REAL ESTATE REVIEW 12, 29 (2002). NAR 

has cautioned against comparing U.S. and foreign commission rates, claiming that there are too many 

country-specific factors involved to permit simple comparisons across countries, and the authors of the 

2002 study concede that “[d]ata on such differences is not readily available and beyond the scope of this 

study.” Id. at 14. The authors did not identify the source of the U.S. commission data. See NAR, Public 

Comment 208, at 15-16; Delcoure & Miller, supra, at 15. 

173 Approximately half of the public comments submitted to the Agencies in response to their request for 

public comments were some variation of a form letter that NAR composed, posted on its website, and 

encouraged its 1.2 million members to send. This letter praised the competitive nature of the real estate 

industry. Commenters using this form highlighted local competition between individual agents as an 

outstanding example of rigorous competition to which the rest of the economy should aspire. In addition, 

they claimed that the tens of thousands of brokerages, more than two million licensed real estate 

professionals, and various business models across the country provide consumers with a great deal of 

choice. See the NAR website (http://www.realtor.org/law_and_policy/mls/ild/regulator_letters.html) for 

more details on the association’s instructions and suggested content. 

174 NAR, Public Comment 208, at 1 (comment). 
37

“resemble[] a perfectly competitive industry structure with production at the lowest 

possible cost and consumers benefiting from competitively determined prices.”175

 

 Several other commenters claimed that there is vigorous price competition. One 

broker described the competition that he faces as follows: “In about 95 percent of the 

leads I get, I have competition from at least one other Real Estate Agent, and on listing 

appointments, I am often competing against [two] to [three] other Agents, and I lose quite 

a few [to] those who list with lower commission rates.”176 An agent who has been in the 

business for less than a year stated: “Realtors are competing fiercely on the price at 

which they will take listings. In my own experience, I have already lost listings to 

brokers who have offered to take the listing at a lower brokerage fee.”177

 Several commenters also provided anecdotal evidence regarding falling 

commission rates in various areas of the country.178 One commenter, for example, stated: 

“Real estate is very competitive in Arizona. I see agents advertising commissions as low 

as 2%. The norm years ago was 7%, then 6% . . . now there is not a norm. It varies 

greatly.”179 Another commenter observed that “[t]he 6% commission of long ago has 

decreased to 4 or 5% on the majority of deals.”180

Some commenters identified discount and fee-for-service brokers as key drivers 

of price competition. One agent claimed that, due to the prevalence of discount brokers, 

real estate agents “are confronted with the question how much can you reduce your 

commission? It is a standard question now.”181 Another agent at a full-service firm 

reported that “since we go up against limited service firms all the time, we are having to 

reduce our commission rate to keep the client.”182 These observations are similar to those 

 

175 Id. at 2. 

176 Blann, Public Comment 250, at 1. But see NAR 2006 SURVEY, supra note 4, at 74 (69% of sellers 

contacted only one agent; 74% of sellers found their agent through either a referral or a prior relationship 

with the agent). 

177 Reppert, Public Comment 294, at 1. See also Tradii, Public Comment 340, at 1; Wharton, Public 

Comment 179, at 1.

178 See, e.g., Earman, Public Comment 73, at 1-2 (average commission is “well under 6%”); Giorgianni, 

Public Comment 200, at 1 (“My average commission has dropped over the last ten years from 3% to about 

2.25%.”). 

179 Paulsen, Public Comment 364, at 1. Several panelists and commenters cited Real Trends estimates of 

commission rates. See, e.g., Kunz, Tr. at 81-82; Lewis, Tr. at 172; NAR, Public Comment 208, at 12 

(comment). 

180 Lord, Public Comment 254, at 1. 

181 Id. at 1. 

182 Dwyer, Public Comment 55, at 1. See also Blomquist, Public Comment 194, at 1; Forgues, Public 

Comment 118, at 1 (“Here in Tucson, Arizona, competition amongst real estate agents is fierce. There are 
38

of the GAO, which noted that competition from nontraditional brokers may be partially 

responsible for a recent decline in commission rates.183

C. Commission Rates and Fees: Empirical Evidence184

 In light of the contrasting views presented above, it is reasonable to ask what 

empirical evidence reveals about commission rates and fees in recent years. 

Unfortunately, as one author recently noted, “There is not much empirical evidence on 

commission rates. The data are usually proprietary and not readily available to the public 

or to academic analysts.”185 Consistent with this observation, none of the Workshop 

participants or commenters provided data on commission rates or fees.186 To our 

knowledge, REAL Trends is the only source that publishes commission rate data. REAL 

Trends publishes nationwide average commission rates. Its data are derived from a 

survey of the top 500 brokerage firms in the country and a group of rising firms just 

below the top 500. 

 Table 1 lists REAL Trends national average commission rates and fees from 1991 

through 2005. Fees, measured in constant 2006 dollars, are based on median home prices 

so as to represent what a typical consumer would pay in real estate commissions to sell 

his or her home. As illustrated in Figure 1, commission rates have fallen gradually over 

this time period, from 6.1 percent to just over 5 percent. 

 a variety of options available to buyers and sellers from full service agents to very limited service agents 

with a wide variety of fee structures.”); Large, Public Comment 241, at 1 (“our average commission per 

transaction side has dropped 13% this year compared to last year as a result of competition from discount 

brokerage business models operating in our market”).

183 GAO REPORT, supra note 3, at 12. 

184 As discussed in Chapter I of this Report, the commission “rate” is the percentage of the home sales price 

that the broker retains as a commission, and commission “fees” are the total dollar amount paid by 

consumers for real estate brokerage services. A decrease in commission rates does not necessarily imply a 

decrease in fees. 

185 Weicher, supra note 167, at 121. 

186 NAR – a logical source of commission data, given its size and access to MLS data through its local 

associations – does not study or report commission rates. A NAR economist explained at the workshop 

that any average commission rate reported by a prominent entity such as NAR could be used by industry 

participants as a focal point for collusion on commission rates. See Yun, Tr. at 225-26. See also NAR, 

Public Comment 208, at 12 (comment) (“[NAR] does not conduct research on commission rates out of 

concerns that the research results have the effect of setting a ‘focal point’ for practitioners to set their 

commissions.”). 
39

Year Commission Rate 2006 Dollars % Change 2006 Dollars % Change

1991 6.10% $153,925 $9,389

1992 6.04% $153,235 -0.45% $9,255 -1.43%

1993 5.94% $153,632 0.26% $9,126 -1.40%

1994 5.88% $155,145 0.98% $9,123 -0.04%

1995 5.83% $155,365 0.14% $9,058 -0.71%

1996 5.75% $158,029 1.71% $9,087 0.32%

1997 5.64% $162,168 2.62% $9,146 0.66%

1998 5.48% $167,881 3.52% $9,200 0.59%

1999 5.44% $171,031 1.88% $9,304 1.13%

2000 5.42% $172,427 0.82% $9,346 0.45%

2001 5.12% $177,939 3.20% $9,110 -2.52%

2002 5.14% $188,634 6.01% $9,696 6.42%

2003 5.12% $198,557 5.26% $10,166 4.85%

2004 5.08% $212,655 7.10% $10,803 6.26%

2005 5.02% $230,059 8.18% $11,549 6.91%

Sources: Commission rates are from REAL Trends 500 ©; real median home prices are from U.S. 

Department of Housing and Urban Development, U.S. Housing Market Conditions, 4th Quarter 2006, 

Tables 6-9 (Feb. 2007), and are a weighted average of new and existing home prices, based on annual 

sales; median home prices are converted into 2006 dollar with consumer price index for all goods for all 

urban consumers (CPI-U) from Bureau of Labor Statistics 

(http://data.bls.gov/PDQ/servlet/SurveyOutputServlet); commission fees are calculated by multiplying 

commission rates by real median home prices.

Median Home Prices Commission Fees

Table 1

Commission Rates and Real Commission Fees: 1991-2005

Figure 1

Average Commission Rates: 1991-2005

0%

1%

2%

3%

4%

5%

6%

7%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
40

Figure 2, however, shows that despite the downward trend in rates, the dollar amount of 

commission fees appears to have increased closely in line with rising housing prices. 

Growth in home prices was relatively flat through most of the 1990s and real commission 

fees did not surpass their 1991 levels until 2002. At the same time, as housing price 

growth accelerated from 2001 through 2005, real commission fees rose about 25 percent. 

 

Figure 3 illustrates annual percent changes in real housing prices and commission fees 

from 1992 through 2005, and provides additional illustration of how fees tend to move in 

Figure 2

Average Commission Fees and Median Home Prices: 1991-2005

(in 2006 dollars)

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

$8,000

$8,500

$9,000

$9,500

$10,000

$10,500

$11,000

$11,500

$12,000

Commission Fees

Home Prices

Median Home Price Median Commission Fee

Figure 3

Annual Percentage Change in Median Home Prices

and Commission Fees: 1992-2005

(in 2006 Dollars)

-4%

-2%

0%

2%

4%

6%

8%

10%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Home Prices

Commission Fees
41

tandem with housing prices. For most years, the annual percent change in real 

commission fees is very similar to the annual percent change in real housing prices. 

Other studies have examined REAL Trends data and have made the same 

observations about patterns in commission rates, housing prices, and brokerage fees. For 

example, Weicher calculates that although the average commission rate as reported by 

REAL Trends fell by 16 percent (6.1 percent to 5.1 percent), because the average price of 

existing housing increased during this period ($128,400 to $236,000), the average 

inflation-adjusted commission per transaction increased by 11 percent in dollar terms 

between 1991 and 2004.187 More specifically, Weicher’s analysis indicates that inflationadjusted commission fees per home sale declined by approximately 7 percent between 

1991 and 1998, but increased 19 percent between 1998 and 2004.188 The GAO, also 

using REAL Trends’ commission rate data, reached the similar conclusion that 

commission rates do not appear to have changed enough to offset rapidly rising home 

prices in recent years.189 Specifically, the GAO observed that a decrease in commission 

rates from the prevalent 5.5 percent in 1998 to an estimated 5 percent in 2005, a 9 percent 

decrease in commission rates, was more than offset by a 58 percent increase in the 

median inflation-adjusted home sales price. “Thus, with the increase in housing prices, 

the brokerage fee (in dollars) for selling a median-priced home increased even as the 

commission rate fell.”190

Data reported to the Securities Exchange Commission by Realogy, the largest 

brokerage firm in the United States, are consistent with these findings. For example, 

recent Realogy data indicate that between 2002 and 2006 Realogy’s average commission 

rate declined about 7 percent while the average sales price for the homes they sold 

increased about 30 percent. As a result, Realogy’s inflation-adjusted average 

commission fee increased from about $11,600 in 2002 to about $14,000 in 2006, an 

inflation-adjusted increase of about 22 percent.191

 Rather than using REAL Trends aggregated data, some researchers have analyzed 

commission rates on a transaction-by-transaction basis to determine the extent to which 

commission rates vary in relation to a variety of market factors. The studies have focused 

on, among other things, the distribution of commission rates within certain geographic 

areas and the relationship between commission rates and various property characteristics 

 

187 Weicher, supra note 167, at 124. Weicher’s calculations use average home sales prices, not median 

home sales prices. 

188 Id. 

189 See Hearing, supra note 1, at 5 (testimony of David G. Wood), available at

http://financialservices.house.gov/media/pdf/072506dgw.pdf.. 

