Feds
probe real estate agents
Money magazine investigation shows
Justice Dept. looking into anticompetitive practices.
April 22, 2005: 5:27 PM EDT
By Jon Birger, Money Magazine
NEW YORK (CNN/Money) - Did you pay your real estate broker
too much? The U.S. Department of Justice may be set to turn
Tulsa, Okla. into a test-case for ending the stranglehold
6 percent commissions have over the real estate brokerage
business.
MONEY has learned that Justice's Antitrust Division is gathering
information on the bully tactics that full-commission brokers
in Tulsa allegedly use against their discount rivals to
discourage commission-cutting. The probe follows other recent
efforts to spur competition in the real estate industry.
According to a copy of a Justice Department subpoena obtained
by MONEY, federal investigators are seeking information
on "possible anticompetitive conduct in the provision
of real estate services in the Tulsa area" as well
as "documents related to refusal to cooperate on real
estate transactions."
An Antitrust Division spokeswoman confirmed the existence
of the investigation but declined to provide additional
details.
Al Unser, executive director of the Greater Tulsa Association
of Realtors said: "We received a CID [civil investigative
demand] from the Justice Dept. and we have responded."
Economists who study real estate, such as the University
of Cincinnati's Norm Miller, believe anti-competitive behavior
is the primary explanation for the persistence of the 6
percent commission.
D. Smith and Bob Meyer are two Tulsa discount real estate
agents who say they were interviewed by federal investigators.
They say the investigators wanted information on full-commission
agents' alleged refusal to show home-buying clients properties
listed by discount brokers -- a tactic known as boycotting.
Boycotting exploits the one major weakness of the multiple
listing service.
The MLS's upside is that it centralizes all homes for
sale in a single electronic marketplace that can be accessed
by all agents -- and these days by Web-savvy consumers as
well.
The downside is that brokers must depend on one another
to help sell their homes, and that discourages them from
undercutting each other's commissions.
While boycotting the listings of discounters is generally
considered an antitrust violation -- if undisclosed, it's
also a breach of fiduciary duty to clients -- industry insiders
are well
aware that boycotting goes on, even if they claim not to
condone it.
For Smith, the Feds' investigation comes a year or so
too late. His realty business on the brink of ruin, Smith
recently abandoned discount brokerage and went back to charging
6 percent. "In one week," Smith said, "I've
had more showings and more offers from other realtors than
I had in the previous two months."
The Tulsa investigation is part of an ongoing Antitrust
Division foray into the sharp-elbowed realty world. In March,
the Antitrust Division sued the Kentucky Real Estate Commission
over a state law that prohibits real estate brokers from
offering commission rebates to consumers.
More recently, Assistant Attorney General R. Hewitt Pate
sent letters to lawmakers and regulators in Oklahoma and
Texas, urging them to reject proposals that would effectively
prohibit brokers from engaging in limited-service or fee-for-service
realty -- such as listing a home for sale on the multiple
listing service for a flat fee of $500.
Bruce Hahn, chairman of the American Homeowners Grassroots
Alliance, argues that state prohibitions on rebates and
fee-for-service discourage competition and inflate commissions
paid by consumers. "We've talked to Justice, and we
think what they're doing is tremendous," he said.
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