a cooperating broker would be a subagent

J. . See Ann Morales Olazabal, Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses, 40 HARV. 63. 288. Agents also may have incentives to steer buyers toward their listings or homes listed by other agents who are affiliated with the same brokerage firm. Additionally, some listing brokers pay their clients secret rebates rather than offering a lower listing commission in order to disguise discounting.69. "255 Another panelist who was an officer in an early VOW operator noted that his company gave a 1 percent rebate to buyers, but explained that rebate prohibitions "immediately slammed the door [in] certain states for [his company]. This finding was significant at the one percent level for each of the equations tested. Civ. 59, 858-312 (West 2006). Seller Broker Definition, One who earns a commission from the seller of a property in exchange for finding a buyer and assisting in negotiation. 135. A principle is the person who hires an agent to represent the principle. For example, brokers may reduce the time they spend servicing each customer face-to-face because customers conduct a portion of the time-consuming listings searches on their own.81 Although brokers offering VOWs differ from other brokerages in their innovative uses of the Internet, in other respects they operate like other brokers. is defined as any broker other than the listing broker entitled to a share of any commission arising under this Lease. '"60 Second, sellers benefit from wider exposure of their listings, while buyers benefit from reduced search costs.61 Finally, the court noted that "[t]he broker is particularly benefited by having immediate access to a large number of listings and at the same time by being furnished with a method for quickly and expansively exposing his own listings to a broader market. A. 1980) (membership in the MLS becomes essential to a broker's ability to compete effectively on equal terms); GAO REPORT, supra note 3, at 12. See AEI-Brookings Paper, supra note 3, at 5. 166. 273. Subsequent decisions largely have followed this approach. As explained in Chapter I, brokers must have access to the MLS in order to compete effectively. Perriello, Tr. In 2005 real estate broker commissions exceeded $60 billion. "); Richard J. Buttimer, Jr., A Contingent Claims Analysis of Real Estate Listing Agreements, 16 J. 704 (1993); Puget Sound Multiple Listing Ass'n, FTC Dkt. The emphasis is on transparency. Throughout this Report citations to "Tr." 179, 184-185 (1981); Crockett, supra note 51, at 211. VOWs are Internet websites through which brokers offer brokerage services online to their registered clients.78 The unique feature of VOW operators is that these brokers offer their clients the ability to search online the same MLS information that other brokers provide to their clients through other delivery methods, such as hand delivery, mail, fax, or email.79 Under NAR rules, VOWs may provide clients with more MLS information than can be provided by publicly accessible broker websites that are governed by NAR's Internet Data Exchange ("IDX") policy, discussed in Chapter II. See Realogy Corporation 10-K for fiscal year ending Dec. 31, 2006, available at http://www.sec.gov/Archives/edgar/data/1355001/000095012307003335/e31090e10vk.htm#tocpage. The extent to which brokers supply these services "provides the margin for nonprice competition among brokers." 56. Furthermore, given that the targeted selling price will impact the time the asset stays on the market, the agent's desired time on the market may diverge from that of the seller."). Although they typically do not play an active role at this stage, brokers often accompany their clients to the closing.38 The brokers are paid their commission at closing. 165. See infra Chapter IV. These licensing statutes form the framework for state regulation and oversight of the profession by establishing requirements for licensure (such as minimum age, education, and experience) and various requirements and prohibitions regarding business practices and conduct. Although the specific data fields on each listing are determined by the individual MLS, they typically include detailed descriptions of the homes for sale, the asking price, the offer of compensation that will be paid to a cooperating broker who finds a suitable buyer,43 and the name of the listing broker. BLACK'S LAW DICTIONARY 234 (8th ed. 169. 287. First, only brokers have direct access to the MLS, which is a local or regional joint venture of real estate brokers who pool and disseminate information on homes available for sale in their particular geographic areas.17 The MLS provides information both on the homes currently for sale in a particular geographic area and past sales data, which typically are used in determining a home's listing price or a buyer's offer price. Code Comprehension: Article 16 Commissions Are Negotiable Should another broker in the MLS procure the buyer that ultimately purchases the seller's home, the fee- for-service broker is typically obligated under MLS rules to pay the cooperative compensation listed on the MLS to that broker. The FTC's last report on real estate brokerage, twenty-three years ago, stated: Some claim that things have not changed.166 Some commenters observe that the relative inflexibility of commission rates coupled with rising home prices has caused consumers to pay more in commissions, and that if brokers competed more on commission rates, commission fees would be lower.167 Moreover, citing consumers' increasing use of the Internet in real estate transactions and the substantial savings that the Internet has brought to consumers across numerous service industries168, some