190 Id. at 6. 

191 See Realogy Corporation 10-K for fiscal year ending Dec. 31, 2006, available at

http://www.sec.gov/Archives/edgar/data/1355001/000095012307003335/e31090e10vk.htm#tocpage. 
42

(such as the age of the home or the list price), market conditions, and the amount of time 

that the home spends on the market.192

 In late 1979 and early 1980, the FTC staff conducted a national survey of recent 

home buyers and sellers. Each survey participant who had sold through a broker was 

asked the commission rate that had been quoted by the broker. The staff found that 85 

percent of the sellers surveyed were quoted a commission rate of either six or 7 percent 

by their broker.193 More specifically, approximately 53 percent were quoted a rate of 6 

percent, while approximately 32 percent were quoted a rate of 7 percent.194 Factoring in 

after-the-fact reductions in prices (including rebates and gifts provided by the brokers), 

78 percent of those surveyed were actually charged commissions at those rates.195 These 

results are comparable to those revealed in a sample of HUD-1 forms from the latter half 

of the 1970s collected by HUD for its own purposes, which showed that 77 percent of 

sellers were charged a commission rate of 6 or 7 percent.196 Although the average 

commission rates based on the HUD-1 forms varied across metropolitan areas, in eleven 

of the sixteen cities surveyed 80 percent or more of the commission rates actually paid 

were equal to either 6 or 7 percent.197

 A 1982 study analyzed the relationship between commission rates and several 

variables, including the price of the home, whether the home was a new or existing home, 

and whether the sale involved cooperation from another broker.198 The sample data 

included 1,107 transactions drawn from seven cities in 1975, 485 transactions drawn 

from eight cities in 1978, 1,769 transactions drawn from eight cities in 1979 and 3,895 

transactions drawn from all 50 states in 1979.199 For each transaction, data on actual 

commission rates paid were obtained from HUD-1 forms. The study found that in 23 

percent of the market areas (i.e. city or state) under examination, as home prices 

 

192 A comprehensive review of the empirical research conducted in the real estate brokerage industry is 

beyond the scope of this Report. For a review of the literature on such research, see Jonathan Dombrow & 

Geoffrey K. Turnbull, Trends in Real Estate Research, 1988-2001: What’s Hot and What’s Not, 29 

JOURNAL OF REAL ESTATE FINANCE AND ECONOMICS 47 (2004); John D. Benjamin, G. Donald Jud & G. 

Stacy Sirmans, What Do We Know About Real Estate Brokerage?, 20 JOURNAL OF REAL ESTATE 

RESEARCH 5 (2000). 

193 1983 FTC STAFF REPORT, supra note 9, at 45. 

194 Id.

195 Id. at 46 (49.6% of sample paid 6%, while 27.9% paid 7%). 

196 Id. at 48. 

197 Id. at 52. 

198 See Michael Carney, Costs and Pricing of Home Brokerage Services, 10 JOURNAL OF THE AMERICAN 

REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 331 (1982). 

199 Id. at 335. 
43

increased, commission rates decreased.200 However, despite a lower commission rate, the 

results imply the dollar magnitude of the commission fee paid was considerably higher 

for higher priced homes.201 The study also found that commission rates associated with 

sales of existing homes were higher and less varied than rates associated with new 

homes.202 On average, the commission rate paid on sales of existing homes was 

approximately 1.2 percentage points higher than the rate paid on new home sales.203 

Finally, the study found that commission rates in transactions involving cooperating 

brokers were on average approximately 0.4 percent higher than rates in non-cooperative 

transactions. According to the author, “[t]he [HUD-1] data clearly reveal systematic 

variation in the actual home brokerage commission rates according to the three variables 

examined.”204

 A 1988 study analyzed the relationship between the commission rate offered to 

cooperating brokers and the selling price of the home.205 The sample data were 

comprised of 532 home sales drawn from 1983 and 1987 sales data in the Knoxville, 

Tennessee, Board of Realtors’ MLS.206 The study found that the cooperative commission 

rate was negatively related to the sales price of the home and positively related to the 

percent of the list price achieved by the seller.207 The authors concluded, “[t]hese results 

 

200 Id. at 336. 

201 Id. at 348 (“[O]n average, a $100,000 rise in the price of the home reduces the commission rate by about 

0.5 percentage points”). The average sales price of an existing home in 1980 was $72,800. See U.S. 

Department of Housing and Urban Development, U.S. Housing Market Conditions 73 (Nov. 2006) 

[hereinafter “HUD REPORT”], available at

http://www.huduser.org/periodicals/ushmc/fall06/USHMC_Q306.pdf. At that price, the study’s statistical 

results predict a corresponding commission rate of 6.25%, leading to a commission fee of $4,550. A home 

selling for $100,000 more, or $172,000, would pay a commission rate of 5.73%, for a commission fee of 

$9,901. 

202 Carney, supra note 198, at 339 (excluding five areas with insufficient observations for new homes, in 59 

percent of the remaining market areas the mean commission rate paid was statistically significantly higher 

for existing homes than for new homes). 

203 Id.

204 Id. at 248. 

205 See William C. Goolsby & Barbara J. Childs, Brokerage Firm Competition in Real Estate Commission 

Rates, 3 JOURNAL OF REAL ESTATE RESEARCH 79 (1988). 

206 Id. at 84. 

207 This finding was significant at the one percent level for each of the equations tested. See id. at 83. 

However, Weicher notes that the magnitude of the sales price effect appears to be small. See Weicher, 

supra note 167, at 121 (“Goolsby and Childs find that the commission rate declines about 0.06 to 0.11 

percentage points for each $10,000 increase in home price, e.g., from 5.90 percent to 5.84 or 5.79 

percent.”). 
44

provide strong evidence that the presumption by previous researchers that real estate 

brokerage firms are unwilling to negotiate differential rates is inaccurate.”208

In a 1997 study, the authors tested a theoretical model relating commission rates 

to changes in a local housing market.209 This study addressed both how the distribution 

of commission rates varied across home prices within a geographic area and with changes 

in economic conditions across an entire area over time. The sample data (provided by a 

local MLS) consisted of 15,608 single-family home sales in the Baton Rouge, Louisiana 

metropolitan area from 1985 through 1992.210 Similar to the two studies described 

above, the authors found that the listing broker commission rate varied statistically 

significantly with a variety of home characteristics.211 For example, commission rates 

declined, albeit at a decreasing rate, with the list price of the home.212 However, despite a 

lower commission rate, the authors’ estimates showed that the actual commission fee 

paid rose with housing prices. These authors also considered whether commission rates 

within the Baton Rouge market responded to market-wide changes akin to housing 

booms and busts. They found a counter-cyclical pattern for commission rates. In other 

words, as the demand for housing and sales prices increased, commission rates declined. 

However, the authors’ statistical results suggest commission rates are relatively 

inflexible.213 This result is consistent with the findings based on Real Trends data 

 

208 Goolsby & Childs, supra note 205, at 85. Since the authors only observed the cooperative commission 

rate, they note that their conclusion rests on the assumption that the cooperative split is a fixed share of the 

total listing commission. The authors report that interviews with industry members suggest that the 

cooperative split was almost uniformly 60/40, in favor of the listing broker. See id. at 81 n.1. 

209 See C.F. Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF 

URBAN ECONOMICS 102 (1997). This study apparently incorporates the data and relevant findings of an 

earlier study conducted by the authors. See C.F. Sirmans, Geoffrey K. Turnbull & John D. Benjamin, The 

Markets for Housing and Real Estate Broker Services, 1 JOURNAL OF HOUSING ECONOMICS 207 (1991). 

210 Sirmans & Turnbull, supra note 209, at 111. 

211 Id. at 113-115. 

212 Id. at 113-14. The authors performed regressions analyzing how the contract commission rate was 

affected by various market conditions and housing variables. As the authors explain, the commission rate 

captured in the sample is “the contract rate and therefore does not reflect any adjustment or changes that 

might be renegotiated between the house seller and the agent at the time of sale.” Id. at 111. 

213 While it is not possible to quantify the relative inflexibility based on information reported by the 

authors, supplemental information can be used to compute a rough approximation. Weicher, supra note 

166, at 121, reports that Sirmans and Turnbull calculated an average contract commission rate of 5.8% in 

Baton Rouge over the period 1985-1987. Assuming a commission rate of 5.8% in 1985, Sirmans and 

Turnbull’s statistical results imply a commission rate that varies from 5.8% in 1985, upwards to a 

commission rate of 6.06% at the end of 1989, and downward to 5.95% by the end of 1992. According to 

the U.S. Census, the median home sales price in Baton Rouge in 1992 was $73,600. See U.S. Census 

Bureau, Median Sales Price of Existing One-Family Homes by Selected Metropolitan Areas, available at

http://www.allcountries.org/uscensus/1202_median_sales_price_of_existing_one.html. Based on the 1992 

median price, home sales price indices from the Office of Federal Housing Enterprise Oversight (see

http://www.ofheo.gov/HPI.asp) imply median home sales prices of $71,920 in 1985, $63,620 in 1989, and 

$73,600 in 1992. From 1985 to 1989, despite a home sales price drop of about 11.5%, the average 
45

described above: as home sales prices have increased since 1991, commission rates have 

declined, but not in proportion to increases in home sales prices. 

* * * 

Overall, the evidence suggests that while commission rates may vary modestly 

with housing prices and overall market conditions, they do not tend to vary in proportion 

to changing home prices. As a result, inflation-adjusted commission fees per transaction 

appear to follow closely movements in home sales prices. In other words, commission 

rates are relatively inflexible. Although neither commenters nor Workshop panelists 

presented evidence to explain the cause of relatively inflexible rates, this phenomenon 

has meant that the price that consumers paid for brokerage services rose considerably 

during the recent run-up in housing prices. 

D. One Explanation of the Seemingly Contradictory Descriptions of Broker 

Competition 

The evidence presented above shows a dramatic increase in agent entry in recent 

years coupled with claims of intense competition among brokers. Yet, consumers are 

paying almost 25 percent more for brokerage services, after adjusting for inflation, than 

they did in 1998. A Workshop panelist, Chang-Tai Hsieh, an academic economist, 

offered one possible explanation of how, in the presence of relatively inflexible 

commission rates, the increased entry and non-price competition by brokers can reflect an 

inefficient constraint on price competition. 

 According to Hsieh, in a booming real estate market, relatively stable commission 

rates imply higher commission fees per transaction and an increased profit opportunity 

for agents. Because becoming an agent is easy, an increasing number of people enter the 

industry in search of these higher profits. But with more and more agents competing to 

close transactions, the average number of transactions per agent will decline. Further, if 

commission rates are relatively inflexible, such that agents do not seek to attract 

customers by offering lower rates, agents will compete along other dimensions to gain 

clients.214 For instance, agents may expend resources “prospecting” for listings by, for 

 commission rate increased about 4.5%. From 1989 to 1992, despite a home sales price increase of about 

15.5%, the average commission rate decreased about 2%. In short, changes in home sales prices have 

relatively small effects on commission rates. 

214 Other commentators have observed that if commission rate competition is limited, brokers will likely 

compete by engaging in marketing activities or offering to provide higher quality services. See Turnbull, 

supra note 162, at 293. Thomas J. Miceli, The Welfare Effects of Non-Price Competition Among Real 

Estate Brokers, 20 J. AM. REAL ESTATE & URBAN ECON. ASS’N 519 (1992); Crockett, supra note 51, at 

213. See also Hahn, Tr. at 55 (“[I]t’s not surprising to me that we observe non-price competition if, in fact, 

there isn’t a lot of price competition.” “[C]ompeting over variables other than price[,] . . . that’s exactly 

what we observed in the airline industry before Fred Kahn, Steve Breyer, Ted Kennedy deregulated 

airlines, got rid of the Civil Aeronautics Board. For those of you old enough to remember, we had things 

like the sandwich wars on some airplanes to get people to come on.).” 
46

example, door-to-door canvassing, mailings, providing potential clients with free 

pumpkins at Halloween, and calling on FSBO sellers.215

Marketing is often beneficial to consumers and competition,216 and some 

consumers may benefit from the enhanced service competition in this market. But when 

competition occurs primarily along such dimensions, brokers may expend more resources 

providing additional services than the value of those services to consumers.217

According to Hsieh, real estate agents may be competing intensely but do so 

primarily by expending resources to gain listings rather than competing by lowering their 

commission fees, a phenomenon Hsieh calls the “tragedy of the commission.”218 The 

“tragedy” of relatively inflexible commission rates, according to Hsieh, is not just that 

consumers receive more services and fewer commission fee reductions than many 

consumers might prefer, but that the agents themselves are no better off.219 Because the 

ratio of agents to buyers and sellers has increased, agents have to work harder to find 

clients and consequently spend less time actually closing transactions.220 In this manner, 

 

215 Hsieh & Moretti, supra note 139, at 1088-89 (2003) (cataloging the importance of prospecting in “selfhelp” books for real estate agents). 

