a

GAO

United States Government Accountability Office

Report to the Committee on Financial 

Services, House of Representatives

August 2005 REAL ESTATE 

BROKERAGE

Factors That May 

Affect Price 

Competition

GAO-05-947
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-947.

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. 

Highlights of GAO-05-947, a report to the 

Committee on Financial Services, House 

of Representatives 

August 2005

REAL ESTATE BROKERAGE 

Factors That May Affect Price 

Competition 

The residential real estate brokerage industry has competitive attributes, but 

its competition appears to be based more on nonprice variables—such as 

quality, reputation, or level of service—than on brokerage fees, according to 

a review of the academic literature and interviews with industry analysts and 

participants. One potential cause of the industry’s apparent lack of price 

variation is the use of multiple listing services (MLS), which facilitates 

cooperation among brokers in a way that can benefit consumers but may 

also discourage participating brokers from deviating from conventional 

commission rates. For instance, an MLS listing gives brokers information on 

the commission that will be paid to the broker who brings the buyer to that 

property. This practice potentially creates a disincentive for home sellers or 

their brokers to offer less than the prevailing rate, since buyers’ brokers may 

show high-commission properties first. Some state laws and regulations 

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

giving clients rebates on commissions. Although such laws and regulations 

can protect consumers, the Department of Justice and the Federal Trade 

Commission have argued that they may also unnecessarily limit competition 

and reduce consumers’ choices. 

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

facilitated the creation and expansion 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 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. 

Although about 30 states potentially authorize state-chartered banks or their 

operating subsidiaries to engage in some form of residential real estate 

brokerage, few banks in these states appear to have done so. GAO’s 

contacts with seven banks engaged in brokerage in two states found that 

they were located in small communities with few other brokerage options, 

and that their brokerage services did not differ significantly from those of 

other local real estate brokers. In general, because residential real estate 

brokerage by state-chartered banks appears to be so limited, its effect on 

competition and consumers has likely been minimal. 

Consumers paid an estimated $61 

billion in residential real estate 

brokerage fees in 2004. Because 

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. Further, 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. Finally, there has 

been ongoing debate about the 

potential competitive effects of bank 

involvement in real estate brokerage. 

GAO was asked to discuss (1) factors 

affecting price competition in the 

residential real estate brokerage 

industry, (2) the status of the use of 

the Internet in residential real estate 

brokerage and potential barriers to 

its increased use, and (3) the effect 

on competition and consumers of 

residential real estate brokerage by 

state-chartered banks in states that 

permit this practice. 
Page i GAO-05-947 Real Estate Brokerage

Contents

Letter 1

Results in Brief 3

Background 5

Various Factors Can Influence the Extent of Price Competition in 

Real Estate Brokerage 7

The Internet Has Increased Consumers’ Options, but Several Factors 

Could Limit Its Wider Use 17

Few State-Chartered Banks Appear to Engage in Real Estate 

Brokerage 22

Appendix

Appendix I: GAO Contact and Staff Acknowledgments 25

Bibliography 26

Abbreviations

DOJ Department of Justice

FTC Federal Trade Commission

MLS multiple listing service

NAR National Association of Realtors®

VOW Virtual Office Web site

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Page 1 GAO-05-947 Real Estate Brokerage

United States Government Accountability Office

Washington, D.C. 20548

A

August 31, 2005 Letr

The Honorable Michael G. Oxley

Chairman

The Honorable Barney Frank

Ranking Minority Member

Committee on Financial Services

House of Representatives

The fees paid for residential real estate brokerage—the bringing together of 

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

licensed brokers and agents—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, 

estimates that in 2004 consumers paid about $61 billion in real estate 

brokerage fees related to home sales, up from approximately $43 billion in 

2000.1

 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—rivalry among firms to attract clients on the basis of price—

in the residential real estate brokerage industry.

The emergence of the Internet offers the potential to reduce costs by 

generating efficiencies and new ways of doing business. While many 

consumers now use the Internet to search for homes and related services, 

such as mortgages, Internet-oriented brokerage firms still 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. Additionally, there has been an ongoing debate on the potential 

competitive effects of allowing federally chartered banks and financial 

holding companies to engage in real estate brokerage. Because some states 

1

REAL Trends is a company providing news, research, and information-based services to the 

residential real estate industry. The company was cited in industry press and among 

industry participants we interviewed as providing the best available data on residential real 

estate brokerage fees. We considered REAL Trends’ estimates to be sufficiently reliable 

based on the competency of the source producing the estimates and the reasonableness of 

the estimates. 

2

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

firms whose business model depends largely on the Internet. Other brokerage firms may 

also use the Internet to varying degrees. 
Page 2 GAO-05-947 Real Estate Brokerage

already permit brokerage by state-chartered banks, the experience of those 

states may help inform this debate. 

You requested that we review issues related to price competition and the 

use of information technology in the residential real estate brokerage 

industry. This report discusses (1) factors affecting price competition in the 

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

Internet in residential real estate brokerage and potential barriers to its 

increased use, and (3) the effect on competition and consumers of 

residential real estate brokerage by state-chartered banks in states that 

permit this practice. 