commenters maintain that the Internet should also be reducing the costs of providing real estate brokerage services.169, In its comment, the American Bankers Association ("Association") observed that "[one] would expect to see variations in brokerage commissions across geographical regions as the supply and demand varies dramatically across the United States, but little if any variation exists. eRealty was a licensed brokerage and employed licensed agents.84 It provided the ability to search MLS data online to bona fide buyers who had registered for a password, monitored the MLS, and reported to its clients when any listing came up that fit a profile that the client had pre-established.85 In this way, the VOW model allows consumers to substitute their search effort for that of a broker: eRealty also would "communicate instantly through email or any device [clients] needed to assist [them] with scheduling of appointments and the whole scheduling of the transaction all the way through to close. Report Anticompetitive Conduct After a Natural Disaster, Deputy Assistant Attorney General for Economic Analysis, Deputy Assistant Attorney General for Criminal Enforcement, Deputy Assistant Attorney General for International, Policy and Appellate Matters, Deputy Assistant Attorney General for Civil Enforcement, Competitive Effects of Minimum-Service Requirements. Similarly, at a recent Congressional hearing on competition in the real estate brokerage industry, Representative Baker analogized minimum-service laws and regulations to requiring a consumer to have his or her entire house painted when he or she only wanted the porch painted. Sirmans & Geoffrey K. Turnbull, Brokerage Pricing under Competition, 41 JOURNAL OF URBAN ECONOMICS 102 (1997). See, e.g., Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1579-80 (11th Cir. Many brokers market listings online through their own websites and give their MLSs permission to place their listings on Realtor.com.102 Consumers can view these listings before contacting or forming a relationship with a particular broker. Further, NAR membership is required for all agents and brokers that belong to the vast majority of MLSs in the United States. "185 Consistent with this observation, none of the Workshop participants or commenters provided data on commission rates or fees.186 To our knowledge, REAL Trends is the only source that publishes commission rate data. at 233-46. See Nadel, supra note 25 at 23. Where steering behavior appears to be merely the result of a single firm's unilateral decision not to cooperate with a particular competitor, the Agencies have not pursued enforcement actions. Structural Features of the Real Estate Brokerage Industry. A form of alternative dispute resolution whereby a neutral third party listens to each party's position and makes a final decision. cooperating broker Definition | Law Insider The Real Estate Board of New York has guidelines on broker ethics especially as it relates to the commission fee. 314. Even with the significant amount of information currently available on the Internet, there may be gaps in knowledge by some consumers in several important areas that may result in real estate brokerage markets functioning less efficiently. In particular, in light of the evidence presented above regarding the relatively limited competition among traditional brokers on the price dimension, innovators should not be discouraged by industry policies or government regulations from offering more flexible commission rates. We do not have an answer to this puzzle."). at 55 ("[I]t's not surprising to me that we observe non-price competition if, in fact, there isn't a lot of price competition." 321. Founded as the National Association of Real Estate Exchanges in 1908. 302. He anticipated that some firms would specialize in specific parts of real estate transactions allowing consumers to choose what fits their needs. "A subagent is a cooperating agent who works for a listing broker-salesperson in the sale of a property. The only exception to this is in the case of the appointment of designated agents, as outlined in paragraph 10. 47. A cooperating broker is a broker who is not the listing broker. Now more than ever, it is critical for REALTORS across America to come together and speak with one voice. NAR 2005 SURVEY, supra note 38, at 29. A 1983 FTC Staff Report on the real estate brokerage industry observed that "the nearly universal opinion is that there are no significant barriers to entry, if entry is construed as gaining a license in order to practice. Use the data to improve your business through knowledge of the latest trends and statistics. Any superceding offer of compensation must be expressed as either a percentage of the gross sales price or as a flat dollar amount. "); Bourgoin, Public Comment 30 at 1 ("[T]he FTC did a study which was completed and published in 1983. Stay informed on the most important real estate business news and business specialty updates. This contract often specifies the commission the homeowner will pay the listing broker if the home is sold within a specified period of time, how the home is to be listed in the MLS, and, as discussed below, the share of the commission to be offered by the listing broker to a so-called "cooperating broker," who works with the buyer.19 The listing broker typically markets the home, both within his or her brokerage firm and to other brokers in the community, by uploading the listing data, including the offer of compensation to cooperating brokers, into the MLS database so that the information can be disseminated to cooperating brokers, who in turn can inform potential buyers of the listing. 