216 See, e.g., J. HOWARD BEALES & TIMOTHY J. MURIS, STATE AND FEDERAL REGULATION OF NATIONAL 

ADVERTISING 7-19 (1993). Indeed, antitrust agencies have challenged private associations’ restraints on 

truthful competitor advertising. See, e.g., Massachusetts Bd. of Registration in Optometry, 110 F.T.C. 549 

(1988). 

217 See Hsieh & Moretti, supra note 139, at 1089 (“prospecting” and “farming” are not “entirely socially 

wasteful,” rather “society’s gain from free pumpkins for Halloween and from free notepads with the 

realtor’s picture is far less than their cost to the realtor, in terms of the direct cost of these freebies, but 

particularly in terms of the opportunity cost of the time the realtor puts into such activities.”); Turnbull, 

supra note 162, at 296 (“[S]ince no direct pricing of service levels is allowed, the housing market and 

broker market lose an important channel normally responsible for ensuring that the services are provided to 

the point where the marginal value to clients equals the marginal cost to brokers.”). 

218 Chang-Tai Hsieh Presentation, Associate Professor of Economics, University of California, Presentation 

at the Federal Trade Commission and Department of Justice Public Workshop: Competition Policy and the 

Real Estate Industry, The Tragedy of the Commission (Oct. 24, 2005), available at

http://www.ftc.gov/opp/workshops/comprealestate/hsieh.pdf. See also Hsieh & Moretti, supra note 139, at 

1078; Hsieh, Tr. at 233-46. 

219 Hsieh, Tr. at 237. See also Bunnell, Public Comment 146, at 1 (“Low barriers to entry and recalcitrance 

to change have created a situation where the status quo makes sense for none of the transaction 

participants. It’s a tragic story where nobody wins, especially the consumer.”). Higher profits may accrue 

to participants in the industry not subject to intense entry and profit dissipation. For example, for each 

additional agent entering the industry a licensing fee is paid. In most states, there exists a single licensing 

board. Further, NAR membership is required for all agents and brokers that belong to the vast majority of 

MLSs in the United States. Such entities are likely to gain financially from increased entry into the 

brokerage industry. 

220 See Hsieh & Moretti, supra note 139, at 1089 (“as long as the commission rate is fixed, the amount of 

time that realtors devote to prospecting and farming relative to actually selling a house or finding an 
47

a larger number of agents dissipates the increased profit opportunities by incurring 

additional expenses to close transactions. Further, this theory suggests that because 

agents compete profits away by incurring additional expenses to provide these services, 

rather than lowering their commission rates, they operate at inefficiently high cost 

levels.221

 Hsieh provided empirical evidence at the Workshop consistent with competition 

in the brokerage industry occurring primarily in non-price dimensions. Drawing on 

commission rate data from the 1983 FTC Report and examining census data on 

commissions from the period of 1980 to 1998, Hsieh (and his co-author) found evidence 

suggesting that regardless of home selling prices, commission rates appear fairly stable 

around 6 percent over the relevant time period and across markets.222 Hsieh studied 282 

cities over eighteen years and found that in cities with higher housing prices (and thus 

higher commission fees and higher profit opportunities for agents): (1) there are more 

real estate agents relative to the city’s workforce; (2) these agents are less productive 

(measured by sales per agent or sales per hour worked); and (3) wages for agents are not 

higher than they are in cities with low housing prices. He concluded that these empirical 

findings are consistent with his hypothesis that “higher commission fees in more 

expensive cities are dissipated by excessive entry of brokers.”223 Hsieh estimated the 

social waste resulting from such excess entry for the year 1990 – the latest year of their 

analysis – at between $1.1 and $8.2 billion.224

Hsieh’s observations using earlier data are consistent with other reported market 

conditions. Namely, there has been substantial agent entry in recent years225 and the 

average number of transactions per agent declined by 20 percent from 2000 through 

 appropriate house for a buyer increases as the market becomes more and more competitive, that is, as more 

realtors are chasing after the same number of customers”). 

221 Id. at 1089 (“the cost of finding a customer increases with the number of realtors in the market, without 

necessarily generating additional benefits to the consumer”). 

222 These data come from the “total home selling expense” field in the Bureau of Labor Statistics’ annual 

Consumer Expenditure Survey from 1980-1990. This field also includes selling expenses other than 

commissions, like closing costs and attorneys fees, so it is likely to overstate the actual commission rate. 

However, because sellers typically do not pay for title searches, abstracts, and many of the other fees 

associated with closing a residential real estate transaction, the data in this field are likely to closely 

represent commissions paid by the seller. Id. at 1082. 

223 Id. at 1118. 

224 Id. at 1116-17. 

225 See Hsieh & Moretti, supra note 139, at 213 and accompanying text. Yun showed evidence of entry as 

a result of the recent housing market boom, as well as evidence that NAR membership has varied directly 

with housing prices for at least the past 20 years. See Yun Presentation, supra note 145, at 3. 
48

2005.226 Even though the income available from each transaction increased over the time 

period, according to NAR, the “typical” income of its members fell from $52,000 in 2002 

to $49,300 in 2004, while the income of sales associates (who comprise two-thirds of 

NAR’s membership) decreased from $41,600 to $38,300 during the same time period.227 

A NAR economist appearing on a Workshop panel explained: “That’s not surprising. 

The number of new agents entering the market in the past couple of years has outpaced 

the home sales growth and even the home price growth. So, given the fact that the 

Realtor membership has increased far more than actual home sales, it’s not surprising that 

the median income has fallen.”228

A remaining question, not resolved by Workshop participants or commenters, is 

why commission rates are relatively inflexible.229 Regardless of the answer, it is 

desirable that brokers have the freedom to offer a variety of price and service 

combinations to attract consumers. In particular, in light of the evidence presented above 

regarding the relatively limited competition among traditional brokers on the price 

dimension, innovators should not be discouraged by industry policies or government 

regulations from offering more flexible commission rates. In the next Chapter, we turn to 

obstacles innovators may be encountering. 

 

226 According to REAL Trends data, the number of transaction sides per agent declined from 12.7 in 2000 

to 10.2 in 2005. See http://www.remax-cahi.com/esource/marketingmaterials/2005realtrends500.pdf; and 

http://www.realtrends.com/past_newsletters.asp?article=newsletters/2005_04_6.htm. 

227 NAR, Public Comment 208, at 12. 

228 Yun, Tr. at 225. See discussion in Hsieh & Moretti, supra note 139, at 1116 (estimating $1.1 billion to 

$8.2 billion social waste resulting from excess entry in 1990). 

229 See Hsieh, Tr. at 233 (“[T]he real puzzle in the real estate business is why does there seem to be this 

relatively fixed commission structure?”); Salinger, Tr. at 248 (“[A]s Dr. Hsieh and I’m sure many people 

today have pointed out, the puzzle is why the percentage commission has been so stubbornly persistent.”); 

Hsieh & Moretti, supra note 139, at 1086 (“The apparent uniformity of commission rates presents an 

enormous puzzle, especially if one believes that the cost and effort necessary to sell a house do not increase 

one to one with the price of housing. Why do commission rates appear to be so insensitive to market 

forces? We do not have an answer to this puzzle.”). 
49

IV. OBSTACLES TO MORE ROBUST COMPETITION

 

 In recent years, the Agencies have become aware of actions taken by state 

legislatures, industry regulators and private actors that have the effect of restricting 

competition in the real estate brokerage industry. This Chapter discusses these actions 

and the Agencies’ responses. It also addresses the role that the cooperative nature of real 

estate brokerage may play in shaping competition in the real estate brokerage industry. 

A. Legislative and Regulatory Restrictions on Competition 

 This Section examines three types of restraints imposed by state laws and 

regulations that are likely to reduce competition and consumer choice in the real estate 

brokerage industry: anti-rebate laws and regulations; minimum-service requirements; 

and overly broad licensing requirements.

1. Anti-Rebate Laws and Regulations 

 As discussed in Chapter I, rebates can be powerful tools for price competition 

among brokers. Rebates are permitted in most states, and brokers in these states may 

freely advertise their willingness to offer rebates that save consumers hundreds and often 

thousands of dollars per transaction. Rebates currently are prohibited by law, however, in 

ten states: Alabama;230 Alaska;231 Kansas;232 Louisiana;233 Mississippi;234 Missouri;235

New Jersey;236 North Dakota;237 Oklahoma;238 and Oregon. 239 In addition, Iowa240

prohibits rebates when the customer uses the services of two or more brokers during a 

real estate transaction. 

 

230 ALA. CODE § 34-27-36 (1975). 

231 ALASKA STAT. § 08.88.401 (Michie 2005). 

232 KAN. STAT. ANN. § 58-3062 (2006). 

233 LA. REV. STAT. ANN. § 37:1455 (West 2006). 

234 MISS. CODE ANN. § 73-35-21 (2006). 

235 MO. REV. STAT. § 339.150 (2006). 

236 N.J. STAT. ANN. § 45:15-3.1 (West 2006). 

237 N.D. CENT. CODE § 43-23-11.1 (2006). 

238 OKLA. STAT. ANN. tit. 59, § 858-312 (West 2006). 

239 OR. REV. STAT. § 696.290 (2005). 

240 IOWA CODE § 543B.60A (2005). 
50

 Rebate bans inhibit price discounting and thereby harm consumers. For example, 

in states allowing rebates, some brokers operate business models pursuant to which they 

rebate up to one-third or one-half of their commission to their buyers. Because 

cooperating brokers typically receive 50 percent of the overall commission, a broker who 

returns half of his or her commission to the client provides a 25 percent discount on the 

overall commission payment; rebating one-third provides approximately a 16 percent 

discount. For example, if a cooperating broker were to earn half of a 5.1 percent 

commission and offer a 50 or 33.3 percent rebate, a consumer would save $3,459 or 

$2,306 in commission payments, respectively, on the sale of a $271,263 home.241 

Consumers in states with rebate bans could enjoy a similar level of savings only if such 

bans were eliminated. 

 While action by a state through legislation is generally immune from federal 

antitrust enforcement, not every act of a state governmental entity is protected by state 

action immunity.242 When actors other than the state itself (e.g., the legislature or state 

supreme court) unreasonably restrict competition under the guise of state authority, those 

actions may be subject to antitrust scrutiny.243 For example, where rebate bans have been 

imposed by state real estate commissions, DOJ has investigated, and where appropriate 

challenged, these restrictions in order to bring the benefits of price competition to 

consumers. 

 In March 2005, DOJ filed a civil antitrust lawsuit against the Kentucky Real 

Estate Commission, alleging that its regulations prohibiting Kentucky real estate brokers 

from offering rebates restricted competition and caused consumers to pay higher prices 

for real estate brokerage services.244 The lawsuit was settled on July 13, 2005. Under the 

terms of the settlement, which was approved by a federal judge, the Kentucky Real Estate 

 

241 Based on weighted average sales price of new and existing homes in 2005 ($271,263), the buyer’s 

broker’s share of a $13,834 commission would be $6,917. A buyer who is rebated half of this would 

receive $3,459. See HUD REPORT, supra note 201. 

