United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Housing and 

Community Opportunity, Committee on 

Financial Services, House of 

Representatives

REAL ESTATE 

BROKERAGE 

Various Factors May Affect 

Price Competition 

Statement of David G. Wood, Director 

Financial Markets and Community Investment 

For Release on Delivery

Expected at 2:00 p.m. EDT

Tuesday, July 25, 2006

 

GAO-06-1005T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 25, 2006

REAL ESTATE BROKERAGE 

Various Factors May Affect Price 

Highlights of GAO-06-1005T, a testimony Competition 

before the Subcommittee on Housing and 

Community Opportunity, Committee on 

Financial Services, House of 

Representatives 

Consumers paid an estimated $65.7 

billion in residential real estate 

brokerage fees in 2005. Observing 

that commission rates have 

remained relatively uniform—

regardless of market conditions, 

home prices, or the effort required 

to sell a home—some economists 

have questioned the extent of price 

competition in the residential real

estate brokerage industry. 

Furthermore, while the Internet 

offers time and cost savings to the 

process of searching for homes,

Internet-oriented brokerage firms 

account for only a small share of

the brokerage market. This has

raised concerns about potential 

barriers to greater use of the 

Internet in real estate brokerage. 

In this testimony, which is based 

on a report issued in August 2005, 

GAO discusses (1) factors affecting

price competition in the residential 

real estate brokerage industry and 

(2) the status of the use of the 

Internet in residential real estate

brokerage and potential barriers to 

its increased use. 

The residential real estate brokerage industry has competitive attributes, but 

its competition appears to be based more on nonprice factors, such as 

reputation or level of service, than on brokerage fees, according to a review 

of the academic literature and interviews with industry analysts and 

participants. Although comprehensive data on brokerage fees are lacking, 

past analyses and anecdotal information suggest that commission rates have

persisted in the same range over long periods, regardless of local market 

conditions, housing prices, or the cost or the effort required to sell a home. 

One potential cause of limited price variation in the industry is the use of 

multiple listing services (MLS), which facilitates cooperation among brokers 

in a way that can benefit consumers but may also discourage participating

brokers from deviating from conventional commission rates. For instance, 

an MLS listing gives brokers information on the commission that will be paid 

to the broker who brings the buyer to that property. This practice 

potentially creates a disincentive for home sellers or their brokers to offer 

less than the prevailing rate, since buyers’ brokers may show highcommission properties first. In addition, some state laws and regulations 

may also affect price competition, such as those prohibiting brokers from 

giving clients rebates on commissions and those requiring brokers to provide 

consumers with a minimum level of service. Although such provisions can 

protect consumers, the Department of Justice and the Federal Trade 

Commission have argued that they may prevent price competition or reduce 

consumers’ choice of brokerage services. 

The Internet has changed the way consumers look for real estate and has 

facilitated the growth of alternatives to traditional brokers. A variety of Web 

sites allows consumers to access property information that once was 

available only by contacting brokers directly. The Internet also has fostered 

the growth of nontraditional residential real estate brokerage models, 

including discount brokers and broker referral services. However, industry 

participants and analysts cited several potential obstacles to more

widespread use of the Internet in real estate transactions, including 

restrictions on listing information on Web sites, some traditional brokers’ 

resistance to cooperating with nontraditional firms, and certain state laws 

and regulations that prohibit or restrict commission rebates to consumers. 

www.gao.gov/cgi-bin/getrpt?GAO-06-1005T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David G. Wood 

at (202) 512-8678 or woodd@gao.gov. 
Mr. Chairman and Members of the Committee: 