218. at 101 (noting that several types of business models operate under the Century 21 franchise). . 201. 187, 187 (2001) ("A number of studies have argued that the uniformity of the commission rate across different properties and regions is an indication of collusive behavior. See, e.g., GAO REPORT, GAO-03-749, Airline Ticketing: Impact of Changes in the Airline Ticket Distribution Industry (July 2003) (discussing how Internet distribution lowered transaction costs in the sale of airline tickets), available at http://www.gao.gov/new.items/d03749.pdf; GAO REPORT, GAO/GGD-00- 43, Online Trading: Better Investor Protection Information Needed on Broker's Web Sites (May 2000) (discussing how Internet brokerages charge far less commission per trade on securities), available at http://www.gao.gov/new.items/gg00043.pdf. What is split Agency? "); Hsieh, Tr. 29. Based on the 1992 median price, home sales price indices from the Office of Federal Housing Enterprise Oversight (see http://www.ofheo.gov/HPI.asp) imply median home sales prices of $71,920 in 1985, $63,620 in 1989, and $73,600 in 1992. The source of listings for many of these advertising websites is the MLS. A home seller may consider any number of brokers before choosing one with whom to list the home, but NAR's 2006 industry survey notes that the majority of sellers contact only one listing broker.18 Once the seller has selected a listing broker, they enter into a contractual relationship called a "listing agreement" by which the broker agrees to market and sell the home in exchange for a set fee, typically in the form of a percentage commission. The sample data (provided by a local MLS) consisted of 15,608 single-family home sales in the Baton Rouge, Louisiana metropolitan area from 1985 through 1992.210 Similar to the two studies described above, the authors found that the listing broker commission rate varied statistically significantly with a variety of home characteristics.211 For example, commission rates declined, albeit at a decreasing rate, with the list price of the home.212 However, despite a lower commission rate, the authors' estimates showed that the actual commission fee paid rose with housing prices. Reg. 25. "315, Additionally, in October 2006, the FTC charged two more MLSs MiRealSource, Inc. and Realcomp II Ltd. with illegally restraining competition by limiting consumers' ability to obtain low-cost real estate brokerage services. A-00-CA-154 JN, 2000 WL 34239114, at *4 (W.D. 2 of the MLS antitrust compliance policy. 176. Id. See Lewis, Tr. For example, the FTC sued to prevent MLSs from discriminating as to the listings that are made available on the Internet, and DOJ sued to prevent NAR from establishing rules against VOWs that limit the ability of a broker's client to see via the Internet all the listing information formerly screened by the broker. 54. Growth in home prices was relatively flat through most of the 1990s and real commission fees did not surpass their 1991 levels until 2002. at 225-26. See, e.g., Massachusetts Bd. Since cooperating brokers do not directly participate in negotiating listing contracts, rebates offer a way for them to compete on price.164. 100. Id. 191. And by returning money to home buyers, rebates can also benefit home sellers, because buyers will have more to spend on the home as opposed to commission payments. Hsieh, Tr. As one panelist reported, it is common for a listing broker to offer 50 percent of his or her commission to a broker who provides a buyer who closes on the home, although this percentage may vary according to market conditions; in slow markets, a listing broker may offer higher compensation to attract scarce buyers, and this may be reversed in a hot market.27 Differences in offers of compensation may also arise based on local norms for historical reasons.28, The legal relationship between the buyer and the cooperating broker varies from state to state and has changed over time. at 14. In addition to the MLS-only package, many fee-for-service brokers offer other services. Another type of restraint that is likely to reduce competition and consumer choice in real estate brokerage-related services is overly broad licensing requirements, particularly those applicable to firms that advertise FSBO homes. 221. Several companies offer services to help FSBO sellers. Multiple listing services may, as a matter of local discretion, allow participants to offer cooperative compensation as a percentage of the net sales price, with net sales price defined as the gross sales price minus buyer upgrades (new construction) and seller concessions (as defined by the MLS unless otherwise defined by state law or regulation). Illustrative of the continued changes is a court's description of a local MLS as it progressed from distribution of an index card for each property listing to computerized downloads of digitized photographs. See Lawrence J. See, e.g., Kunz, Tr. See H.B. 213, 217 (2005) (contending that brokers provide value in three areas information intermediation, process knowledge, and social capital in supporting closing needs of buyers and sellers and that even though an online MLS gives buyers greater access to relevant information, most buyers will still need assistance in making sense of this information). The resistance of some traditional brokers to dealing with firms that more fully or innovatively use the Internet is one factor that could limit realization of the Internet's full potential.127 Restrictions on the availability of real estate listing information can also limit the economic benefits that Internet use provides.128. See FEDERAL TRADE COMMISSION, THE RESIDENTIAL REAL ESTATE AND BROKERAGE INDUSTRY: LOS ANGELES REGIONAL OFFICE STAFF REPORT VOLUMES I AND II AND THE BUTTERS REPORT 9 (1983) [hereinafter 1983 FTC STAFF REPORT], available at http://www.ftc.gov/bc/realestate/workshop/index.htm. Some states protect parties' interests in this situation through "designated agency," under which different agents within the brokerage firm are "designated" separately to represent the buyer's and seller's interests in the transaction. Real estate brokers compete to attract customers in different ways based on price and non-price dimensions. 