242 See, e.g., California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) 

(entity claiming state action immunity from federal antitrust laws must demonstrate that its actions are (1) 

pursuant to a clearly articulated state policy intentionally displacing competition with an alternative 

regulatory scheme and (2) actively supervised by the state or a qualified government agency or official). 

See also FTC OFFICE OF POLICY PLANNING, REPORT OF THE STATE ACTION TASK FORCE (Sept. 2003), 

available at http://www.ftc.gov/os/2003/09/stateactionreport.pdf (analyzing state action immunity 

doctrine). 

243 See, e.g., Hoover v. Ronwin, 466 U.S. 558, 568 (1984) (“Closer analysis is required when the activity at 

issue is not directly that of the legislature or supreme court, but is carried out by others pursuant to state 

authorizations.”); Southern Motor Carriers Rate Conference v. United States, 471 U.S. 48, 62-63 (1985) 

(public utility commission not the state itself); Goldfarb v. Virginia State Bar, 421 U.S. 773, 791-92 (1975) 

(attorney fee schedule established by county bar association was not immune from antitrust liability). 

244 See Complaint, United States v. Kentucky Real Estate Comm’n, Civil Act. No. 3:05CV188-H (filed Mar. 

31, 2005) (hereinafter “Kentucky Complaint”), at http://www.usdoj.gov/atr/cases/f208300/208393.htm. 
51

Commission agreed to cease enforcement of its rebate prohibitions,245 allowing Kentucky 

consumers to avail themselves of the benefits of increased competition through brokeroffered rebates, discounts, and other inducements.246

 During the course of the investigation, DOJ found evidence that brokers wanted 

to restrict rebates because they understood that rebates are a form of price competition. 

As noted in the Complaint, in response to a survey asking brokers whether the Kentucky 

Real Estate Commission should retain the rebate ban, one broker predicted “[I]f we give 

rebates and inducements, it would get out of control and all clients would be wanting 

something. The present law keeps it under control.”247 Another broker predicted: “This 

[lifting the rebate ban] would turn into a bidding war, lessen our profits and cheapen our 

‘so-called’ profession.”248 Another broker observed: “If inducements were allowed, they 

could lead to competitive behavior, which would make us look unprofessional in the eyes 

of the public.”249

 DOJ also investigated rebate bans by the South Dakota Real Estate Commission, 

the West Virginia Real Estate Commission, and the Tennessee Real Estate Commission. 

In response to these investigations, the South Dakota and West Virginia Real Estate 

Commissions rescinded their regulations prohibiting rebates, thereby enabling consumers 

in those states to receive more benefits of competition.250 The Tennessee Real Estate 

 

245 See Amended Final Judgment and Order, United States v. Kentucky Real Estate Comm’n, Civ. Action 

No. 3:05CV188-H, available at http://www.usdoj.gov/atr/cases/f210100/210142.htm. 

246 Since the consent decree was entered, consumers in Kentucky have benefited from new reduced price 

business models. For example, one realty company offers a 1% cash back rebate program for home buyers; 

another offers rebates worth up to $2,250 in the form of HomeDepot or American Express gift cards; and 

another offers to pay moving costs of up to $1,500 to consumers who buy particular properties. Two other 

companies together operate a program that rebates up to $3,000 for the sale or purchase of a home, which 

can yield a combined maximum rebate of $6,000 when a customer buys one property and sells another 

through the program when he or she moves. For more on types of rebates offered in Kentucky and 

nationwide, see, e.g., Mariwyn Evans, Law: Consumer Rebates, REALTOR MAGAZINE ONLINE (Jan. 1, 

2006), available at http://www.realtor.org/rmoprint.nsf/pages/lawjan06; Jessica Swesey, Internet stock 

brokerage pioneers enter online real estate, INMAN NEWS (Apr. 6, 2006), available at 

http://www.inman.com/inmannews.aspx?ID=50907. 

247 Kentucky Complaint at 3. 

248 Id. at 3. 

249 Id. A few brokers surveyed supported eliminating the rebate ban, recognizing some of the 

procompetitive benefits that repeal of the ban would foster. One broker observed: “Rebates will increase 

competition and give consumers more choices in service.” Id. at 3. 

250 DOJ, South Dakota Real Estate Commission Permits Real Estate Brokers To Offer Rebates And 

Inducements (Aug. 17, 2005), available at 

http://www.usdoj.gov/atr/public/press_releases/2005/210637.htm; DOJ, West Virginia Real Estate 

Commission Permits Real Estate Brokers To Offer Rebates And Other Discounts (May 4, 2006), available 

at http://www.usdoj.gov/atr/public/press_releases/2006/215961.htm.
52

Commission voted to suspend its rules and is in the process of rescinding them 

entirely.251

 No Workshop panelist who commented on rebate bans found any justification for 

them. A panelist representing several major national brokerage franchises noted that 

state rebate prohibitions deprive consumers of potential benefits available to consumers 

in states without prohibitions; rebate prohibitions also limit the competitiveness of real 

estate brokerages in those states where such prohibitions exist.252 This panelist’s 

company has been working with state real estate commissions to repeal prohibitions on 

rebates, which the panelist characterized as “not necessary” and “antiquated.”253 

Similarly, another panelist representing a major national brokerage franchise stated that 

“brokers and agents should be allowed the ability to freely negotiate transaction service 

pricing with their clients in any way they see appropriate.”254 A panelist representing an 

online referral network that offers rebates to buyers characterized state rebate 

prohibitions as “barriers to competition” because rebates facilitate “price competition and 

deliver value back to the consumer.”255 Another panelist who was an officer in an early 

VOW operator noted that his company gave a 1 percent rebate to buyers, but explained 

that rebate prohibitions “immediately slammed the door [in] certain states for [his 

company].”256

 One panelist noted that, given the clear benefits of rebates to consumers, it is 

“hard to find a good articulated defense” of rebate prohibitions.257 Proponents of such 

provisions claim that they protect consumers from false and misleading offers of rebates 

and help ensure that consumers choose brokers on the basis of the quality of the service, 

rather than price. While states properly are concerned with issues of consumer fraud, 

there is no evidence that rebates have harmed consumers or that rebate bans improve 

 

251 In response to DOJ’s investigation, the Tennessee Real Estate Commission voted to suspend 

enforcement of its rebate ban on July 13, 2006, and subsequently voted to repeal the offending regulation. 

See Commission Minutes at 4 (July 12-13, 2006) (suspending enforcement); Commission Minutes at 3 

(Aug. 9-10, 2006) (repealing rule). Pursuant to the state’s administrative proceedings, the Tennessee Real 

Estate Commission scheduled a public hearing regarding the rebate ban’s final repeal for May 2007. See

Tenn. Admin. Reg. vol. 33, no. 3 (Mar. 2007), Notice of Rulemaking, available at

http://www.tn.gov/sos/rules_hearingnotices/2007/1260/1260.20070228.02-37-07.notice.pdf (last updated 

Feb. 28, 2007).

252 Perriello, Tr. at 151. 

253 Id.

254 Lewis, Tr. at 180.

255 Henderson, Tr. at 154-155. 

256 DelBianco, Tr. at 183. 

257 Henderson, Tr. at 157. 
53

service quality. It is clear, however, that rebate prohibitions harm consumers by 

preventing price competition.258

2. Minimum-Service Requirements 

 Over the last two years, several states have imposed so-called minimum-service 

requirements on brokers. As the name suggests, these laws and regulations enumerate 

specific tasks that a broker must perform for a client. Missouri’s law is representative of 

these requirements, mandating that all brokers who enter into an exclusive brokerage 

agreement259

shall provide, at a minimum, the following services: 

(1) Accepting delivery of and presenting to the client or customer offers 

and counteroffers to buy, sell, or lease the client’s or customer’s property 

or the property the client or customer seeks to purchase or lease; 

(2) Assisting the client or customer in developing, communicating, 

negotiating, and presenting offers, counteroffers, and notices that relate to 

the offers and the counteroffers until a lease or purchase agreement is 

signed and all contingencies are satisfied or waived; and 

(3) Answering the client’s or customer’s questions relating to the offers, 

counteroffers, notices, and contingencies.260

Currently, Alabama,261 Idaho,262 Illinois,263 Indiana,264 Iowa,265 Texas,266 and Utah267

have minimum-service laws that require licensees to perform tasks similar to those 

 

258 Hahn believes that rebating will have a positive impact on consumer welfare, and sees no compelling 

economic rationale for not allowing rebates since they are a form of price competition that should improve 

efficiency by putting pressure on brokerages to provide better services at lower prices. See AEI-Brookings 

Paper, supra note 3, at 19. 

259 An exclusive brokerage agreement is defined as “a written brokerage agreement which provides that the 

broker has the sole right, through the broker or through one or more affiliated licensees, to act as the 

exclusive limited agent, representative, or transaction broker of the client or customer that meets the 

requirements of section 339.780.” MO. REV. STATUTES. § 710(16). 

260 MO. REV. STATUTES § 339.780(7)(1)-(3). 

261 ALA. CODE § 34-27-84(c). 

262 See H.B. 135, 2007 Leg., 59th Sess. (2007). This bill, signed into law on March 22, 2007, becomes 

effective July 1, 2007. On its face, the law is ambiguous as to whether it requires brokers actually to 

perform the service of receiving and presenting offers and counteroffers or simply requires them to make 

themselves “available” to their client to do so. The latter reading would ultimately seem to leave the choice 

up to the client as to who receives or presents the offers and counteroffers. 

263 225 IL. COMP. STATS. § 454/1-10. 
54

specified in Missouri’s law.268 Further, Kentucky,269 Michigan,270 Mississippi,271 and 

New Mexico272 recently have considered but not adopted minimum-service 

requirements.273

a. Competitive Effects of Minimum-Service Requirements 

 As the FTC and DOJ have explained in letters to several states, minimum-service 

requirements harm consumers in two ways.274 First, minimum-service requirements 

 264 IN. CODE § 25-34.1-10-9.5. 

265 IOWA CODE § 543B.56A. 

266 TEX OCC. CODE § 1101.557. 

267 UTAH CODE § 61-2-27(2)(a). 

268 Several states, including Delaware, Florida, Ohio, Oklahoma, Tennessee, and Wisconsin, have less 

restrictive laws that allow the client to decide whether he or she wants the listing broker to perform such 

services. See DEL. CODE tit.24 § 2973, FLA. STAT. § 475.278, OHIO CODE § 4735.621, OKLA. STAT. tit. 59 

§ 858-353, TENN. CODE tit. 62-13-403, WI. CODE § 452.133. Virginia also has a less restrictive law that 

requires the broker who is providing limited services to disclose the services that he or she will perform. 

See VA. CODE § 54.1-2138.1. 

269 Kentucky S.B. 43, available at http://www.lrc.ky.gov/record/06RS/SB43.htm. 

270 Michigan H.B. 4849, available at http://www.legislature.mi.gov/documents/2005-

2006/billengrossed/House/pdf/2005-HEBH-4849.pdf. 

271 Mississippi S.B. 2782, available at http://billstatus.ls.state.ms.us/documents/2006/html/SB/2700-

2799/SB2782IN.htm. 

272 See Glenn Roberts, Jr., New Mexico Rescinds Controversial Real Estate Rules, INMAN NEWS (July 17, 

2006), available at http://www.inman.com/InmanNews.aspx?ID=54526. 