I appreciate the opportunity to be here today as you consider issues 

related to residential real estate brokerage—that is, the bringing together 

of buyers and sellers of homes and the provision of related services by 

licensed brokers and agents. My statement today is based primarily on 

GAO’s August 2005 report on the residential real estate brokerage 

industry.1

The fees paid for residential real estate brokerage have increased as home 

prices have risen in recent years, well beyond the rate of general price 

inflation. While comprehensive data do not exist, REAL Trends, an 

industry source, estimated that in 2005 consumers paid about $65.7 billion 

in real estate brokerage fees related to home sales, up from approximately 

$43 billion in 2000. Payments to brokers are typically percentage 

commissions, or a percentage of the sales price of the home. An observed 

tendency toward uniform commission rates regardless of local market 

conditions has led many economists and other observers to question the 

level of price competition—that is, the rivalry among firms to attract 

clients on the basis of price—in the residential real estate brokerage 

industry. While the emergence of the Internet offers the potential to 

reduce costs by generating efficiencies and new ways of doing business, 

and many consumers now use the Internet to search for homes and related 

services such as mortgages, Internet-oriented brokerage firms represent a 

small share of the market.2

 This has raised questions concerning potential

institutional, legal, and other barriers to greater “e-commerce” in real 

estate brokerage. 

My statement today discusses (1) factors affecting price competition in the 

residential real estate brokerage industry and (2) the status of the use of

the Internet in residential real estate brokerage and potential barriers to its 

increased use. In preparing our August 2005 report, we reviewed academic 

literature and interviewed and obtained documents from industry analysts, 

the National Association of Realtors® (NAR), residential real estate 

brokerage firms and franchisors, the Department of Justice (DOJ), the 

 1

GAO, Real Estate Brokerage: Factors That May Affect Price Competition, GAO-05-947 

(Washington, D.C.: Aug. 31, 2005). 

2

For the purposes of this statement, the term “Internet-oriented brokerages” refers to

brokerage firms whose business models depend largely on the Internet. Other brokerage 

firms may also use the Internet to varying degrees. 

Page 1 GAO-06-1005T 
Federal Trade Commission (FTC), and others. We also reviewed relevant 

selected state laws and regulations and state and federal court decisions. 

Academic studies that we reviewed for our work are listed at the end of 

this statement. 

In summary: 

• While the residential real estate brokerage industry has competitive 

attributes—such as a large number of relatively small firms and ease of 

entry—competition in this industry appears to be based more on nonprice 

factors, such as reputation or level of service, than on price. Although 

comprehensive data on brokerage fees are lacking, past analyses and 

anecdotal information suggest that commission rates have persisted in the 

same range over long periods, regardless of local market conditions, 

housing prices, or the cost or the effort required to sell a home. Our review 

of the academic literature and interviews with industry analysts and 

participants suggested several potential causes of this apparent lack of 

price variation. Multiple listing services (MLS)—the local organizations 

through which residential real estate brokers share information about 

properties for sale—facilitate cooperation among brokers in a way that 

can benefit consumers, but may also discourage participating brokers 

from deviating from conventional commission rates. For example, the 

practice of showing the commission that buyers’ brokers will receive for 

cooperating in the sale of a property may discourage brokers from offering 

less than the prevailing commission rate. In addition, some states prohibit 

brokers from giving clients rebates on commissions, and some states 

require or are considering proposals to require brokers to provide 

consumers with a minimum level of service. Although such laws may offer 

some consumer protections, DOJ and FTC have argued that they can 

potentially prevent price competition or reduce consumers’ choice of 

brokerage services. 

• The Internet has increased consumers’ access to information about 

properties for sale and fostered the growth of Internet-oriented real estate

brokerage models, including some discount brokers and services that refer 

clients to brokers. However, industry participants and analysts cited 

several potential obstacles to more widespread use of the Internet in real

estate transactions. These obstacles include the extent to which property 

information is made available for brokers to post online, the resistance of 

some traditional brokers to cooperate with nontraditional firms, and 

certain state laws and regulations that prohibit or restrict commission 

rebates to consumers. 

Page 2 GAO-06-1005T 
Traditionally, real estate brokers have offered a full, “bundled” package of

services to sellers and buyers, including marketing the seller’s home or 

assisting in the buyer’s search, holding open houses and showing homes, 

preparing offers and assisting in negotiations, and coordinating the steps 

to close the transaction. Because real estate transactions are complex and 

infrequent for most people, many consumers benefit from a broker’s 

specialized knowledge of the process and of local market conditions. Still, 

some consumers choose to complete real estate transactions without a 

broker’s assistance, including those who sell their properties on their own, 

or “for-sale-by-owner.” 

