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. 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. 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 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, 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 state- licensed 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. State- chartered banks are overseen by state regulators and, if they have federal deposit insurance, a federal regulator. 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. 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. 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 from competing with one another on price; resistance from traditional full- service 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. 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. 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). Our 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. 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. 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. 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.