273 At the time of publication of this Report, the Rhode Island legislature is considering minimum-service 

requirements. The Nevada legislature is considering a bill to allow consumers to waive the minimumservice requirements established by the Nevada Real Estate Commission, all of which is part of a package 

recommended by a minimum-service task force the Commission established. 

274 See Letter from DOJ to Oklahoma Representatives and Senators (Apr. 8, 2005), available at

http://www.usdoj.gov/atr/public/comments/209203.htm; Letter from FTC and DOJ to Michigan State Sen. 

Alan Sanborn (Oct. 18, 2005), available at

http://www.ftc.gov/os/2005/10/051020commmihousebill4849.pdf; Letter from the FTC and DOJ to 

Governor Matt Blunt (May 23, 2005), available at http://www.ftc.gov/opa/2005/05/mrealestate.htm; Letter 

from the FTC and DOJ to Alabama Senate (May 12, 2005), available at

http://www.ftc.gov/os/2005/05/050512ltralabamarealtors.pdf; Letter from the FTC and DOJ to Loretta R. 

DeHay, Gen. Counsel, Texas Real Estate Comm’n. (Apr. 20, 2005), available at 

http://www.usdoj.gov/atr/public/comments/209229.htm; Letter from DOJ to the New Mexico Real Estate 

Commission (Nov. 2, 2005), available at http://www.usdoj.gov/atr/public/comments/212656.htm. 
55

frustrate consumer choice by reducing the options available to consumers in the 

marketplace; consumers who would otherwise choose a lower-cost fee-for-service option 

are harmed if they can no longer choose their preferred option because it does not comply 

with state minimum-service requirements. Second, minimum-service requirements can 

reduce the competitive constraint that fee-for-service brokers pose to full-service brokers. 

i. Elimination of Consumer Choice 

 In states without minimum-service requirements, a consumer typically can choose 

an MLS-only package as the lowest price/lowest service level option.275 Minimumservice provisions eliminate the option of buying an MLS-only package, or any other 

individual service.276 Fee-for-service brokers in minimum-service states must include the 

enumerated additional tasks in any package of listing services they provide, which often 

requires the broker to charge a higher price due to the increased costs and time 

commitments associated with each transaction.277

 To illustrate how minimum-service requirements eliminate choice, consider the 

example of a consumer who is selling his or her home for $271,263 (the average sales 

 

275 MLS-only packages are packages where, for a flat fee, the fee-for-service broker agrees to list the 

seller’s home on the MLS by making a unilateral offer of compensation and cooperation to all of the other 

brokers within the MLS. The seller then assumes responsibility for future tasks related to the sale of his or 

her home. See, e.g., Your Igloo Real Estate, http://www.yourigloo.com/ (last visited Apr. 16, 2007). 

Should another broker in the MLS procure the buyer that ultimately purchases the seller’s home, the feefor-service broker is typically obligated under MLS rules to pay the cooperative compensation listed on the 

MLS to that broker. See supra Chapter I.A.3.

276 The ability to buy individual brokerage services, without purchasing the full package offered by fullservice brokers, is increasingly important to consumers. Hahn, for example, suggested that there may be a 

transition towards “a new era” in the industry in which real estate firms will develop and use a variety of 

different business models. AEI-Brookings Paper, supra note 3, at 12. He anticipated that some firms 

would specialize in specific parts of real estate transactions – allowing consumers to choose what fits their 

needs. Id. Hahn observed that such specialization and dividing of real estate services into smaller parts 

could result in “substantial gains for consumers.” Id. 

277 Press accounts indicate that fee-for-service brokers have raised their prices or exited the market 

altogether in response to minimum-service laws. See Glenn Roberts Jr., Flat-fee brokers adapt to new real 

estate law Texas’ new minimum-service law enacted Sept. 1, INMAN NEWS (Oct. 12, 2005), available at 

http://www.inman.com/inmannews.aspx?ID=48325; see also http://www.texasdiscountrealty.com/laws.htm

(website of Texas Discount Realty explaining that “because of the added responsibilities forced on to you, 

the seller and us the broker, by [the Texas minimum-service law], we are forced, as most brokers to adjust 

our prices”); Tracy Donhardt, New Law Provides Realtors and Edge, INDIANAPOLIS BUSINESS JOURNAL

(July 10, 2006), available at

http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=07&issueday=10&page=1

&article=Ar00101 (noting that Indiana’s minimum-service law has caused at least one limited-service 

broker to exit the market). A fee-for-service broker in Texas, who was a panelist at the Workshop, has 

complied with the Texas minimum-service law by providing clients with an electronic “frequently asked 

questions” sheet, offering to answer questions by fax or email, and communicating with buyers’ brokers 

during negotiations. As a result of the extra time spent with each client, this broker raised the price of his 

MLS-only option by $100. 
56

price of a home in 2005).278 A consumer who lived in a state without a minimum-service 

requirement could choose to purchase a basic MLS-only package from a flat-fee broker 

for about $7,282 ($500 for the MLS-only brokerage package listing fee plus a 2.5 percent 

commission for a cooperating broker). A consumer who lived in a state with a minimumservice requirement, however, would not have that option available. Instead, the 

consumer would have to purchase a traditional package of brokerage services for $13,563 

or $16,275 (at 5 or 6 percent commission, respectively) or, depending on what was 

allowed by state law, purchase an augmented MLS-only brokerage or flat-fee package 

that satisfies the state requirements, which probably would require an additional 

expenditure of $100 to $1,500 over the basic MLS-only package – for a total of $7,382 to 

$8,782, respectively.279 Alternatively, faced with a higher price for a fee-for-service 

broker’s base level package, a consumer may decide to perform the entire transaction on 

his or her own. Regardless of which alternative the consumer chooses, the consumer 

would be worse off because he or she cannot choose the preferred combination of price 

and service, which brokers would be able to provide in a state without minimum-service 

requirements.280

ii. Decreased Competition for Full-Service Brokers 

A second effect of minimum-service requirements is that they reduce the 

competitive constraint fee-for-service brokers place on full-service brokers. 281 A fullservice broker who wants the business of a consumer considering fee-for-service 

brokerage will need to offer a lower commission rate and/or increased quality to induce 

the consumer to choose to purchase the additional services the broker offers. To the 

extent that fee-for-service options cost more, full-service brokers will have less need to 

offer these incentives. Thus, if fee-for-service brokers are forced to raise their prices in 

response to minimum-service requirements, consumers who choose full-service brokers 

 

278 See HUD REPORT, supra note 201. 

279 One panelist who is a fee-for-service broker describes this as his “flat-fee plus” option, where, in 

addition to listing the home in the MLS and placing it on several websites, he provides the seller assistance 

once the buyer is found. In addition to the flat fee price of $495 paid at time of listing, the “flat-fee plus” 

option requires the seller also to pay $1,500 at closing. See Farmer, Tr. at 68 (describing the option). 

280 In an address at the beginning of the Workshop, (then Acting) Assistant Attorney General Thomas 

Barnett observed that minimum-service laws and regulations can be viewed as no different from states 

passing a regulation that says: “When I walk into McDonald’s and order a hamburger, I’m told that I also 

have to buy some french fries, because the state has decided that it might be deceptive or misleading or bad 

if I only got the hamburger, paid for it and didn’t realize I wasn’t going to get the french fries.” Barnett, Tr. 

at 20. Similarly, at a recent Congressional hearing on competition in the real estate brokerage industry, 

Representative Baker analogized minimum-service laws and regulations to requiring a consumer to have 

his or her entire house painted when he or she only wanted the porch painted. See Hearing, supra note 1, at

30 (statement of Rep. Richard H. Baker, member House Comm. on Financial Services), available at

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:31541.pdf. 

281 See Farmer, Tr. at 105 (noting that he competes against traditional “agents out there that offer little or no 

value to the transaction.”). 
57

are also likely to pay higher prices for real estate brokerage due to a reduction in the 

competitive constraint provided by fee-for-service brokers.

b. Arguments in Support of Minimum-Service Requirements Lack 

Justification and Discourage Competition 

Proponents of minimum-service requirements typically argue that these 

requirements purportedly: (1) protect consumers; and (2) protect brokers. As discussed 

below, evidence presented both at the Workshop and outside the Workshop contradicts 

these justifications. Rather, minimum-service requirements discourage competition and 

raise prices for consumers. 

i. Argument One: Minimum-Service Requirements Are 

 Necessary To Protect Consumers 

Advocates for minimum-service requirements claim that ordinary people are 

“plainly unable” to handle their real estate transactions, and thus argue that states need to 

mandate the number of services real estate brokers provide to ensure that consumers 

receive assistance from an experienced professional.282 Along similar lines, at least one 

proponent of minimum-service requirements suggests that they are necessary because 

consumers who hire fee-for-service brokers are subject to so-called hold-up; once a 

consumer has entered into an exclusive agreement with a fee-for-service broker, the 

consumer effectively is locked into acquiring from that broker all of the additional 

brokerage services that subsequently may be needed.283

Another argument is that consumers expect real estate agents to perform certain 

tasks, and that these laws merely meet consumers’ expectations.284 For example, one 

panelist, the executive director of the Texas Real Estate Commission, noted that 

minimum-service requirements can “prevent [] false claims by those who sign an agency 

agreement with a client, promise to provide representation, place the property on the 

 

282 See Lewis, Tr. at 179 (“While some consumers may be sophisticated enough to represent themselves in 

some or all of the steps of a transaction, most are not.”). See also Blanche Evans, Remember the Alamo: 

Limited Service Dust-up Brings Out State’s Rights Argument Against DOJ, FTC, REALTY TIMES, Apr. 22, 

2005, available at http://realtytimes.com/rtcpages/20050422_dojstepsin.htm (quoting Texas Association of 

Realtors claiming that minimum-service rules would avoid consumer confusion); Peter G. Baker, Hiring a 

Broker: Should You Expect Less?, REALTY TIMES, Apr. 11, 2006, available at 

http://realtytimes.com/rtcpages/20060411_hirebroker.htm (“[Government agencies] argue that with 

disclosures and waivers consumers should be able to refuse any brokerage service or obligation. . . . We do 

not, for example, allow consumers to save money by hiring doctors who cut costs by not sterilizing surgical 

instruments or washing their hands.”). 

283 See Darryl W. Anderson, Minimum-Service Requirements in Real Estate Brokerage: A Response to 

Maureen K. Ohlhausen, ANTITRUST SOURCE, Jan. 2006, at 3-4 (arguing that minimum-service 

requirements are procompetitive because they foster price negotiations before entering a representation 

agreement over what a fee-for-service broker will charge for all the services required by law). 

284 See, e.g., GAO REPORT, supra note 3, at 16. 
58

Internet, and then walk away from any further involvement in the real estate 

transaction.”285

The evidence, however, does not suggest that consumers who choose to use feefor-service brokers are harmed by performing certain aspects of the real estate transaction 

themselves or misunderstand the nature of the contractual relationships into which they 

enter. For example, one Workshop panelist who owns a limited-service brokerage noted 

that in 2004 there were more than 3,500 complaints filed with the Texas Real Estate 

Commission against brokers and agents, but there has never been a complaint filed 

against a fee-for-service broker.286 This observation is consistent with what FTC and 

DOJ staff have learned in discussions with officials in other states.287 Evidence also 

suggests that home sellers are aware of the prices fee-for-service brokers charge for 

additional services before they enter into contracts with those brokers. Because 

consumers tend to know the prices of additional services before entering contracts with 

fee-for-service brokers, they are not likely to suffer from the “hold-up” that minimumservice advocates have asserted as a reason for such provisions.288

Further, the origins of these laws suggest that the asserted public interest 

justifications are not genuine. Comments provided at the Workshop suggest that the 

impetus for these laws comes not from aggrieved consumers, but from state Realtor 

associations. 289

Panelists representing the gamut of real estate business models remarked that they 

do not see a need for minimum-service laws. For example, the head of a major real estate 

brokerage franchise stated that “while we have no reason to believe that the states’ 

motives [in adopting minimum-service laws] are anything but well-intentioned, neither 

Century 21 nor our parent company, Cendant, believes that minimum standards 

 

285 Thorburn, Tr. at 96. 

286 Farmer, Tr. at 73. 

287 In addition, in response to an FTC questionnaire, respondents from Colorado, North Dakota, Vermont, 

and Washington noted that complaints against limited service brokers were minimal or nonexistent. The 

questionnaire is available at http://www.ftc.gov/opp/workshops/comprealestate/questionnaire.htm. 