For many years, the industry has used a commission-based pricing model,

with sellers paying a percentage of the sales price as a brokerage fee.

Brokers acting for sellers typically invite other brokers to cooperate in the

sale of the property and offer a portion of the total commission to whoever 

produces the buyer. Agents involved in the transaction may be required to

split their shares of the commission with their brokers.3

 Under this 

approach, brokers and agents receive compensation only when sales are 

completed. 

In recent years, alternatives to this traditional full-service brokerage model 

have become more common, although industry analysts and participants

told us that these alternatives still represented a small share of the overall 

market in 2005. Discount full-service brokerages charge a lower 

commission than the prevailing local rate, but offer a full package of 

services. Discount limited-service brokerages offer a limited package of 

services or allow clients to choose from a menu of “unbundled” services 

and charge reduced fees on a commission or fee-for-service basis. 

Most local real estate markets have an MLS that pools information about 

homes that area brokers have agreed to sell. Participating brokers use an 

MLS to “list” the homes they have for sale, providing other brokers with 

detailed information on the properties (“listings”), including how much of 

the commission will be shared with the buyer’s agent. An MLS serves as a 

single, convenient source of information that provides maximum exposure 

for sellers and facilitates the home search for buyers. Each MLS is a 

private entity with its own membership requirements and operating 

Background 

 3

Brokers who operate as part of a franchise may also be required to share a portion of their 

commission revenue with the franchise, in payment for using the brand name and other 

services. 

Page 3 GAO-06-1005T 
policies and procedures. According to NAR, approximately 900 MLSs 

nationwide were affiliated with the trade association in 2005. These NARaffiliated MLSs are expected to follow NAR’s model guidelines for various 

operational and governance issues, such as membership requirements and 

rules for members’ access to and use of listing information. An MLS that is 

not affiliated with NAR is not bound by these guidelines. 

Individual states regulate real estate brokerage, establishing licensing and

other requirements for brokers and agents. Of the two categories of statelicensed real estate practitioners, brokers generally manage their own 

offices, and agents, or salespeople, must work for licensed brokers. States 

generally require brokers to meet more educational requirements than 

agents, have more experience, or both. For the purposes of this statement, 

I will generally refer to all licensed real estate practitioners as brokers. 

Some economists have observed that brokers typically compete more on 

nonprice factors, such as service quality, than on price. While 

comprehensive price data are lacking, evidence from academic literature 

and industry participants with whom we spoke highlight several factors 

that could limit the degree of price competition, including broker 

cooperation, largely through MLSs, which can discourage brokers from 

competing with one another on price; resistance from traditional fullservice brokers to brokers who offer discounted prices or limited services; 

and state antirebate and minimum service laws and regulations, which 

some argue may limit pricing and service options for consumers. 

The real estate brokerage industry has a number of attributes that 

economists normally associate with active price competition. Most 

notably, the industry has a large number of brokerage firms and individual 

licensed brokers and agents—approximately 98,000 active firms and 1.9 

million active brokers and agents in 2004, according to the Association of 

Real Estate License Law Officials. Although some local markets are 

dominated by 1 or a few large firms, market share in most localities is 

divided among many small firms, according to industry analysts. In 

addition, the industry has no significant barriers to entry, since obtaining a 

license to engage in real estate brokerage is relatively easy and the capital

requirements are relatively small. 

While real estate brokerage has competitive attributes, with a large 

number of players competing for a limited number of home listings, much 

of the academic literature and some industry participants we interviewed 

Various Factors Can 

Influence the Extent 

of Price Competition 

in Real Estate 

Brokerage 

Real Estate Brokerage Is 

Characterized More by 

Nonprice Competition 

Than Price Competition 

Page 4 GAO-06-1005T 
described this competition as being based more on nonprice variables, 

such as quality, reputation, or level of service, than on price. One reason

for this characterization is the apparent uniformity of commission rates. 