In addressing these topics, we reviewed academic literature on the 

structure and competitiveness of the residential real estate brokerage 

industry. (A bibliography of selected literature reviewed appears at the end 

of this report.) We did not collect original data on residential real estate 

brokerage fees or attempt to analyze the extent of price competition within 

any specific market. We interviewed and obtained relevant documents 

from industry analysts and officials of real estate brokerage and banking 

trade associations, including the National Association of Realtors® (NAR); 

national associations of state real estate and banking regulators; and the 

Department of Housing and Urban Development, the Department of Justice 

(DOJ), and the Federal Trade Commission (FTC). We also interviewed 

officials of 10 residential real estate brokerage firms and franchisors, 

including 2 companies with major national franchise operations, 1 fullservice brokerage firm, 2 Internet-oriented full-service discount brokerage 

firms, 2 companies that franchise limited-service discount brokerage 

offices, and 3 Internet-oriented information and referral companies. The 

brokerages and franchisors we spoke with included both small and large 

firms, and these firms relied on the Internet to varying degrees. Because we 

spoke to a limited number of brokerage firms and franchisors, their views 

cannot be interpreted as being representative of all such firms. We also 

reviewed the activities of two states, Iowa and Wisconsin, where some 

banks are active in residential real estate brokerage. We spoke with these 

states’ banking regulatory agencies and real estate trade associations, as 

well as with seven banks in these states that engage in residential real 

estate brokerage. The information on these seven banks is intended to be 

illustrative and cannot be generalized to state-chartered banks nationwide. 

We also reviewed relevant selected state laws and regulations and state and 

federal court decisions. The scope of our work was limited to residential 

real estate brokerage and did not address other aspects of real estate 

transactions, such as mortgage financing, title search and insurance, or the 
Page 3 GAO-05-947 Real Estate Brokerage

settlement process.3 We performed our work primarily in Boston, 

Massachusetts; Chicago, Illinois; and Washington, D.C., between January 

and July 2005. We performed our work in accordance with generally 

accepted government auditing standards, except that we did not seek 

agency comments on this report because we did not review agencies’ 

programs. However, we provided selected portions of a draft of this report 

to DOJ and FTC for their technical comments, which we incorporated 

where appropriate. 

Results in Brief A number of factors can influence the degree of price competition in the 

real estate brokerage industry. Some economists have observed that while 

the industry has attributes associated with active competition—a large 

number of relatively small firms and ease of entry—it has displayed more 

evidence of competition on the basis of nonprice factors, such as 

reputation or level of service, than on price. Although there are no 

comprehensive data on brokerage fees, past analyses and anecdotal 

information suggest that commission rates have persisted in the same 

range—roughly 5 percent to 7 percent of a property’s selling price—over 

long periods, regardless of local market conditions, housing prices, or the 

cost or effort required to sell different properties. Our review of the 

academic literature and interviews with industry analysts and participants 

suggest several potential causes of this relative lack of price variation. 

First, multiple listing services (MLS)—the local organizations through 

which brokers share information about properties—may encourage price 

conformity by, for example, showing the commission that buyers’ brokers 

will receive for cooperating in the sale of a property. Because, all else being 

equal, buyers’ brokers have less incentive to show properties that offer 

them a lower commission, this system may discourage brokers from 

offering less than the prevailing commission rate. In addition, sellers’ 

brokers may offer a lower share of the sales commission to buyers’ brokers 

who advertise discounted prices than to other brokers. Further, 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.

3

Hereafter, for purposes of this report, the term “real estate brokerage” refers to residential 

real estate brokerage.
Page 4 GAO-05-947 Real Estate Brokerage

The Internet has increased consumers’ access to information about 

properties for sale and facilitated new approaches to real estate 

transactions. Many brokers post on Web sites information—in varying 

degrees of detail—about properties they have contracted to sell (“listings”), 

enabling consumers to obtain such information without consulting a real 

estate broker. The Internet also has fostered the creation or expansion of a 

number of Internet-oriented real estate brokerage and related firms, 

including some discount brokers and services that refer clients to brokers. 

However, several potential obstacles to further expansion of the Internet’s 

role in real estate brokerage exist, including the extent to which listing 

information is made available for brokers to post online. For example, NAR 

has considered allowing listing brokers to decide which other brokers may 

display their MLS listings online. Some brokers’ refusal to allow their 

listings to be posted on certain brokers’ Web sites could constrain potential 

buyers’ Internet searches for properties for sale, potentially limiting the 

business of Internet-oriented brokers. Internet-oriented discount brokers 

may also face resistance from traditional brokers and may be affected by 

the state laws that prohibit or restrict commission rebates to consumers. 

Finally, other factors, such as the lack of a uniform sales contract for 

residential real estate and 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. 

Approximately 30 states have laws or regulations that potentially authorize 

state-chartered banks or their operating subsidiaries to engage in real 

estate brokerage under some circumstances. However, only a limited 

number of banks in these states appear to have used this authority, so the 

effect on competition and consumers has likely been minimal. On the basis 

of our review of state statutes and regulations identified by two national 

associations, at least 5 states and the District of Columbia provide 

relatively clear authority for banks or their subsidiaries to engage in real 

estate brokerage. Laws in certain other states may also provide such 

authority, but these laws are ambiguous or subject to regulatory 

interpretation. The exact number of state-chartered banks engaged in real 

estate brokerage is unknown but appears to be limited, according to trade 

and regulator associations in the banking and real estate industries. The 

seven banks we spoke with told us that they offered brokerage services in 

small communities and provided an additional option for local customers. 

These banks said that real estate brokerage was a small portion of their 

business, and that their brokerage services and pricing did not differ 

significantly from those of other local brokerage companies.
Page 5 GAO-05-947 Real Estate Brokerage

Background Traditionally, real estate brokers have offered a full, “bundled” package of 

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

assisting the buyer’s search, holding open houses for sellers and showing 

homes to buyers, 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.4

 Under this 

approach, brokers and agents receive compensation only when sales are 

completed. Common law has generally considered both brokers 

cooperating in the sale of a home to have a fiduciary responsibility to 

represent the seller’s interests, unless the buyer’s broker has specifically 

agreed to represent the buyer’s interests.5

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

have become more common, although industry analysts and participants 

told us that they still represent a small share of the overall market. 