288 Our review of fee-for-service broker websites reveals that consumers appear to have ready access to 

prices that fee-for-service brokers charge for additional services beyond the MLS-only option in advance of 

entering into a contractual relationship. This finding undermines a necessary condition for the hold-up 

theory to be plausible – that consumers only learn the prices for additional services after they have entered 

into an exclusive listing agreement. See Maureen K. Ohlhausen, Minimum-Service Requirements in Real 

Estate Brokerage: A Reply to Darryl Anderson, ANTITRUST SOURCE, Mar. 2006 (discussing various 

theoretical and empirical reasons why the hold-up theory does not appear to apply to fee-for-service 

brokerage). 

289 See Farmer, Tr. at 71-72. 
59

legislation is truly necessary.”290 The chief operating officer of a major website that 

provides selling aids to FSBOs commented that “there seems to be no demand on the part 

of the consumer for [minimum-service] laws.”291 Further, a discount broker also noted 

that requiring minimum services runs contrary to the concept of fiduciary duty: 

[F]iduciary duty mean[s] you do what’s in the best interests of your client 

ahead of your best interests. If my client comes to me and says, “I can 

negotiate my contract better than you. I can sell my house better than you. 

I just need you to help me with this, this, or this,” am I not doing my 

fiduciary duty by doing what my client is telling me is in his best 

interests?292

Consistent with these panelists’ comments, the Consumer Federation of America 

issued a report in June 2006 addressing competition in the real estate industry.293 This 

report criticized minimum-service laws, contending that they “discourage competition” 

by “making it difficult for internet-based or other limited service firms to function.”294

Given that under minimum-service requirements choice is reduced and in many 

cases prices go up, those who favor minimum-service provisions should bear the burden 

of demonstrating that consumers affirmatively benefit from them. No evidence was 

presented at the Workshop indicating that consumers are better off with minimum-service 

requirements, nor have the Agencies been able to find such evidence elsewhere. 

Finally, if there is a legitimate concern that some consumers who enter into feefor-service brokerage arrangements truly do not understand that they are contracting to 

receive fewer services than a full-service broker would provide, a far less restrictive 

solution would be to require brokers to disclose in plain terms which services they will 

and will not be providing. Indeed, several panelists, representing both fee-for-service and 

more traditional business models, suggested such disclosure as a preferable alternative to 

minimum-service laws that as practical matter ban fee-for-service brokerage.295

 

290 Kunz, Tr. at 82-83. See also Perriello, Tr. at 152 (speaking for Cendant, and stating that “we believe 

that consumers . . . should be able to choose their service models as well as the provider of those services, 

whether they be limited service or full-service”). 

291 Sambrotto, Tr. at 116. 

292 Farmer, Tr. at 72. 

293 PATRICK WOODALL & STEPHEN BROBECK , CONSUMER FEDERATION OF AMERICA, HOW THE REAL 

ESTATE CARTEL HARMS CONSUMERS AND HOW CONSUMERS CAN PROTECT THEMSELVES (June 2006), 

available at http://www.consumerfed.org/pdfs/Real_Estate_Cartel_Study061906.pdf. 

294 Id. at 4-5. 

295 See, e.g., Lewis, Tr. at 178-79; Sambrotto, Tr. at 114; Farmer, Tr. at 115. 
60

ii. Argument Two: Minimum-Service Requirements Are 

 Necessary to Protect Brokers 

 Advocates for minimum-service requirements also claim that when one side of 

the transaction is a home seller who is a party to a limited-service listing agreement rather 

than a traditional full-service broker, cooperating brokers who represent buyers may face 

special risks. This line of argument typically focuses on three types of risks to the 

cooperating broker. 

First, some fear that sellers using fee-for-service brokers foist additional work 

onto full-service cooperating brokers and jeopardize the transaction due to the sellers’ 

inexperience. For example, these advocates fear that a cooperating full-service broker 

may be forced to explain aspects of the transaction to the seller or perform some of the 

tasks related to removing contingencies and closing the transaction typically performed 

by the listing agent. One panelist, a past president of NAR, stated that an inexperienced 

seller handling the transaction on his or her own poses several risks to the buyer and the 

transaction, which cooperating brokers must act to avoid if they want the transaction to 

close successfully. For instance, the buyer may have locked in a loan, putting his or her 

interest rate at risk if the sale fails to close, or may have begun arrangements to move out 

of his or her current living space.296

 Second, some cooperating brokers claim that minimum-service laws are necessary 

because those brokers are concerned that work they end up performing when the listing 

broker is providing a limited set of services may give rise to liability for undisclosed dual 

agency. In situations where the cooperating full-service broker is an agent of the buyer, 

but provides assistance to a seller to help close the sale, they claim that the broker risks 

becoming an undisclosed dual agent. This arguably can give rise to legal liability for 

both the cooperating broker and the buyer.297 At the same time, however, the buyer may 

want his or her agent to help the unrepresented seller just so the transaction can properly 

close.298

 Finally, some have argued that the cooperating full-service broker risks not being 

compensated because the home seller might complete a deal directly with the buyer. 

Proponents of this argument state that this outcome is more likely to occur with a fee-forservice listing than a traditional listing because the person soliciting buyers is the home 

seller who is not regulated as a real estate licensee and thus has less concern about 

attempting to solicit clients who are already represented. 

 

296 Whatley, Tr. at 45-46. 

297 See Katherine A. Pancak et al., Real Estate Agency Reform: Meeting the Needs of Buyers, Sellers, and 

Brokers, 25 REAL ESTATE L.J. 345, 350 (1997) (noting that agency relationships can be created by actions). 

298 Whatley, Tr. at 48. 
61

The Agencies have not encountered evidence supporting any of these arguments 

in favor of minimum-service restrictions. We have not found any increased incidence of 

undisclosed dual agency problems associated with limited-service brokerage. In addition, 

there is no indication that the marketplace is incapable of addressing situations where 

cooperating brokers may face additional work to close a transaction. Cooperating 

brokers can make unilateral choices as to whether or not the compensation offered by the 

home seller through the MLS, as well as that offered directly by their buyer, is sufficient 

payment for the effort that may prove necessary to close a transaction.299 Cooperating 

brokers may also seek to negotiate higher compensation from the listing broker or from 

the home buyer. Further, if limited-service transactions do impose additional costs on 

cooperating brokers, sellers represented by fee-for-service brokers might find that they 

must offer cooperating brokers a higher commission to induce them to show their homes, 

and we are aware of no impediments to them doing so. Accordingly, there is no basis for 

believing that there is a need for a minimum-service law to “protect” cooperating brokers 

from doing additional work when facing a home seller represented by a fee-for-service 

broker. 

With regard to the risk of a broker not receiving compensation because the home 

seller deals directly with the buyer, the MLS already protects the cooperating broker 

through its dispute resolution mechanism. As explained in Chapter I, a broker who 

secures a buyer for a transaction is entitled to cooperative compensation as offered via the 

MLS listing. If a listing broker fails to pay a cooperating broker, the cooperating broker 

can bring a “procuring cause” dispute against the listing broker through the MLS 

arbitration mechanism.300 Further, proponents of minimum-service requirements have 

failed to present evidence that this risk is either unique to fee-for-service brokers or so 

prevalent as to warrant minimum-service requirements. 

Even if some of the proffered justifications for minimum-service laws were valid, 

there appear to be far less restrictive ways to address them – ways that preserve the 

benefits of competition for consumers – than implementing minimum-service 

requirements to address them. First, the full-service broker can disclose his or her 

responsibilities to both parties in the transaction to make clear the scope of the broker’s 

services. Second, requiring buyers’ brokers to disclose the potential for dual agency to 

the seller (and obtain a waiver) would eliminate the danger of undisclosed dual agency. 

In fact, NAR has agreed that disclosure creates “appropriate expectations” for all parties 

in the transaction to avoid undisclosed dual agency.301 Further, licensing laws or 

regulations could be amended to clarify that negotiations with a party who has chosen not 

 

299 Avoiding fee-for-service listings without disclosure to buyers, however, may raise issues concerning the 

fulfillment of fiduciary duties. 

300 See supra Chapter I.B.1. 

301 Blanche Evans, Where Real Estate Associations Stand On MLS-Entry-Only Listings, REALTY TIMES, 

Feb. 24, 2005, available at http://realtytimes.com/rtapages/20050224_mlsentryonly.htm. 
62

to use his or her broker for such negotiations do not imply an agency relationship. 

Ohio,302 Virginia,303 and Wisconsin304 recently have adopted this approach. 

c. Conclusion

 In sum, it is clear that minimum-service requirements restrict choice by not 

allowing consumers freely to choose what real estate brokerage services they wish to 

purchase or not purchase. The evidence indicates that these requirements raise prices by 

forcing brokers to provide services their customers may not want and reducing 

competitive pressure on full-service brokers. Additionally, because evidence to date has 

not shown that minimum-service requirements benefit consumers, any harm they cause is 

almost certain to greatly outweigh any benefit they might produce. 

3. Licensing Requirements for Firms that Advertise FSBOs 

 Another type of restraint that is likely to reduce competition and consumer choice 

in real estate brokerage-related services is overly broad licensing requirements, 

particularly those applicable to firms that advertise FSBO homes. One panelist who 

represents a FSBO website discussed his company’s experience with state laws that 

require firms that advertise FSBO homes to become licensed real estate agents. He 

explained that his company had received letters from states demanding that it stop doing 

business until it became licensed as an agent because “the services that you offer rise to 

the level of an agent.”305

 In one case, ForSaleByOwner.com sued the State of California for enacting a law 

purporting to require it to become licensed as a broker, alleging that this action violated 

the First Amendment because the California statute in question specifically exempted 

newspapers from licensing requirements.306 The court held that California’s disparate 

treatment of newspapers and FSBO websites ran afoul of the First Amendment: 

 

302 OHIO CODE § 4735.75(B) (“A licensee who negotiates directly with a seller, purchaser, lessor, or tenant 

pursuant to a written authorization as described in division (A) of this section does not violate division 

(A)(19) of section 4735.18 of the Revised Code and negotiations conducted by a licensee pursuant to the 

authorization shall not create or imply an agency relationship between that licensee and the client of that 

exclusive broker.”). 

303 VA CODE § 54.1-2132(C) (effective July 1, 2007) (“A licensee engaged by a seller in a real estate 

transaction may, unless prohibited by law or the brokerage relationship, provide assistance to a buyer or 

potential buyer by performing ministerial acts. Performing such ministerial acts that are not inconsistent 

with subsection A shall not be construed to violate the licensee’s brokerage relationship with the seller 

unless expressly prohibited by the terms of the brokerage relationship, nor shall performing such ministerial 

acts be construed to form a brokerage relationship with such buyer or potential buyer.”). 