Comprehensive data on brokerage fees are lacking. However, past 

analyses and anecdotal information from industry analysts and 

participants indicate that, historically, commission rates were relatively 

uniform across markets and over time. Various studies using data from the 

late 1970s through the mid-1980s found evidence that the majority of 

listings in many communities clustered around the same rate, exactly 6 

percent or 7 percent. Although these studies and observations do not 

indicate that there has been complete uniformity in commission rates, they

do suggest that variability has been limited. Many of the industry analysts 

and participants we interviewed said that commissions still cluster around 

a common rate within most markets, and they generally cited rates of 5 

percent to 6 percent as typical. 

Some economists have cited certain advantages to the commission-based 

model that is common in real estate brokerage, most notably that it 

provides sellers’ brokers with an incentive to get the seller the highest 

possible price. Moreover, uniformity in commission rates within a market

at a given time does not necessarily indicate a lack of price competition. 

But some economists have noted that in a competitive marketplace, real 

estate commission rates could reasonably be expected to vary across 

markets or over time—that is, to be more sensitive to housing market 

conditions than has been traditionally observed. For example, commission

rates within a market at a given time do not appear to vary significantly on

the basis of the price of the home. Thus, the brokerage fee, in dollar terms, 

for selling a $300,000 home is typically about three times the fee for selling 

a $100,000 home, although the time or effort required to sell the two 

homes may not differ substantially.4

 Similarly, commission rates do not 

appear to have changed as much as might be expected in response to 

rapidly rising home prices in recent years. Between 1998 and 2005, the 

national median sales price of existing homes, as reported by NAR, 

increased about 74 percent, while inflation over the same period was 

about 16 percent, leaving an increase of some 58 percent in the inflationadjusted price of housing. According to REAL Trends, average commission

rates among the largest brokerage firms fell from an estimated 5.5 percent 

 4

Some industry participants we met with suggested that it costs more to market expensive 

homes, in part because the number of prospective buyers is smaller. However, we did not

identify any data on brokers’ actual costs of marketing homes. 

Page 5 GAO-06-1005T 
in 1998 to an estimated 5.0 percent in 2005, a decrease of about 9 percent.

5

Thus, with the increase in housing prices, the brokerage fee (in dollars) for 

selling a median-priced home increased even as the commission rate fell. 

Some economists have suggested that uniformity in commission rates can

lead brokers to compete on factors other than price in order to gain 

market share. For example, brokers might hire more agents in an effort to

win more sellers’ listings. Brokers may also compete by spending more on 

advertising or offering higher levels of service to attract clients. Although 

some of these activities can benefit consumers, some economic literature 

suggested that such actions lead to inefficiency because brokerage 

services could be provided by fewer agents or at a lower cost. 

To the extent that commission rates may have declined slightly in recent 

years, the change may be the result in part of rapidly rising home prices, 

which have generated higher brokerage industry revenues even with lower 

commission rates. However, competition from increasing numbers of 

discount, fee-for-service, and other nontraditional brokerage models may 

have also contributed to the decline. These nontraditional models typically

offer lower fees, and although NAR consultants estimated that 

nontraditional firms represented only about 2 percent of the market in 

2003, these firms may be putting some downward pressure on the fees 

charged by traditional brokerages. 

Factors related to the cooperation among brokers facilitated by MLSs, 

some brokers’ resistance to discounters, and consumer attitudes may 

inhibit price competition within the real estate brokerage industry.6

First, while MLSs provide important benefits to consumers by aggregating 

data on homes for sale and facilitating brokers’ efforts to bring buyers and 

sellers together, the cooperative nature of the MLS system can also in 

effect discourage brokers from competing with one another on price. 

Because participating in an MLS in the areas where they exist is widely 

considered essential to doing business, brokerage firms may have an 

Cooperation Facilitated by 

MLSs and Other Factors 

May Inhibit Price 

Competition 

 5

REAL Trends’ data did not address the range of or variation among actual commission 

rates. REAL Trends estimates average commission rates by dividing the total gross 

commission revenue reported by the largest brokerage firms by their total sales volume. 