Discount full-service brokerages charge a lower commission than the 

prevailing local rate, but offer a full package of services. Discount limitedservice 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. 

4

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. 

5

T.J. Miceli, K.A. Pancak, and C.F. Sirmans, “Restructuring Agency Relationships in the Real 

Estate Brokerage Industry: An Economic Analysis,” Journal of Real Estate Research, vol. 

20, no. 1/2 (2000). Some states require consumer consent if the buyer’s broker is to represent 

the seller’s interests; other states prohibit this form of agency representation. 
Page 6 GAO-05-947 Real Estate Brokerage

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, including how much of the 

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

single, convenient source of information that provides maximum exposure 

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

entity with its own membership requirements and operating policies and 

procedures. According to NAR, approximately 900 MLSs nationwide are 

affiliated with the trade association, whose more than 1 million members 

represent approximately 60 percent of all active licensed real estate 

brokers and agents. NAR has affiliations with 54 state and territorial 

associations and more than 1,600 local associations. When one of these 

local associations owns and operates an MLS, this NAR-affiliated MLS is 

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. If a local association or 

its MLS fails to comply with these guidelines, it can lose important 

insurance coverage provided through NAR or have its charter membership 

in NAR revoked. 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 report, we 

generally refer to all licensed real estate practitioners as brokers. 

Generally, a state commission, led by appointees who may have a 

professional background in real estate, oversees implementation of and 

compliance with state requirements and may respond to complaints about 

brokers or agents or take disciplinary action. Federal agencies do not play 

a day-to-day regulatory role in real estate brokerage, although DOJ and FTC 

enforce compliance with federal antitrust laws in this market, as they do 

for many other markets. 

Banks may obtain charters at the federal or state level, and their activities 

are subject to oversight by federal or state regulators. The Office of the 

Comptroller of the Currency, which is a bureau within the Department of 

the Treasury (Treasury), charters and regulates national banks. Statechartered banks are overseen by state regulators and, if they have federal 
Page 7 GAO-05-947 Real Estate Brokerage

deposit insurance, a federal regulator.6 Many companies that own or 

control banks are regulated by the Board of Governors of the Federal 

Reserve System (Federal Reserve) as bank holding companies. Under the 

1999 Gramm-Leach-Bliley Act (Pub. L. No. 106-102), bank holding 

companies may qualify as financial holding companies and thereby engage 

in a range of financial activities broader than those traditionally permitted 

for bank holding companies, such as securities and insurance underwriting.

Some states permit state-chartered banks to engage in real estate 

brokerage, but national banks and financial holding companies may not 

engage in such activity. The Gramm-Leach-Bliley Act permits financial 

holding companies and financial subsidiaries of national banks to engage in 

activities that the Federal Reserve and the Treasury deem, through order or 

regulation, to be financial in nature, incidental to such financial activity, or 

both complementary to a financial activity and not posing substantial risk 

to the safety and soundness of depository institutions or the financial 

system generally. In late 2000, the Federal Reserve and the Treasury 

released a proposed regulation to allow banking companies to enter real 

estate brokerage under some circumstances.7

 However, from fiscal years 

2003 to 2005, amendments to appropriations laws precluded the Federal 

Reserve and the Treasury from issuing such regulations. Legislation was 

introduced in the 109th Congress to prohibit financial holding companies 

and national banks from engaging in real estate brokerage activities. 

Legislation was also introduced to permit such activity.

Various Factors Can 

Influence the Extent of 

Price Competition in 

Real Estate Brokerage

A number of factors can influence the degree of price competition in the 

real estate brokerage industry. Some economists have observed that 

brokers typically compete more on nonprice factors, such as service 

quality, than on price. Evidence from academic literature and industry 

participants with whom we spoke highlighted several potential causes of 

this apparent lack of price competition. These potential causes include 

broker cooperation, largely through MLSs, which can discourage brokers

6

The Board of Governors of the Federal Reserve System oversees state-chartered 

commercial banks that are members of that system. Other state-chartered banks with 

federal deposit insurance receive oversight from the Federal Deposit Insurance 

Corporation.

7

Board of Governors of the Federal Reserve System and the Department of the Treasury, 

“Bank Holding Companies and Change in Bank Control,” 66 Fed. Reg. 307 (Jan. 3, 2001).
Page 8 GAO-05-947 Real Estate Brokerage

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

limited pressure from consumers for lower prices; and state antirebate and 

minimum service laws and regulations, which some argue may limit pricing 

and service options for consumers. 

Real Estate Brokerage Is 

Characterized More by 

Nonprice Competition Than 

Price Competition

The real estate brokerage industry has a number of attributes that 

economists normally associate with active price competition. Most notably, 

the industry has a large number of brokerage firms and individual licensed 

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

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

Estate License Law Officials.8

 Although some local markets are dominated 

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

many small firms, according to industry analysts. In addition, the industry 

has no significant barriers to entry, since obtaining a license to engage in 

real estate brokerage is relatively easy and the capital requirements are 

relatively small.