304 WIS. CODE § 452.133(6). 

305 Sambrotto, Tr. at 90. 

306 ForSaleByOwner.com Corp. v. Zinnemann, 347 F. Supp. 2d 868, 872 (E.D. Cal. 2004). 
63

Because [ForSaleByOwner.com] unquestionably has speech interest in 

disseminating real estate information through its website, and because 

Defendants have not shown any compelling state interest in requiring a 

real estate broker’s license for [ForSaleByOwner.com]’s website but not 

for virtually identical newspaper websites, the presumption of 

unconstitutionality triggered by this disparity of treatment has not been 

overcome.307

B. Use of MLS Rules to Disadvantage Competitors 

 As explained in Chapter I, brokers must have access to the MLS in order to 

compete effectively. Because brokers usually set the rules for each others’ participation 

in the MLS by agreement, it is possible for one dominant group of brokers to establish 

MLS rules that favor them and disfavor other brokers who compete in a manner that they 

dislike. Such rules are illegal if they unreasonably restrict competition,308 and the 

Agencies recently have challenged, as antitrust violations, MLS rules that unreasonably 

restrict competition by brokers who use alternative business models. 

1. Discrimination Against Brokers Entering into Exclusive Agency Listing 

Contracts 

 Workshop panelists reported how some MLS rules discriminate against brokers 

who enter into exclusive agency listing agreements, which provide that the broker is 

entitled to compensation only when the home is sold by an agent, and not in the event the 

home seller sells the home on his or her own.309 This is the type of agreement used in 

most fee-for-service transactions. Specifically, these panelists pointed to rules that keep 

exclusive agency listings from being uploaded to national real estate websites like 

Reator.com.310 Recent NAR data show that 77 percent of home buyers search the 

Internet for homes, and that 24 percent of home buyers first found online the home they 

ultimately purchased.311 Thus, online exposure appears to be crucial to marketing a 

 

307 Id. at 879. 

308 United States v. Realty Multi-List, 629 F.2d 1351, 1374 (5th Cir. 1980) (“[W]hen broker participation in 

the [MLS] is high, the service itself is economically successful and competition from other listing services 

is lacking, rules which invite the unjustified exclusion of any broker should be found unreasonable.”). 

Subsequent decisions largely have followed this approach. See, e.g., Thompson v. Metropolitan Multi-List, 

Inc., 934 F.2d 1566, 1579-80 (11th Cir. 1991); Austin Bd. of Realtors v. E-Realty, Inc., No. Civ. A-00-CA154 JN, 2000 WL 34239114, at *4 (W.D. Tex. Mar. 30, 2000). A discussion of the various private 

litigation involving alleged MLS-related restraints is beyond the scope of this Report. 

309 For a discussion of exclusive agency contracts and other types of listing agreements, see supra Chapter 

I.A.2. 

310 See Farmer, Tr. at 74-75; Sambrotto, Tr. at 90. 

311 NAR 2005 SURVEY, supra note 38, at 29-30. 
64

home, and, to the extent that successful marketing tends to lead to a higher selling price 

and shorter time on the market, it is reasonable to assume that homes without such 

exposure are likely to take longer to sell or sell at lower prices. 

 In 2006, the FTC charged six different MLSs – the Austin Board of Realtors, 

Information and Real Estate Services, LLC, Northern New England Real Estate Network, 

Inc., Williamsburg Area Association of Realtors, Inc., Realtors Association of Northeast 

Wisconsin, Inc., and Monmouth County Association of Realtors, Inc. – with violating 

Section 5 of the FTC Act by adopting MLS rules that limit the publication and marketing 

on the Internet of certain sellers’ homes, but not others, based solely on the terms of their 

respective listing contracts.312 The FTC obtained consent agreements with all six MLSs. 

 The complaints accompanying the consent agreements alleged that each of the six 

MLSs individually controlled key inputs necessary for a listing broker to provide 

effective real estate brokerage services, and that each respondent’s policy was a joint 

action by a group of competitors to refuse to deal except on specified terms.313 The rules 

or policies challenged in the complaints state that information about homes is not allowed 

to be made available on popular real estate websites unless the listing contracts are 

exclusive right to sell listings (i.e., that require compensation no matter how the home is 

sold). When implemented by each of the respondents, this “Web Site Policy” prevented 

homes with exclusive agency or other non-traditional listing contracts from being 

displayed on a broad range of public real estate websites, including Realtor.com. Access 

to such websites, however, is a key input in the brokerage of residential real estate sales 

in the respective MLS service areas. Each policy had the effect of discouraging brokers 

from using exclusive agency listings. In the case of the Austin Board of Realtors, for 

example, the data showed that three months after the MLS implemented its exclusive 

agency listing policy, the percentage of all listings that were exclusive agency listings fell 

from 18 percent to 2.5 percent.314 The complaints also alleged that the exclusive agency 

listing policy did not give rise to any plausible or cognizable efficiencies, and was “not 

reasonably ancillary to the legitimate and beneficial objectives of the MLS.”315

 

312 Austin Bd. of Realtors, FTC Dkt. No. C-4167; Information and Real Estate Services, LLC, FTC File No. 

061-0087; Northern New England Real Estate Network, Inc., FTC File No. 051-0065; Williamsburg Area 

Ass’n of Realtors, Inc., FTC File No. 061-0268; Realtors Ass’n of Northeast Wisconsin, Inc., FTC File No. 

061-0267; Monmouth County Ass’n of Realtors, Inc., FTC File No. 051-0217. 

313 See, e.g., Information and Real Estate Services, LLC, FTC File No. 061-0087, at 6 (2006) (analysis to 

aid public comment), available at http://www.ftc.gov/os/caselist/0610268/0610268consentanalysis.pdf. 

314 See, e.g., Austin Bd. of Realtors, FTC Dkt. No. C-4167, at ¶ 17 (2006) (complaint), available at 

http://www.ftc.gov/os/caselist/0510219/0510219AustinBoardofRealtorsComplaint.pdf. 

315 Id. at ¶ 27. 
65

 Additionally, in October 2006, the FTC charged two more MLSs – 

MiRealSource, Inc. and Realcomp II Ltd. – with illegally restraining competition by 

limiting consumers’ ability to obtain low-cost real estate brokerage services. The 

complaint against MiRealSource alleges that it adopted a set of rules to keep exclusive 

agency listings from being listed on its MLS, as well as other rules that restricted 

competition in real estate brokerage services. This case resulted in a consent decree, 

under which MiRealSource is prohibited from adopting or enforcing any rules or polices 

that deny or limit the ability of MLS members to enter into exclusive agency listings, or 

any other lawful listing agreements, with home sellers.316

 The complaint against Realcomp alleges that it engaged in anticompetitive 

conduct by prohibiting information on exclusive agency listings and other forms of 

nontraditional listings from being transmitted from the MLS to public real estate 

websites. Both the MiRealSource and Realcomp complaints allege that the conduct was 

collusive and exclusionary, because in agreeing to keep non-traditional listings off the 

MLS or significant public websites, the brokers enacting the rules were, in effect, 

agreeing among themselves to limit the manner in which they compete with one another, 

and withholding valuable benefits of the MLS from real estate brokers who did not go 

along. In litigating its case against Realcomp, the FTC staff will seek to prove that this 

group of competitors should be prohibited from engaging in such conduct to the 

detriment of consumers. 

 The FTC challenged similar conduct in the past. In the 1980s and 1990s, several 

local MLS boards banned exclusive agency listings from the MLS entirely. The FTC 

investigated and issued complaints against these exclusionary practices, obtaining several 

consent orders.317

 

2. Discrimination Against VOWs 

 In September 2005, DOJ’s Antitrust Division sued NAR, alleging that its 

nationwide rules violated Section 1 of the Sherman Act. DOJ alleged that the rules, 

embodied in a so-called VOW Policy, limited competition from real estate brokers using 

innovative business models and the Internet to offer better services to their clients. 

NAR’s rules allowed brokers to direct that their clients’ listings not be displayed on any 

VOW or on particular VOWs designated by the broker.318 The complaint charges that 

the rules restrain competition. DOJ’s lawsuit is pending in the federal court in Chicago, 

Illinois. 

 

316 See MiRealSource, Inc., FTC Dkt. No. 9321 (2007) (decision and order), available at

http://www.ftc.gov/os/adjpro/d9321/070323decisionorder.pdf. 

317 See, e.g., United Real Estate Brokers of Rockland, Ltd., Dkt. No. C-3461, 116 F.T.C. 972 (1993); 

American Industrial Real Estate Ass’n, Dkt. No. C-3449, 116 F.T.C. 704 (1993); Puget Sound Multiple 

Listing Ass’n, FTC Dkt. No. C-3300 (1990). 

318 See supra Chapter I.C.3. for a description of VOWs. 
66

 In its complaint, DOJ alleged that NAR’s policy was the product of collective 

action by NAR’s members and offers no procompetitive benefit. Specifically, by 

requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their 

clients’ listings from VOW brokers by means of an “opt out,”319 it enables traditional 

brokers to block their competitors’ customers from having full on-line access to all of the 

MLS’s listings. When exercised, the opt-out provision prevents Internet-based brokers 

from providing all MLS listings that respond to a customer’s search, effectively 

inhibiting the new technology. 

 NAR’s policy permits traditional brokers to discriminate against other brokers 

based on their business models, denying them the full benefits of MLS participation. 

DOJ’s lawsuit seeks to ensure that traditional brokers, through NAR’s policy, cannot 

deprive consumers of the benefits that would flow from these new ways of competing. 

 In December 2005, NAR filed a motion to dismiss the lawsuit. NAR argued that 

its VOW policies do not violate the Sherman Act because they merely empower 

individual brokers to opt out and therefore “restrain” nothing. The court denied NAR’s 

motion, holding that collective action that “purports to regulate how [competitors] will 

compete in the marketplace” can, if proven, constitute a restraint of trade.320

C. Steering As a Possible Obstacle to Greater Price Competition

The obstacles discussed so far in this Chapter represent concerted efforts of real 

estate incumbents to insulate themselves from new and innovative types of competitors. 

As such, these obstacles have received particular attention from the Agencies. Even 

without any impediments presented by state law, regulation or MLS policies, however, 

those new entrants who seek to compete in a different manner, and who have the 

potential to make the entire industry more competitive, would still face a significant 

obstacle inherent in the structure of the industry. Namely, a broker’s success typically 

depends on securing significant cooperation from direct competitors. If that cooperation 

cannot be obtained, it is possible that an entrant might fail even if it is more efficient and 

provides a more attractive combination of price and service to consumers. 

The antitrust laws generally do not require firms to cooperate with their 

competitors. One reason is that, if one firm refuses to cooperate with rivals for selfserving reasons when cooperation would have benefited customers, those customers 

ordinarily would punish the uncooperative firm by taking their business elsewhere. 

However, that dynamic may not operate as well in industries, like real estate brokerage, 

 

319 On the morning the lawsuit was filed, NAR announced a revised policy that contained a blanket opt-out 

under which the listings of brokers who withheld their listings from a VOW could appear on no brokers’ 

website, except for NAR’s website, Realtor.com. DOJ subsequently filed an amended complaint to take 

the revisions into account. See Amended Complaint, United States v. Nat’l Ass’n of Realtors (Oct. 4, 

2005), available at http://www.usdoj.gov/atr/cases/f211700/211751.htm. 

320 See United States v. Nat’l Ass’n of Realtors, 2006 WL 34344263 at *14 (N.D. Ill. Nov. 27, 2006), 

available at http://www.usdoj.gov/atr/cases/f219800/219889.htm. 
67

where many consumers have significant limits on their knowledge, thus making it easier 

for competitors to steer business away from new or maverick brokers, or to otherwise 

withhold necessary cooperation, without the knowledge of their customers. 