6

We made no judgment on the legality of any actions that may inhibit price competition;

such matters were beyond the scope of our work. 

Page 6 GAO-06-1005T 
incentive to adopt practices that comply with MLS policies and customs. 

As previously noted, MLSs facilitate cooperation in part by enabling 

brokers to share information on the portion of the commission that sellers’ 

brokers are offering to buyers’ brokers. In the past, some MLSs required 

participating brokers to charge standard commission rates, but this 

practice ended after the Supreme Court ruled, in 1950, that an agreement 

to fix minimum prices was illegal under federal antitrust laws.7

Subsequently, some MLSs adopted suggested fee schedules, but this too 

ended after DOJ brought a series of antitrust actions in the 1970s alleging 

that this practice constituted price fixing.8

 Today, MLSs no longer establish 

standard commission rates or recommend how commissions should be 

divided among brokers. MLS listings do show how much sellers’ brokers 

will pay other brokers for cooperating in a sale, according to industry 

participants. When choosing among comparable homes for sale, brokers 

have a greater incentive—all else being equal—to first show prospective 

buyers homes that offer other brokers the prevailing commission rate, 

rather than homes that offer a lower rate. Therefore, even without formal 

policies to maintain uniform rates, individual brokers’ reliance on the 

cooperation of other brokers to bring buyers to listed properties may help

maintain a standard commission rate within a local area, at least for 

buyers’ brokers. FTC, in a 1983 report, concluded that the cooperative 

nature of the industry and the interdependence among brokers were the 

most important factors explaining the general uniformity in commission 

rates that it had observed in many markets in the late 1970s. 

Second, traditional brokers may discourage price competition by resisting 

cooperation with brokers and firms whose business models depart from 

charging conventional commission rates, according to several industry 

analysts and participants with whom we spoke.9

 A discount broker may 

advertise a lower commission rate to attract listings, but the broker’s 

success in selling those homes, and in attracting additional listings in the 

future, depends in part on other brokers’ willingness to cooperate (by 

 7

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

8

For example, see United States v. Greater Pittsburgh Bd. of Realtors, 1973-1 Trade Cas. ¶

74,454 (W.D. Pa. 1973), and United States v. Los Angeles Realty Bd., 1973-1 Trade Cas. ¶

74,366 (C.D. Cal. 1973). In 1971, NAR adopted a policy prohibiting its affiliated MLSs from

fixing or recommending to their members commission rates or fees to be charged or the

percentage division of commissions or fees. 

9

We did not investigate specific instances of alleged resistance to cooperation, nor did we 

have information to assess how common such practices might be. 

Page 7 GAO-06-1005T 
showing the homes to prospective buyers) in the sale of those listings. 

Some discount full-service and discount limited-service brokerage firms 

we interviewed said that other brokers had refused to show homes listed 

by discounters. In addition, traditional brokers may in effect discourage 

discount brokers from cooperating in the sale of their listings by offering 

discounters a lower buyer’s broker commission than the prevailing rate 

offered to other brokers. This practice can make it more difficult for 

discount brokers to recruit new agents because the agents may earn more 

working for a broker who receives the prevailing commission from other 

brokers.10 Some traditional full-service brokers have argued that discount 

brokers often do less of the work required to complete the transaction 

and, thus, deserve a smaller portion of the seller’s commission. 

Representatives of discount brokerages told us they believed that reduced

commission offers are in effect “punishment” for offering discounts to 

sellers and are intended as signals to other brokers to conform to the 

typical pricing in their markets. 

Finally, pressure from consumers for lower brokerage fees appears to 

have been limited, although it may be increasing, according to our review 

of economics literature and to several industry analysts and participants. 

Some consumers may accept a prevailing commission rate as an expected 

cost, in part because that has been the accepted pricing model for so long, 

and others may not realize that rates can be negotiated. Buyers may have

little concern about commission rates because sellers directly pay the 

commissions. Sellers may be reluctant to reduce the portion of the 

commission offered to buyers’ brokers because doing so can reduce the

likelihood that their homes will be shown. In addition, home sellers who 

have earned large profits as housing prices have climbed in recent years 

may have been less sensitive to the price of brokerage fees. However, 

some brokers and industry analysts noted that the growth of firms offering

lower commissions or flat fees has made an increasing number of 

consumers aware that there are alternatives to traditional pricing 

structures and that commission rates are negotiable. 