While real estate brokerage has competitive attributes, with a large number 

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

academic literature and some industry participants we interviewed 

described this competition as being based more on nonprice variables,

8

The Association of Real Estate Law License Officials is a membership organization 

comprised of governmental agencies that regulate real estate activities and license brokers 

and agents. According to association officials, its members include regulators from 48 states 

as well as U.S. territories and other countries. The association compiles data on the number 

of real estate brokers, agents, and firms from state licensing agencies. 
Page 9 GAO-05-947 Real Estate Brokerage

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

9, 10 One reason 

for this characterization is the apparent uniformity of commission rates. 

Although comprehensive data on brokerage fees are lacking, past analyses 

and anecdotal information from industry analysts and participants indicate 

that, historically, commission rates have remained 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.11 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.12 Many of the industry analysts and 

participants we interviewed said that commissions still cluster around a 

9

For discussions of nonprice competition among brokers, see J.H. Crockett, “Competition 

and Efficiency in Transacting: The Case of Residential Real Estate Brokerage,” AREUEA 

Journal, vol. 10, no. 2 (1982); D.R. Epley and W.E. Banks, “The Pricing of Real Estate 

Brokerage for Services Actually Offered,” Real Estate Issues, vol. 10, no. 1 (1985); T.J. 

Miceli, “The Welfare Effects of Non-Price Competition Among Real Estate Brokers,” 

Journal of the American Real Estate and Urban Economics Association, vol. 20, no. 4 

(1992); and G.K. Turnbull, “Real Estate Brokers, Nonprice Competition and the Housing 

Market,” Real Estate Economics, vol. 24, no. 3 (1996). 

10Our review cites a number of academic studies that date back many years because, in large 

part, there is not a large body of more recent research on the real estate brokerage industry. 

However, we found that older research findings in this area have been consistent with more 

recent studies, as well as with testimonial evidence we obtained in interviews with industry 

analysts and market participants. For the most part, the economic literature and available 

data related to real estate commissions cover existing home sales and not new construction.

11For example, FTC found that more than one-half of home sales had a commission rate of 6 

percent, and that from one-quarter to one-third had a commission rate of 7 percent. FTC 

based its findings on an analysis of closing documents from 7,622 sales made nationwide in 

1977 and a national survey of 934 consumers who had sold homes in 1978 and 1979. FTC 

found similar clustering at 6 percent and 7 percent in closing documents from sales in 15 of 

16 cities examined (Federal Trade Commission, The Residential Real Estate Brokerage 

Industry, vol. 1 (Washington, D.C.: 1983)). J.E. Larsen and W.J. Park, “Non-Uniform 

Percentage Brokerage Commissions and Real Estate Market Performance,” AREUEA 

Journal, vol. 17, no. 4 (1989), found that about 90 percent of listings had a commission rate 

of 7 percent in their analysis of 669 listings in the Lincoln, Nebraska, area in 1986. 

12Some researchers have attempted to identify and explain variations in commission rates. 

For example, using samples of commission rate data within specific geographic areas, some 

studies found that rates could vary with, among other things, a property’s price or age, its 

expected “difficulty of sale” (e.g., whether the home was vacant or renter-occupied), or the 

size of the brokerage firm. See M. Carney, “Costs of Pricing of Home Brokerage Services,” 

AREUEA Journal, vol. 10, no. 3 (1982); W.C. Goolsby and B.J. Childs, “Brokerage Firm 

Competition in Real Estate Commission Rates,” The Journal of Real Estate Research, vol. 3, 

no. 2 (1988); and C.F. Sirmans and G.K. Turnbull, “Brokerage Pricing under Competition,” 

Journal of Urban Economics, vol. 41, no. 1 (1997). 
Page 10 GAO-05-947 Real Estate Brokerage

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

percent to 6 percent as typical now. 

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.13 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.14 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.15 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 

2003, the national median sales price of existing homes, as reported by 

NAR, increased 35 percent, while inflation over the same period was 10 

percent, leaving an increase of some 25 percent in the inflation-adjusted 

price of housing. According to REAL Trends, average commission rates fell 

from an estimated 5.5 percent in 1998 to an estimated 5.1 percent in 2003, a

13For example, see M.A. Arnold, “The Principal-Agent Relationship in Real Estate Brokerage 

Services,” Journal of the American Real Estate and Urban Economics Association, vol. 20, 

no. 1 (1992); and G.D. Jud and J. Frew, “Real Estate Brokers, Housing Prices, and the 

Demand for Housing,” Urban Studies, vol. 23, no. 1 (1986). 

14For example, see P. Anglin and R. Arnott, “Are Brokers’ Commission Rates on Home Sales 

Too High? A Conceptual Analysis,” Real Estate Economics, vol. 27, no. 4 (1999); R. Bartlett, 

“Property Rights and the Pricing of Real Estate Brokerage,” The Journal of Industrial 

Economics, vol. 30, no. 1 (1981); and C. Hsieh and E. Moretti, “Can Free Entry Be 

Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry,” The Journal 

of Political Economy, vol. 111, no. 5 (2003). 

15Some 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 11 GAO-05-947 Real Estate Brokerage

decrease of about 7 percent.16 Thus, with the increase in housing prices, the 

brokerage fee for selling a median-priced home increased even as the 

commission rate fell.17

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.18 Brokers may also compete by spending more on 

advertising or offering higher levels of service to attract clients.19 Although 

some of these activities can benefit consumers, some economic literature 

suggest that such actions lead to inefficiency because brokerage services 

could be provided by fewer agents or at a lower cost.20 For example, 

although advertising can be effective in providing buyers and sellers with 

information about broker services, the consumer benefit from brokers’ 

expenditures on advertising or promotions aimed at acquiring listings may 

be less than their cost to the broker. 