5 (American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Working Paper 05-11, 2005) [hereinafter AEI-Brookings Paper]; GAO, REAL ESTATE BROKERAGE: FACTORS THAT MAY AFFECT PRICE COMPETITION (GAO-05-947) 15 n.33 (2005) [hereinafter GAO REPORT]. at 154. 329. 65. No. But with more and more agents competing to close transactions, the average number of transactions per agent will decline. Thus, it possesses sufficient market power to restrain competition. In 2006, the FTC charged six different MLSs the Austin Board of Realtors, Information and Real Estate Services, LLC, Northern New England Real Estate Network, Inc., Williamsburg Area Association of Realtors, Inc., Realtors Association of Northeast Wisconsin, Inc., and Monmouth County Association of Realtors, Inc. with violating Section 5 of the FTC Act by adopting MLS rules that limit the publication and marketing on the Internet of certain sellers' homes, but not others, based solely on the terms of their respective listing contracts.312 The FTC obtained consent agreements with all six MLSs. . Id. Olazabal notes that the subagency regime was not a creature of state law, but rather was a result of most MLSs permitting listing brokers to split commissions only with cooperating agents who agreed to be a subagent of the seller. NARs operating values, long-term goals, and DEI strategic plan. The final part of the Report offers conclusions and recommendations. The growing popularity of some of these new business models is likely linked to consumers' increasing use of, and comfort with, the Internet. where the REALTOR is an agent oder subagent, the obligations of a fiduciary. 128. MLS-only packages are packages where, for a flat fee, the fee-for-service broker agrees to list the seller's home on the MLS by making a unilateral offer of compensation and cooperation to all of the other brokers within the MLS. 67. NAR, Public Comment 208, at 6 ("In a few markets, some firms may have a larger than usual market share, but market shares are known to change measurably from one year to the next."). The primary evidence presented is the near-uniformity of commission rates in a given market. The exact requirements vary by state."). See, e.g., JustRealEstate.org, http://www.justrealestate.org (last visited April 20, 2007). . Id. See Rutherford et al., supra note 16, at 629 ("Given that the agent receives a small portion of the transaction price as commission, the agent's goal of maximizing the expected commission may diverge from the seller's goal of maximizing the selling price. at 237. Commission/Cooperative Compensation Offers, Section 1: Information at 160- 61 (although the Internet provides useful information to buyers and sellers of real estate, by the time properties are advertised on the Internet, they may be gone already; thus, the MLS is crucial). The MLS allows broker- members to search and filter homes based on detailed criteria, including property and neighborhood information, offers made on the home, prior sales history, and days on the market.44 In addition to the database of currently available homes, an MLS maintains a database of homes sold through the MLS. 205. The referral website may then rebate a portion of its referral fee to the consumer, if state law or regulations do not prohibit rebates. at 149 (listing several features of real estate websites, including property photos, virtual tours, rich text, mapping functionality, and neighborhood information); Sambrotto, Tr. Weicher's calculations use average home sales prices, not median home sales prices. 308. For more on types of rebates offered in Kentucky and nationwide, see, e.g., Mariwyn Evans, Law: Consumer Rebates, REALTOR MAGAZINE ONLINE (Jan. 1, 2006), available at http://www.realtor.org/rmoprint.nsf/pages/lawjan06; Jessica Swesey, Internet stock brokerage pioneers enter online real estate, INMAN NEWS (Apr. Because cooperating brokers typically receive 50 percent of the overall commission, a broker who returns half of his or her commission to the client provides a 25 percent discount on the overall commission payment; rebating one-third provides approximately a 16 percent discount. "223 Hsieh estimated the social waste resulting from such excess entry for the year 1990 the latest year of their analysis at between $1.1 and $8.2 billion.224, Hsieh's observations using earlier data are consistent with other reported market conditions. According to a Workshop panelist, there are approximately 98,000 brokerage firms operating over 200,000 local offices in the United States.143 These offices provide potential employment for approximately 2.5 million real estate licensees (of which more than 1.2 million are members of NAR).144 In 2004, 96 percent of brokerage offices in the United States employed ten or fewer agents.145 From 1983 to 1999, the portion of brokerage offices with five or fewer agents increased from 51 percent to 60 percent.146 In contrast, the portion of offices with a sales force of more than 50 agents never exceeded 5 percent during that time period.147, There is conflicting information regarding the percentage of home sales nationwide accounted for by the largest real estate firms.

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