 10Conversely, officials from one firm suggested that a broker who offers lower commissions 

to other brokers may have difficulty recruiting or retaining agents because the affected 

brokers will have less incentive to cooperate with those agents. 

Page 8 GAO-06-1005T 
Although state laws and regulations related to real estate licensing can 

protect consumers, DOJ and FTC have expressed concerns that laws and 

regulations that restrict rebates to consumers or require minimum levels 

of service by brokers may also unnecessarily hinder competition among 

brokers and limit consumer choice.

As of July 2006, at least 12 states appeared to prohibit, by law or 

regulation, real estate brokers from giving consumers rebates on 

commissions or appeared to place restrictions on this practice.11

Proponents said such laws and regulations help ensure that consumers 

choose brokers on the basis of the quality of service as well as price, 

rather than just on the rebate being offered. Opponents of antirebate 

provisions argued that such restrictions serve only to limit choices for 

consumers and to discourage price competition by preventing brokers 

from offering discounts. Opponents also noted that offering a rebate is one 

of the few ways to reduce the effective price of buyer brokerage services,

since commissions are typically paid wholly by the seller.12 In November 

2005, DOJ and the Kentucky Real Estate Commission settled a suit in 

which DOJ had alleged that the commission’s administrative regulation 

banning rebates violated federal antitrust law. In its complaint, DOJ 

argued that the regulation unreasonably restrained competition to the 

detriment of consumers, making it more difficult for them to obtain lower 

prices for brokerage services.13 Pursuant to the approved settlement 

agreement, the commission put in place emergency regulations permitting 

rebates and other inducements as long as they are disclosed in writing. 

In addition, as of July 2006, 12 states appeared to be considering or to have

passed legislation that requires brokers to provide a minimum level of 

Some State Laws and 

Regulations Can Affect 

Price Competition 

 11As of July 13, 2006, states that appeared to prohibit or place restrictions on real estate 

brokers giving consumers rebates on commissions included Alabama, Alaska, Iowa, 

Kansas, Louisiana, Mississippi, Missouri, New Jersey, North Dakota, Oklahoma, Oregon,

and Tennessee. At the time of our August 2005 report, West Virginia also restricted rebates, 

but it no longer does so. We did not review all states’ laws and regulations or evaluate how 

the states interpret and apply provisions, so other states also may prohibit or restrict 

commission rebates to consumers. 

12According to economic theory, sellers pass a portion of their brokerage costs to buyers in

the price of the home. By offering a rebate to the buyer, a broker is in effect offering to 

offset this cost. 

13Complaint, United States v. Kentucky Real Estate Commission, U.S. Dist. Ct., W.D. Ky., 

Case No. 3:05CV-188H, at 1, 2 (Mar. 30, 2005). 

Page 9 GAO-06-1005T 
service when they represent consumers.14 Such provisions generally 

require that when a broker agrees to act as a consumer’s exclusive 

representative in a real estate transaction, the broker must provide such 

services as assistance in delivering and assessing offers and counteroffers, 

negotiating contracts, and answering questions related to the purchase 

and sale process. Advocates of minimum service standards argued that 

they protect consumers by ensuring that brokers provide a basic level of 

assistance. Furthermore, full-service brokers argued that such standards 

prevent them from having to unfairly shoulder additional work when the 

other party uses a limited-service broker. Opponents of these standards 

argued that they restrict consumer choice and raise costs by impeding 

brokerage models that offer limited services for a lower price.15 Between 

April and November 2005, DOJ wrote to state officials in Oklahoma and 

New Mexico, and DOJ and FTC jointly wrote to officials in Alabama, 

Michigan, Missouri, and Texas discouraging adoption of these states’ 

proposed minimum service laws and regulations. The letters argued that 

the proposed standards in these states would likely harm consumers by 

preventing brokers from offering certain limited-service options and 

therefore requiring some sellers to buy brokerage services they would 

otherwise choose to perform themselves. They also cited a lack of 

evidence that consumers have been harmed by limited-service brokerage.