16REAL Trends’ data do 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. The 

estimate for 1998 was based on data from 532 firms, and the estimate for 2003 was based on 

data from 541 firms. We considered REAL Trends’ estimates to be sufficiently reliable on the 

basis of the competency of the source producing the estimates and the reasonableness of 

the estimates.

17Similarly, a decrease in commission rates from the prevalent 6 percent and 7 percent rates 

reported by FTC in the period around 1980 to the levels reported by REAL Trends in recent 

years would have been more than offset by appreciation in housing prices during that 

period.

18For example, see Crockett, “Competition and Efficiency in Transacting.” Because agents 

generally are hired as independent contractors whose incomes are based on commissions 

for complete sales, brokers can hire agents to compete for more listings without incurring 

significant up-front costs for their labor. 

19For example, see Miceli, “The Welfare Effects of Non-Price Competition,” and Turnbull, 

“Real Estate Brokers, Nonprice Competition and the Housing Market.” 

20For example, see Hsieh and Moretti, “Can Free Entry Be Inefficient?”; Miceli, “The Welfare 

Effects of Nonprice Competition”; and Crockett, “Competition and Efficiency in 

Transacting.” 
Page 12 GAO-05-947 Real Estate Brokerage

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 they currently represent only about 2 

percent of the market, they may be putting some downward pressure on 

the fees charged by traditional brokerages.21

Certain Factors May Inhibit 

Price Competition within 

the Real Estate Brokerage 

Industry

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.22 

Cooperation Facilitated by 

Multiple Listing Services 

While MLSs provide important benefits to consumers by aggregating data 

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

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

discourage brokers from competing with one another on price. Because 

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

essential to doing business, brokerage firms may have an incentive to adopt 

practices that comply with MLS policies and customs. As previously noted, 

MLSs facilitate cooperation in part by enabling brokers to share 

information on the portion of the commission that sellers’ brokers are 

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

brokers to charge standard commission rates, but this practice ended after 

the Supreme Court ruled, in 1950, that an agreement to fix minimum prices 

was illegal under federal antitrust laws.23 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

21Consultants to NAR estimated that discount, full-service brokerages, Internet-oriented fullservice brokerages, broker referral services, and other nontraditional brokerage models 

collectively represented buyers and sellers in less than 2 percent of all real estate brokerage 

transactions in 2003. 

22We make no judgment on the legality of any actions that may inhibit price competition; 

such matters are beyond the scope of our work.

23United States v. National Association of Real Estate Boards, 339 U.S. 485, 488-89 (1950). 
Page 13 GAO-05-947 Real Estate Brokerage

price fixing.24 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 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.25

Traditional Brokers’ Resistance 

to Nontraditional Brokerage 

Models 

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 we spoke with. A discount broker may advertise a 

lower commission rate to attract listings, but the broker’s success in selling 

those homes, and in attracting additional listings in the future, depends in 

part on other brokers’ willingness to cooperate (by showing the homes to 

prospective buyers) in the sale of those listings. Some discount full-service 

and discount limited-service brokerage firms we interviewed said that 

other brokers had refused to show homes listed by discounters.26 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 

24For 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. 

25For examples of this long-standing observation, see Bartlett, “Property Rights and the 

Pricing of Real Estate Brokerage”; Crockett, “Competition and Efficiency in Transacting”; 

T.J. Miceli, “The Multiple Listing Service, Commission Splits, and Broker Effort,” AREUEA 

Journal, vol. 19, no. 4 (1991); and N.G. Miller and P.J. Shedd, “Do Antitrust Laws Apply to 

the Real Estate Brokerage Industry?,” American Business Law Journal, vol. 17, no. 3 

(1979). FTC (Residential Real Estate Brokerage) 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.

26We did not investigate specific instances of brokers’ alleged refusal to show homes listed 

with discounters, nor do we have information to assess how common such a practice might 

be. 
Page 14 GAO-05-947 Real Estate Brokerage

brokers.27 This practice can make it more difficult for discount brokers to 

recruit new agents because they may earn more working for a broker who 

receives the prevailing commission from other brokers.28 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. 

Limited Consumer Pressure Pressure from consumers for lower brokerage fees appears to be limited, 

although it may be increasing, according to our review of economics 

literature and to several industry analysts and participants. Consumers may 

accept a commission rate of about 6 percent as an expected cost of selling 

a home, in part because that has been the accepted pricing model for so 

long, and some consumers may not know that rates can be negotiated. 

Buyers may also 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 home will be shown.29 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 

27We did not investigate alleged incidents of differences in the commissions offered to 

buyers’ brokers. We note that the practice of offering certain firms a smaller share of the 

commission than that posted in the MLS is not necessarily limited to firms that advertise 

discounted prices. In a private antitrust suit settled in 2000, Re/Max International, Inc., and 

some of its franchises alleged that two large brokerage firms in northeast Ohio had 

conspired to prevent Re/Max from establishing a presence in that area by offering Re/Max 

agents less in commission than other agents. Re/Max International, Inc., v. Realty One, 

Inc., 173 F.3d 995 (6th Cir. 1999). Re/Max does not advertise itself as a brand that offers 

discounted fees, but its business model departs from the traditional brokerage model in 

which brokers retain a significant portion of agents’ commissions. Re/Max agents retain 95 

percent to 100 percent of their commission revenues and pay a fixed monthly fee to their 

brokers, an approach that arguably gives agents greater flexibility to reduce their fees than 

the traditional brokerage model. 

28Conversely, officials from one firm suggested that a broker that 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. 