1. The Importance of Cooperation in Real Estate Brokerage 

 The real estate brokerage industry has been characterized by cooperation among 

brokers and agents for well over a century, going back to the first real estate boards and 

MLSs.321 Under the MLS system, listing brokers rely on cooperating brokers to procure 

a buyer in the majority of transactions.322 The emphasis on cooperation continues today, 

as reflected in statements made at the Workshop and in public comments filed with the 

FTC and DOJ. One panelist observed that “[brokers] are cooperative with the 

competition in ways unheard of in any other industry that I know of.”323 A commenter 

further noted that “[a]lthough we all compete for business, there is a need to cooperate in 

order to bring a transaction to a successful close. ... [In w]hat other business can you find 

that kind of cooperation?”324

 Although, as noted in Chapter I, cooperation among brokers can lower transaction 

costs, it may also foster a natural impediment to discount brokers.325 As one author has 

explained: 

The cooperation between brokers characterizing many real estate 

transactions clearly provides incentives for adhering to the “going rate” 

commission. A brokerage firm that solicits listings by offering lower 

commissions may find itself disadvantaged since agents from other firms 

may prefer to concentrate their efforts where higher commissions are 

available. This tendency may be reinforced by boycotts or other 

discriminatory practices. 326

 

321 See supra Chapter I.B. See also 1983 FTC STAFF REPORT, supra note 9, at 87-88. 

322 See Yang & Yavas, supra note 154, at 23 (1995) (reporting that only 12 percent of listings in the State 

College, PA MLS in 1991 were sold by the listing broker); 1983 FTC STAFF REPORT, supra note 9, at 37 

(“approximately 66 percent [of sales] involve more than one broker”). 

323 Kunz, Tr. at 79. 

324 Fialkowski, Public Comment 113, at 1. 

325 See, e.g., Thomas J. Miceli, The Multiple Listing Service, Commission Splits, and Broker Effort, 19 

JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION 548, 564 (1991) (“The 

MLS is therefore a mixed blessing for consumers of brokerage services. It is clearly beneficial in providing 

them access to a large amount of information at a minimal cost, but at the same time it permits brokers to 

coordinate their efforts, possibly at the expense of sellers’ interests.”); GAO REPORT, supra note 3, at 7-8 

(“A discount broker may advertise a lower commission rate to attract listings, but the broker’s success in 

selling those homes, and in attracting additional listings in the future, depends in part on other brokers’ 

willingness to cooperate (by showing the homes to prospective buyers) in the sale of those listings.”). 

326 Crockett, supra note 51, at 218. 
68

As a result, brokers may be deterred from discounting if cooperating brokers threaten to 

“concentrate their efforts” or steer buyers toward transactions for which higher 

commissions are available. 

 

2. Reports That Cooperation Has Been Withheld 

Commenters and participants in the real estate brokerage industry report steering 

behavior. Steering refers to any action taken by a broker or agent to avoid cooperating 

with a particular competitor. An example of steering would be a cooperating broker 

purposely failing to show his or her client a home listed by a discount broker 

notwithstanding the fact that the home matches the buyer’s stated preferences. 327 

Because listing brokers depend on cooperation from rivals, brokers have an opportunity 

to deter discounting by steering buyers away from discounters’ listings.328 Lack of 

cooperation will reduce the probability that homes listed by discounting brokers sell.329

One of the primary motivations for the FTC’s 1983 investigation was “complaints 

from sources within the brokerage industry claiming harassment and boycotting of 

brokers who charge lower than ‘customary’ commission rates . . . .”330 A Workshop 

panelist who owns a fee-for-service brokerage recounted his experiences: 

I’ve personally had brokers, agents tell potential sellers that no one would 

show my listing. If they listed their house with me, no one would show 

the house. I have had brokers tell people that, hey, he’s gone out of 

 

327 Agents also may have incentives to steer buyers toward their listings or homes listed by other agents 

who are affiliated with the same brokerage firm. 

328 See GAO REPORT, supra note 3, at 7-8. 

329 The potential negative impacts of steering are not likely to be as pronounced when brokers discount to 

home buyers via rebates because listing agents do not have the same incentives or ability to steer that 

cooperating agents have. The reduced susceptibility to unilateral steering of cooperating brokers who 

rebate underscores the importance of the Agencies’ efforts to educate state legislators and regulators about 

the competitive harms that may be caused by anti-rebate laws. 

330 1983 FTC STAFF REPORT, supra note 9, at 1. As part of its investigation, the FTC conducted a survey of 

154 “alternative” brokers in 1979. Id. at 150 n.430. The FTC defined alternative brokers as “those who 

charge and promote a commission rate or fee that is at least 2 percent lower than the fee prevailing in their 

geographic area, or who offer and promote services that differ significantly from those generally offered in 

their geographic area.” Id. at 150. Alternative brokers providing MLS access tended to be “full-service 

brokers, offering to consumers the same package of services as the traditional brokers.” Id. at 154. In other 

words, the alternative brokers surveyed by the FTC were full-service brokers that undercut their rivals’ 

prices. Of the alternative brokers providing MLS access, 84% reported that they either frequently or 

occasionally experienced “refusals by other brokers to show homes listed by [their] business,” with 49% 

reporting this as a frequent problem. Id. at 157. Similar percentages of brokers reported threats or 

disparagements of their business to clients and prospective clients. Id. The FTC also reports that these 

same alternative brokers succeeded in selling only 62% of their listings compared to 88% for all brokers, 

and that only 29% of their sales were cooperative sales compared to 66% for all brokers. Id. at 154. 
69

business. I heard he’s going out of business soon. You know, I have had 

signs stolen. I’ve received hateful emails. I even had one agent who was 

ridiculed in public for being a discount broker at a public realtor event, 

and other agents around the country have had frivolous complaints filed 

against them, have had their listings removed from [the] MLS for no 

reason, have been asked for every copy of every listing. 331

 Brokers also filed public comments alleging that competing brokers have 

withheld cooperation with, or engaged in harassment of, discounters. A representative of 

a self-described “alternative real estate brokerage company” reported: “I have had agents 

tell me personally they have been instructed by their broker not to show our 

properties.”332 Such experiences, however, were not reported by all of the nontraditional 

brokers who testified. One commenter, the owner of a discount brokerage franchise, 

reported that he has “not experienced any discrimination by agents in the showing or 

selling of our properties”333

 3. Limiting the Effects of Steering 

The Agencies have responded to allegations of steering in two distinct ways, 

depending on whether the steering was unilateral or involved an agreement among 

incumbent brokers. It is well established that the antitrust laws prohibit an unreasonable 

agreement by a group of brokers that they will withhold cooperation from a particular 

broker. The Agencies have recently investigated allegations of boycotts by groups of 

brokers. In those investigations, however, the Agencies have not found evidence 

sufficient to establish an agreement jointly to steer clients away from or boycott a 

particular rival and have declined to bring an antitrust case. 

 Where steering behavior appears to be merely the result of a single firm’s 

unilateral decision not to cooperate with a particular competitor, the Agencies have not 

pursued enforcement actions. The aim of antitrust law is to preserve competitive 

markets. Antitrust laws generally do not prohibit unilateral decisions by firms not to deal 

with a particular listing broker.334 If consumers have enough information about the 

 

331 Farmer, Tr. at 74. 

332 Durham, Public Comment 15, at 1. See also generally Hepp, Public Comment 117, at 1-3 (alleging 

various ways in which MLSs across the country have discriminated against nontraditional real estate 

firms); 1983 FTC STAFF REPORT, supra note 9, at 75 (“Our Consumer and Alternative Broker Surveys 

suggest the possibility that steering practices may be widely prevalent.”). 

333 McCormack, Public Comment 97, at 1. 

334 United States v. Colgate & Co., 250 U.S. 300 (1919). Cf. United States v. Nat’l Ass’n of Realtors, 2006 

WL 34344263, at *14 (N.D. Ill. Nov. 27, 2006) (denying motion to dismiss where group’s collective action 

enabling brokers to unilaterally withhold listings from innovative competitors “is backed up by sanctions 

and further is alleged to promote, inter alia, express and tacit anti-competitive collusion and to provide a 

[group]-created mechanism to punish overly aggressive competition from any Internet-based broker”). 
70

quality of the service they have received, then firms that choose to engage in steering will 

develop a poor reputation for having done so and will consequently lose future business. 

 

 Going forward, the Internet offers consumers increased knowledge of homes 

available for sale and, consequently, may limit the ability of cooperating brokers to steer 

buyers away from desirable homes listed by discount and fee-for-service brokers. The 

marketplace is likely to function more efficiently – and provide greater benefits to 

consumers – when consumers have direct access to more information about those listings. 

The important role played by more listing information being made directly available to 

consumers underscores the benefits of the antitrust actions against collective action to 

reduce the availability of such information. For example, the FTC sued to prevent MLSs 

from discriminating as to the listings that are made available on the Internet, and DOJ 

sued to prevent NAR from establishing rules against VOWs that limit the ability of a 

broker’s client to see via the Internet all the listing information formerly screened by the 

broker. 
71

CONCLUSION AND RECOMMENDATIONS

The Workshop afforded real estate brokers, state regulators, and academics an 

opportunity to express their various views on competition in the real estate brokerage 

industry. Using that information, as well as Agency expertise, the almost 400 

submissions filed in response to the Agencies’ request for public comment in connection 

with the Workshop, and other available information, this Report has undertaken a careful 

examination of the real estate brokerage industry. Our review suggests that although the 

real estate industry has undergone a number of substantial changes in recent years – in 

particular as a result of technological advances such as the Internet – competition in the 

industry has been hindered as a result of actions taken by some real estate brokers, acting 

through MLSs and NAR, state legislatures, and real estate commissions. In addition, 

consumers likely would benefit significantly from additional knowledge about the range 

of options available in brokerage services and fees. Based on the foregoing, the FTC and 

DOJ recommend the following to help maintain competition and protect consumers in the 

real estate brokerage industry: 

• The Agencies should continue to monitor the cooperative conduct of private 

associations of real estate brokers, and bring enforcement actions in appropriate 

circumstances. While cooperation among brokers through a multiple listing service 

can provide consumers with important efficiencies, cooperation used to adopt rules 

that hinder rivals can be anticompetitive and, as recent Agency actions indicate, may 

violate the antitrust laws. 

• The Agencies should continue to provide state legislators and industry regulators with 

information concerning the competitive consequences of state legislation and 

regulations that threaten to or already do restrict competition and consumer choice in 

the real estate brokerage industry, and take enforcement action in appropriate 

circumstances. 

• State legislators and industry regulators should consider repealing existing laws, rules 

and regulations, such as minimum-service and anti-rebate provisions, that limit choice 

and reduce the ability of new brokerage models (e.g., fee-for-service brokers, 

discount full-service brokers, virtual office website brokers, and broker referral 

networks) to compete and that do not appear to provide any consumer benefits that 

would justify such restrictions. They should also avoid enacting such laws, rules, and 

regulations in the future. 

• The Agencies and industry regulators should promote consumer understanding of 

marketplace options. Some consumers may not be aware of the range of alternatives 

available to them when hiring a real estate broker, including the types of business 

models available and the negotiability of fees, for both home buyers and sellers, 

and/or may not understand the duties owed by their broker. Competition in the real 

estate brokerage industry would likely be enhanced if consumers had better access to 

such information. 
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• The Agencies and industry regulators should assess the feasibility of an empirical 

study of the real estate brokerage industry. Transaction-level data on commission 

rates and fees are not publicly available, but broad national aggregate data suggest 

that commission rates and fees move in tandem with housing prices. Just as the 1983 

FTC study provided valuable information about how real estate brokers competed in 

the late 1970s and early 1980s, a new study examining how transaction-level 

commission rates and fees vary based on such factors as market conditions, housing 

prices, and regulation would provide a better understanding of the current state of 

competition in the real estate brokerage industry.