Despite the concerns raised by DOJ and FTC, the governors in Alabama, 

Missouri, Oklahoma, and Texas subsequently signed minimum service 

standards into law. 

The Internet has increased consumers’ access to information about 

properties for sale and has facilitated new approaches to real estate 

transactions. Whether the Internet will be more widely used in real estate 

brokerage depends in part on the extent to which listing information is 

widely available. Like discount brokerages, Internet-oriented brokerage 

firms, especially those offering discounts, may also face resistance from 

traditional brokers and especially may be affected by state laws that 

prohibit them from offering rebates to consumers. 

The Internet Has 

Increased Consumers’ 

Options, but Several 

Factors Could Limit 

Its Wider Use 

 14As of July 13, 2006, Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Missouri,

Oklahoma, Texas, Wisconsin, and Utah had enacted minimum service standards. At that 

time, Michigan was considering adopting such standards. 

15Minimum service standards would not necessarily prohibit a broker from providing

limited advice or service to a client if the broker had not agreed to act as the consumer’s 

exclusive representative. However, an MLS may require brokers to have such an agreement

in order to enter a property listing in the MLS. 

Page 10 GAO-06-1005T 
The Internet Allows 

Consumers More Direct 

Access to Information and 

Facilitates Alternative 

Service and Pricing 

Options 

The Internet allows consumers direct access to listing information that has

traditionally been available only from brokers. Before the Internet was 

widely used to advertise and display property listings, MLS data (which 

comprise a vast majority of all listings) were compiled in an “MLS book” 

that contained information on the properties listed for sale with MLSmember brokers in a given area. In order to view the listings, buyers 

generally had to use a broker, who provided copies of listings that met the 

buyer’s requirements via hard copy or fax. Today, information on 

properties for sale—either listed on an MLS or independently, such as forsale-by-owner properties—is routinely posted on Web sites, often with 

multiple photographs or virtual tours. Thus, the Internet has allowed 

buyers to perform much of the search and evaluation process 

independently, before contacting a broker.16 Sellers of properties can also 

benefit from the Internet because it can give their listings more exposure 

to buyers. Sellers may also use the Internet to research suitable asking 

prices for their homes by comparing the attributes of their houses with 

others listed in their areas. 

Although Internet-oriented brokerages and related firms represented only 

a small portion of the real estate brokerage market in 2005, the Internet 

has made different service and pricing options more widely available to 

consumers. Among these options are full-service and limited-service 

discount brokerages, information and referral companies, and alternative 

listing Web sites. 

• Full-service discount brokerages offer buyers and sellers full-service real 

estate brokerage services but advertise lower than traditional

commissions, for example between 3 percent and 4.5 percent. These types

of brokerages existed before widespread use of the Internet, but many 

have gained exposure and become more viable as a result of the Internet. 

In addition, by posting listings online, displaying photographs and virtual 

tours of homes for sale, and communicating with buyers and sellers by email, some of these companies say that they have been able to cut 

brokerage costs. 

 16Before the Internet, a buyer could still learn about properties without a broker—for 

example, through newspaper advertisements or by driving past to view a property.

However, the Internet enables consumers to obtain far more extensive information, 

including, in some cases, complete details on the property from the MLS as well as

photographs or a virtual tour.

Page 11 GAO-06-1005T 
• Limited-service discount brokerages provide fewer services than fullservice brokerages but also charge lower commissions or offer their 

services for flat fees. For example, some firms charge a flat fee for 

marketing and advertising homes and, for additional fees, will list a 

property in the MLS and show the home to prospective buyers. The 

Internet has allowed these firms to grow in number and size in recent 

years, in part because they can market their services to a larger population 

of buyers and sellers. 