29Anglin and Arnott, “Are Brokers’ Commission Rates on Home Sales Too High?,” and 

Goolsby and Childs, “Brokerage Firm Competition in Real Estate Commission Rates.” 
Page 15 GAO-05-947 Real Estate Brokerage

number of consumers aware that there are alternatives to traditional 

pricing structures and that commission rates are negotiable. 

Some State Laws and 

Regulations Can Affect 

Price Competition

Although state laws and regulations related to real estate licensing can 

protect consumers, DOJ and FTC have expressed concerns that some of 

these laws and regulations may also unnecessarily hinder competition 

among brokers and limit consumer choice. 

Antirebate Provisions At least 14 states appear to prohibit, by law or regulation, real estate 

brokers from giving consumers rebates on commissions or to place 

restrictions on this practice.30 Proponents say 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.31 

Opponents of antirebate provisions argue that such restrictions serve only 

to limit choices for consumers and to discourage price competition by 

preventing brokers from offering discounts.32 Proponents also note 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.33 In March 2005, DOJ’s Antitrust Division filed suit against the 

Kentucky Real Estate Commission, arguing that the commission’s 

administrative regulation banning rebates violated federal antitrust laws. In 

30Based on our review of selected statutes and regulations in states identified by the 

Association of Real Estate Law Licensing Officials and two brokerage firms that provide 

rebates to consumers, states that appear to prohibit or place restrictions on real estate 

brokers giving consumers rebates on commissions include Alabama, Alaska, Iowa, Kansas, 

Kentucky, Louisiana, Mississippi, Missouri, New Hampshire, New Jersey, Oklahoma, 

Oregon, Tennessee, and West Virginia. We did not review all states’ laws and regulations or 

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

restrict commission rebates to consumers. The original intent of some state antirebate laws 

and regulations was to avoid conflicts of interest between agents and customers by 

preventing brokers from giving a share of their commission to lawyers, title companies, or 

others involved in the real estate transaction. 

31Coldwell Banker Residential Real Estate Servs. v. Clayton, 475 N.E.2d 536, 543 (Ill. 1985).

32During negotiations for the sale of a home, brokers sometimes agree to reduce their 

commissions to pay for repairs or to bridge a gap between the offer and the asking price. 

However, these reductions do not represent price competition because they are offered 

after the buyer and seller have selected their brokers. 

33According 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. 
Page 16 GAO-05-947 Real Estate Brokerage

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.34 In July 2005, DOJ and 

the commission proposed a settlement agreement which, if approved by 

the court, would require the commission to cease enforcing its regulation 

prohibiting rebates and other inducements.35

Minimum Service Standards Ten states are considering or have passed legislation that requires brokers 

to provide a minimum level of service when they represent consumers.36 

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 

argue that they protect consumers by ensuring that brokers provide a basic 

level of assistance. Further, full-service brokers argue 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 

argue that they restrict consumer choice and raise costs by impeding 

brokerage models that offer limited services for a lower price.37 In April 

and May 2005, DOJ wrote to state officials in Oklahoma, and DOJ and FTC 

jointly wrote to officials in Alabama, 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 limitedservice options and therefore requiring some sellers to buy brokerage 

services they would otherwise choose to perform themselves. They also

34Complaint, 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).

35Department of Justice, Antitrust Division, “United States v. Kentucky Real Estate 

Commission; Proposed Amendment Final Judgment and Competitive Impact Statement,” 

70 Fed. Reg. 45,424 (Aug. 5, 2005).

36As of August 16, 2005, Alabama, Florida, Illinois, Iowa, Missouri, Oklahoma, Texas, and 

Utah had enacted minimum service standards. Delaware and Kansas were considering 

adopting such standards.

37Minimum 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 17 GAO-05-947 Real Estate Brokerage

cited a lack of evidence that consumers have been harmed by limitedservice brokerage. Despite the concerns raised by DOJ and FTC, the 

governors in all 4 states subsequently signed minimum service standards 

into law. 

Similarly, while state licensing rules for real estate brokers and agents may 

ensure standards of quality that protect consumers, these rules may also 

restrict consumers’ ability to choose among services and prices, ultimately 

reducing competition. For example, in 2004, a federal district court found 

unconstitutional a California real estate licensing law that required the 

operator of a for-sale-by-owner Web site to obtain a brokerage license in 

order to advertise property listings without providing any additional 

brokerage services. The court found that the law impermissibly 

differentiated between publications displaying the same basic content on 

their Web sites, noting that newspapers were not required under the law to 

obtain a brokerage license simply to display property listings on their Web 

sites.38

The Internet Has 

Increased Consumers’ 

Options, but Several 

Factors Could Limit Its 

Wider Use

The Internet has increased consumers’ access to information about 

properties for sale and has facilitated new approaches to real estate 

transactions. Many brokers post information on their Web sites—in varying 

degrees of detail—on properties they have contracted to sell, enabling 

consumers to obtain such information without consulting a broker. The 

Internet also has fostered the creation or expansion of a number of 

Internet-oriented firms that provide real estate brokerage or related 

services, including discount brokers and broker referral services. 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 

may especially be affected by state laws that prohibit them from offering 

rebates to consumers. In addition, certain factors—such as the lack of a 

uniform sales contract—may inhibit the use of the Internet for 

accomplishing the full range of activities needed for real estate 

transactions. 

