FTC Testifies on Competition in the Real Estate Brokerage Industry

The Federal Trade Commission today told the Subcommittee on Housing and Community Opportunity of the House Financial Services Committee that changes in the real estate industry, which increasingly incorporate the Internet into their business models, give consumers “the choice to save potentially thousands of dollars in commissions in exchange for taking on more work.”

Maureen Ohlhausen, Director of the FTC’s Office of Policy Planning told the Committee
that the Commission has a long history of preventing unfair methods of competition and ensuring that real estate markets remain competitive. “Since the 1980s, the Commission has actively investigated and challenged anticompetitive practices in the industry, including efforts by private associations of brokers to disadvantage brokers who use non-traditional listing agreements.” On July 13, the Austin Board of Realtors settled FTC charges that their rules effectively prevented consumers using non-traditional listing agreements from gaining access to important public Web sites and made it more difficult for sellers to market their homes. The settlement bars the Board from adopting or enforcing any policy that interferes with members’ ability to enter into non-traditional listing arrangements with clients. “It is important to emphasize that the ABOR enforcement action does not reflect any attempt by the Commission to favor one form of brokerage business model over another. Rather, the Commission’s enforcement action, and all of its work in the sector, is intended to protect competition in the market – not competitors – so that consumers can select the services that best meet their needs.”

The FTC also provides analysis of the likely competitive effects of legislative proposals. At the urging of state realtor associations, four states have considered or adopted minimum-service requirements that would force consumers to purchase a “state mandated bundle of real estate brokerage services.” The FTC and DOJ advocated against them. “We concluded that by effectively eliminating many of the most popular packages offered by limited service brokers, these minimum-service laws would reduce consumer choice and competition among traditional brokerage models and limited service models.”

The testimony notes that the FTC and Department of Justice co-hosted a real estate workshop in October, 2005, to explore competition in the real estate industry. “This workshop provided a forum to discuss current issues affecting the competitiveness of this important market.”

The workshop found that while the industry exhibits characteristics one would expect to find in competitive markets, there is a perception of lack of price competition. This is based on the fact that “commission rates do not appear to vary across several factors that would be expected to affect rates, such as geography, the price of the house for sale, the experience level of the real estate broker, and the quality of the service provided by the booker. As a result, more study is needed to determine the level of ‘competitive’ commission rates.”

The workshop found that despite a significant amount of information available to consumers on the Internet, there are gaps in consumer knowledge – for example they are not necessarily aware that commission rates are negotiable. “The Commission plans to develop and issue education materials to help consumers become more knowledgeable about the various ways in which they can save money and protect their interests as they buy or sell a house.”

The agencies will issue a joint report on the workshop this fall.

“The FTC has a long history of bringing to bear all of its tools on issues related to the competitiveness of the real estate brokerage industry, and we remain committed to ensuring that consumers can enjoy the benefits of competition in this very important industry,” the testimony concludes.

The Commission vote to approve the testimony was 5-0.

The FTC’s Bureau of Competition, in conjunction with the Bureau of Economics, seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No. P05 8822)