• Information and referral companies provide resources for buyers and 

sellers—such as home valuation tools and access to property listings—and 

make referrals of those consumers to local brokers.17 Some of these 

companies charge referral fees to brokers and then rebate a portion of that 

fee back to buyers and sellers. The Internet allows these companies to 

efficiently reach potential consumers and offer those customers services 

and access to brokers. 

• Alternative listing Web sites offer alternatives to the MLS, allowing sellers 

who want to sell their homes themselves to advertise their properties to 

buyers and giving buyers another source of information on homes for sale. 

These alternative listing sites include the Web sites of local newspapers, 

Craigslist, and “for-sale-by-owner” Web sites.18

 17These information and referral companies typically have a network of participating real 

estate brokers in various markets to which they refer customers. Although some 

information and referral companies are themselves licensed real estate brokers, they 

generally do not directly provide services typical of a real estate broker, such as showing

homes or negotiating a sales price. 

18Craigslist is a noncommercial Internet bulletin board that operates in more than 300

communities in more than 50 countries. Among other things, users of Craigslist can post or

review information on properties for sale. 

Page 12 GAO-06-1005T 
Several factors could limit the extent to which the Internet is used in real

estate transactions. A key factor is the extent to which information about 

properties listed in an MLS is widely available. Currently, buyers may view

MLS-listed properties on many Web sites, including broker and MLS Web 

sites and on NAR’s Realtor.com Web site. The real estate brokerage 

industry has faced controversy over the public availability of listings on 

the Internet and over whether brokers can restrict the display of their 

listings on other brokers’ Web sites.19 Proponents of allowing such 

restrictions argued that listings are the work product, and thus the 

property, of the selling broker, who should have control over how the 

listings are used. Opponents argued that such control would unfairly limit 

Internet-oriented brokers’ ability to provide their clients with access to 

MLS listings through their Web sites. 

Even with few restrictions on the availability of information about 

properties for sale, Internet-oriented brokerage firms may face other 

challenges. First, Internet-oriented brokers with whom we spoke 

described resistance, similar to that previously described, involving some 

traditional brokerages that refused to show the Internet-oriented 

brokerages’ listed properties or offered them buyers’ brokers commissions 

that were less than those offered to other brokers. However, the online 

availability of listing information may discourage such behavior by 

enabling buyers to more easily detect whether a broker is avoiding other 

brokers’ listings that are of interest. Second, some Internet-oriented 

companies said that state antirebate laws and regulations could affect 

them disproportionately, since their business models often were built 

around such rebates. Finally, other factors, such as the lack of a uniform 

technology to facilitate related processes—such as inspection, appraisal, 

financing, title search, and settlement—may inhibit the use of the Internet 

for accomplishing the full range of activities needed for real estate 

transactions. 

Wider Use of the Internet 

in Real Estate Brokerage 

Will Depend on the 

Availability of Listing 

Information and Other 

Factors 

 19On August 31, 2005, NAR’s Internet Listing Display policy took effect, replacing the Virtual

Office Web site policy that was in place when we completed our August 2005 report. Both

policies set out guidelines for how NAR-affiliated MLSs could govern the Internet display of

listing information. The Virtual Office Web site policy allowed MLS participants to 

selectively exclude their listings from display on other participants’ Web sites, while the 

newer policy allows participants to exclude their listings on either all other participants’ 

Web sites, or none of them. DOJ has filed suit against NAR alleging that both policies 

violate federal antitrust law (Amended Complaint, United States v. National Association of

Realtors, U.S. Dist. Ct., N.D. Ill., Case No. 05C-5140 (Oct. 4, 2005)). 

Page 13 GAO-06-1005T 
Mr. Chairman, this concludes my prepared statement. I would be happy to

answer any questions at this time. 

For further information on this testimony, please contact David G. Wood

at (202) 512-8678. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this 

statement. Individuals making key contributions to this testimony include 

Jason Bromberg, Tania Calhoun, Julianne Stephens Dieterich, and Cory 

Roman. 

Contacts and 

Acknowledgments 

Page 14 GAO-06-1005T 
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Page 17 GAO-06-1005T (250308) 
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