38ForSaleByOwner.com Corp. v. Zinneman, 347 F. Supp. 2d 868, 877 (E.D. Cal. 2004). 
Page 18 GAO-05-947 Real Estate Brokerage

The Internet Allows 

Consumers More Direct 

Access to Information

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 for-sale-byowner properties—is routinely posted on Web sites, often with multiple 

photographs or virtual tours. For example, NAR’s Realtor.com Web site 

features more than 2 million properties listed with MLSs around the 

country, and most brokers also maintain their own Web sites with 

information on properties for sale in their area. Buyers may also search for 

non-MLS listed properties on the Web sites of companies that help owners 

market their properties themselves. Thus, the Internet has allowed buyers 

to perform much of the search and evaluation process independently, 

before contacting a broker.39 

Sellers of properties can also benefit from the Internet because it can give 

their listings more exposure to buyers. For example, according to NAR, 

Realtor.com—which provides information on approximately 95 percent of 

all homes listed with MLSs around the country—had 6.2 million unique 

visitors in February 2005. Sellers who choose to sell their homes without 

the assistance of a broker can advertise their properties on a multitude of 

“for-sale-by-owner” Web sites. 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 area. 

39Before the Internet, a buyer could still learn about properties without a broker—for 

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

However, the Internet can provide consumers with 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 19 GAO-05-947 Real Estate Brokerage

Despite more active participation of some buyers and sellers in the 

transaction process, some industry analysts and participants noted that 

because of the complexity of real estate transactions, some buyers and 

sellers will always desire the assistance of a broker to help them navigate 

the process.40 Unlike transactions that can now be completed entirely on 

the Internet—such as purchasing airline tickets or trading securities—real 

estate transactions are likely to continue to involve at least some in-person 

services for the foreseeable future.

The Internet Facilitates 

Alternative Service and 

Pricing Options

Although Internet-oriented brokerages and related firms represent only a 

small portion of the real estate brokerage market at present, 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—including listing properties in the MLS, 

conducting open houses, negotiating contracts, and assisting with 

closings—but advertise lower than traditional commissions, for 

example between 3 percent and 4.5 percent. These types of brokerages 

existed before widespread use of the Internet, but many have gained 

exposure and become more viable as a result of the Internet. In addition, 

by posting listings online, displaying photographs and virtual tours of 

homes for sale, and communicating with buyers and sellers by e-mail, 

some of these companies say that they have been able to cut brokerage 

costs, allowing them to offer rebates to buyers or discounted 

commissions to sellers. 

• Limited-service discount brokerages provide fewer services than fullservice brokerages but also offer lower commission rates or offer their 

services for flat fees. For example, some firms market a full array of 

brokerage services for a reduced commission but do not list homes in 

the MLS. Other 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. Although these types of discount 

40Consistent with Internet usage patterns in the United States, younger consumers may be 

more likely than older consumers to search listings online, a factor that could influence the 

growth of Internet use in real estate transactions over time.
Page 20 GAO-05-947 Real Estate Brokerage

brokers have existed since at least the 1970s, industry participants told 

us that the Internet has allowed them 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, including some that are licensed 

real estate brokers, 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.41 Some of these 

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

that fee back to buyers and sellers. It is through the Internet that these 

companies are able 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, Craig’s List, and “for-sale-by-owner” Web sites.42

These services, which generally do not provide buyers and sellers with 

the assistance of a licensed broker, are limited to providing consumers 

with a venue for advertising homes and viewing properties for sale.

Wider Use of the Internet in 

Real Estate Brokerage Will 

Depend on the Availability 

of Listing Information and 

Other Factors

Several factors could limit the extent to which the Internet is used in real 

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

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

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

sites and on Realtor.com. NAR has considered a policy on Virtual Office 

Web sites (VOW) that would allow brokers to selectively exclude their MLS 

listings from being displayed on certain other brokers’ Web sites and would 

prohibit certain types of companies, such as information and referral 

41These information and referral companies typically have a network of participating real 

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

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

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

homes or negotiating a sales price.

42Craig’s List is a noncommercial Internet bulletin board that operates in 170 communities in 

34 countries. Among other things, users of Craig’s List can post or review information on 

properties for sale. 
Page 21 GAO-05-947 Real Estate Brokerage

companies, from operating VOWs.43 Proponents of this policy argue that 

listings are the work product, and thus the property, of the selling broker, 

who should have control over how the listings are used. Proponents 

maintain that brokers should be able to prevent certain companies—such 

as information and referral companies—from using their listings simply to 

earn referral fees. NAR and others have also argued that freely posting MLS 

data—such as addresses, descriptions of properties, and property tax 

information—on the Internet may compromise the security and privacy of 

their clients. 

Opponents of the VOW policy argue that it is anticompetitive because it 

would unfairly limit Internet-oriented brokers’ ability to provide their 

clients with access to MLS listings through their Web sites. They argue that 

NAR already has policies on the appropriate distribution of MLS 

information, and that their rules should treat information disseminated via 

the Internet no differently than information distributed via traditional 

bricks-and-mortar brokerages. They also note that measures can be taken 

to address security and privacy concerns related to MLS listings on the 

Internet, such as restricting the number of listings that result from an 

online search. Some opponents also expressed concern that some Internetoriented brokers would not be able to compete if—in a market dominated 

by a single player—they were selectively excluded from displaying that 

player’s listings.

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 we spoke with 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 model often was built around such rebates.

43NAR issued its VOW policy in 2003; however, NAR has postponed requiring 

implementation of the VOW policy by its affiliated MLSs pending the outcome of its 

negotiations with DOJ, whose Antitrust Division has been investigating the policy. 

