It has been some time since we mentioned the real estate market (which I predicted would be the antitrust issue in 2006).  It is back in the news.  Yesterday, the Consumer Federation of America (CFA) released a study titled “How The Real Estate Cartel Harms Consumers and How Consumers Can Protect Themselves.”  Dow Jones (via Smart Money) reports on the study:

The current broker industry is designed to ensure that traditional brokers can charge a “fixed” commission of either 6% or 7%, according to a report written by Stephen Brobeck, executive director of the Consumer Federation of America, and Patrick Woodall, a senior researcher for the group. Moreover, according to Brobeck and Woodall, traditional brokers can steer buyers and sellers away from the best deals in an effort to “double-dip,” or collect the entire commission from a home sale. Maintaining fixed commissions, and the chance to retain an entire commission, “ultimately explain almost all of a cockamamie brokerage system that traditional brokers are trying to maintain, for example, through the passage of anti-competitive, anti-rebate and minimum service laws,” Brobeck and Woodall said in their report.

The National Association of Realtors responds (in part):

The real estate business is “the last functioning cartel in America” the head of the CFA said in a report released in …1991. Fifteen years ago CFA’s Steve Brobeck had five recommendations that would “dramatically increase competition.” First, he recommended that agents should be required to disclose that they represent the interest of the seller. Agency disclosure is now the law in virtually every state. Second, “buyers, for a reasonable fee, should be allowed direct access to multiple-listing services so they could contact sellers’ agents directly.” Third was to eliminate the display of commissions on the MLS because Brobeck contended they influenced whether or not buyers’ agents would show their clients certain listings. The industry’s investment in Internet has made both those recommendations obsolete. Consumers can see almost all the properties for sale in America from their desktops for free as a result of the massive investment the industry has made in the Internet, including NAR’s policies making listings available for display on competing brokers’ Web sites. And buyers can ask their agents to show them any house they want to see. Whether or not commissions are displayed on the MLS no longer has any bearing on whether a buyer can find a property on the Internet. Three out of four homebuyers use the Internet today. …  Few industries can boast such dramatic change in fifteen years. It’s hard to understand why Brobeck would again use the word “cartel” to describe an industry that’s done everything he advocated. Either Brobeck’s recommendations were way off base in the first place or perhaps it’s easier to cut and paste old rhetoric to dress up a whole new set of recommendations in hopes that no one will hold him accountable for acknowledging the tremendous progress that has been achieved.

Personally, I wish the word “study” would be used appropriately.  Regardless of one’s opinions on the CFA “study,” it is not a study.  It is an analysis of an industry and recommendations for change.  Calling it a study is misleading.

[Update (6/22): Stephen J. Dubner has post on this on the Freakonomics Blog.  The most interesting part is:

I have been told by a heretofore reliable source that the House Financial Services Committee (Housing Subcommittee) will soon hold a hearing to explore the competitive (or anti-competitive) practices of the brokerage industry. “This is significant,” explains my source, “because this is the first Congressional action on real estate – dipping the toe in the water – in many many years (other than the question of whether national banks can engage in brokerage). Congress has for the better part of a century obeyed the National Association of Realtors’ instruction to allow the brokers to run the MLS system.”

Interesting.]

Technorati Tags: antitrust, real estate

Comment feed: RSS 2.0. You can leave a response, or trackback from your own site.