According to NAR, some MLSs have implemented their own VOW policies. 
Page 22 GAO-05-947 Real Estate Brokerage

Finally, certain factors may inhibit the use of the Internet for accomplishing 

the full range of activities needed for real estate transactions. For example, 

some companies told us that they would like to make greater use of the 

Internet to facilitate the execution of the contract used in the purchase and 

sale of a property. However, they said that there is no single, uniform sales 

contract for residential real estate, and state laws vary with respect to 

which disclosures must accompany a sales contract. They also said that 

state laws vary in their requirements for physical copies of signed 

contracts, attorneys’ involvement in signing a contract, and the 

circumstances under which a contract may be rescinded. As a result, it 

would be difficult to develop an online platform that could be used 

nationwide for residential real estate contracts. Further, industry 

participants told us that no uniform technology currently exists to facilitate 

the assistance that brokers often provide in other aspects of the real estate 

transaction, such as coordinating inspections, appraisals, financing, title 

searches, and settlements. 

Few State-Chartered 

Banks Appear to 

Engage in Real Estate 

Brokerage

Our review of certain state statutes and regulations showed that 

approximately 30 states may potentially authorize state-chartered banks or 

their operating subsidiaries to engage in some real estate brokerage 

activities. However, we also found that because only a small number of 

banks in these states appeared to have taken advantage of this authority, 

the effect on competition and consumers was likely minimal. We reviewed 

the state statutes and regulations that NAR and the Conference of State 

Bank Supervisors, using the broadest interpretations, identified as 

potentially authorizing banks’ brokerage activity. While many of these laws 

are ambiguous and subject to interpretation by state regulators, it appears 

that at least 5 states and the District of Columbia provide relatively clear 

authority for banks or their subsidiaries to engage in real estate brokerage. 

An additional 8 states permit involvement in other real-estate-related 

activities or in unspecified activities that might be approved by the state. At 

least 7 states could potentially permit banks to conduct real estate 

activities as an incidental power, an activity closely related to banking, or 

an activity that is financial in nature. Many of the remaining states could 

potentially allow state-chartered banks to conduct real estate activities to 

the extent that national banks or other federal depository institutions are 

allowed to do so. 

The exact number of state-chartered banks that engage in real estate 

brokerage is unknown because not all state regulators track such activity. 

However, available data and interviews with real estate, banking, and state 
Page 23 GAO-05-947 Real Estate Brokerage

regulatory officials suggest that such activity is very limited among the 

approximately 5,700 state-chartered banks nationwide. In separate surveys 

in 2001, NAR and the Conference of State Bank Supervisors identified only 

eight states where state-chartered banks had engaged in at least some real 

estate brokerage activity. More recent data were not available, but 

regulators and industry officials told us that they doubted that this activity 

had expanded significantly since 2001. They noted that real estate 

brokerage is not typically part of a bank’s business model, and that banks in 

small communities may be reluctant to compete with local real estate 

brokers that may be clients of the banks. 

We spoke with officials from banks engaged in real estate brokerage, bank 

regulators, and real estate industry representatives in Iowa and 

Wisconsin—two states identified as having the most banks involved in real 

estate brokerage in 2001.44 The seven such banks we identified in these 

states were all in small communities that had few or no other real estate 

brokers, and some of these banks noted that their presence provided an 

additional option for local residents. None of the banks we spoke with 

offered brokerage services that were different than those offered by 

traditional brokerages, and none offered discount brokerage services. Most 

of the bank officials said that real estate brokerage was not a large portion 

of their business. They said their primary goal was not to link brokerage 

customers to the bank’s mortgage financing and added that most of their 

brokerage customers in fact obtained their mortgages outside of the bank. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

report date. At that time, we will send copies to the Secretary of Housing 

and Urban Development, the Attorney General, and the Chairman of the 

Federal Trade Commission. We will make copies available to others upon 

request. This report will also be available at no charge on GAO’s Web site at 

http://www.gao.gov.

44The information we obtained from these banks is meant to be illustrative and is not 

representative of all banks’ brokerage activity nationwide.
Page 24 GAO-05-947 Real Estate Brokerage

Please contact me at (202) 512-8678 or woodd@gao.gov if you or your staffs 

have any questions about this report. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix I.

David G. Wood

Director, Financial Markets 

and Community Investment
Page 25 GAO-05-947 Real Estate Brokerage

Appendix I

GAO Contact and Staff Acknowledgments ApApenednxidexiIs

GAO Contact David Wood, (202) 512-8678, woodd@gao.gov

Staff 

Acknowledgments

In addition to the contact named above, Jason Bromberg, Assistant 

Director; Tania Calhoun; Emily Chalmers; Evan Gilman; Christine Houle; 

Austin Kelly; Cory Roman; and Julianne Stephens made key contributions 

to this report.
Page 26 GAO-05-947 Real Estate Brokerage

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This bibliography includes articles cited in our report and selected other 

sources from our review of literature on the structure and competitiveness 

of the residential real estate brokerage industry.

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Too High? A Conceptual Analysis.” Real Estate Economics, vol. 27, no. 4 

(1999): 719-749.

Arnold, M.A. “The Principal-Agent Relationship in Real Estate Brokerage 

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Association, vol. 20, no. 1 (1992): 89-106.

Bartlett, R. “Property Rights and the Pricing of Real Estate Brokerage.” The 

Journal of Industrial Economics, vol. 30, no. 1 (1981): 79-94.

Benjamin, J.D., G.D. Jud and G.S. Sirmans. “Real Estate Brokerage and the 

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----- “What Do We Know about Real Estate Brokerage?” Journal of Real 

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International Real Estate Review, vol. 5, no. 1 (2002): 12-39.

Epley, D.R. and W.E. Banks. “The Pricing of Real Estate Brokerage for 

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