Realtors Raise Pressure On Discounters
Traditional Brokers Chalk Up Local Victories on Access
To Web Listings, Service Requirements
By JAMES R. HAGERTY
Staff Reporter of THE WALL STREET JOURNAL
July 18, 2005; Page A2
Realtors have taken some knocks lately in Washington, where antitrust officials accuse them of trying to stifle cut-rate competition. At the state and local level, though, real-estate trade groups are fighting back -- and in many instances prevailing.
At issue is the proliferation of discounters offering lower fees on home sales than do traditional broker firms. In the past year or so, half a dozen states have imposed laws that require real-estate brokers to offer a minimum level of services, whether customers want to pay for them or not. Such hurdles could undercut the discounters' business model.
In a further blow, some local Realtor groups are imposing rules that make it harder for discounters to get their listings on national and regional Web sites. Even some discounters' advertising claims have come under attack.
The recent surge in home prices has prompted more consumers to question the full-service brokers' charges, since rising house costs have inflated the dollar amount of the traditional 6% or so sales commission. The stakes are high: Commissions on U.S. home sales total more than $60 billion a year, says Real Trends, an industry publication. "It's a pitched battle" between cut-price upstarts and traditional brokers trying to convince consumers their services are worth 6%, says Bruce Hahn, president of the American Homeowners Grassroots Alliance, a consumer advocacy group in Arlington, Va.
Pressured by the Justice Department, the National Association of Realtors offered in May to revise proposed rules restricting Internet displays of data about homes for sale. Talks between the trade group and the department are continuing. Last week, the Kentucky Real Estate Commission agreed to settle a Justice Department suit by dropping rules that ban brokers from offering rebates, often used to attract customers by giving them back a slice of the commission.
Beyond that, the victories for discounters are few. In Missouri, Gov. Matt Blunt last week snubbed Justice Department officials who had publicly urged him to veto legislation that sets minimum service requirements for real-estate agents. "Ultimately, I care more about the unanimous opinion of the Missouri House and Senate than I do a federal agency," Mr. Blunt said at a news conference after signing the bill. The new law requires brokers with exclusive listing contracts to help their customers negotiate offers, among other things.
Minimum-service laws also have been enacted in Texas, Illinois, Oklahoma, Iowa and Utah. Realtor groups say the laws prevent irresponsible agents from failing to help customers complete a transaction. Discounters say consumers should have the option of paying less for bare-bones service.
To cover the added costs of meeting the new Texas law's demands, Aaron Farmer, the owner of Texas Discount Realty, which operates in Austin and other cities, raised his flat-fee price for listing a home to $595 from $495. He says it is too early to tell how customers will react to the higher price or how much more time he will need to spend on each sale to comply with the law.
Multiple-listings services are another battleground. An MLS is a local or regional company, typically owned or controlled by Realtors, that collects and distributes information on homes for sale. Across the country, scores of small real-estate brokerage firms -- such as Mr. Farmer's in Texas -- have popped up in recent years to cater to people who want to list their home in an MLS but sidestep large commissions. These discount firms offer an MLS listing and sometimes a limited range of other services, often for around $300 to $600.
MLS listings generally are made available to Realtor.com, the realty industry's main site, and other popular Web sites. Often, these arrangements between cut-rate brokers and sellers are made under "exclusive agency" contracts, which stipulate that if a seller finds a buyer without the help of the listing broker, the seller doesn't pay a commission.
Now, however, some MLS firms are ruling that "exclusive agency" listings can't be passed on to Realtor.com and some other popular sites open to the public. That makes the discount service much less appealing. MLS boards in cities including Austin, Indianapolis, Cleveland and Wilmington, N.C., have made such rules changes in the past year.
Glenn Wallace, the owner of a discounter called My Dog Tess, operating in the Raleigh-Durham, N.C., area, recently got word that the local MLS planned to follow suit. He and other discounters complained to Roy Cooper, the state's attorney general, saying the move would reduce competition. A spokeswoman for Mr. Cooper said his office is looking into the matter.
Deb Quaranta, president of the MLS in Wilmington, N.C., defends the crackdown. "The purpose of the MLS is to encourage cooperation between MLS participating brokers," she says. The MLS board found that exclusive agency listings were helping buyers go directly to sellers, cutting out brokers. "Having the buyers go directly to the seller does not advance cooperation between the brokers," Ms. Quaranta says.
Despite the Justice Department victory in Kentucky, rebates are causing additional industry tensions. Some Internet-based companies offer rebates or retail gift cards to consumers who use an agent recommended by those companies. One of the biggest of these referral services is LendingTree, a unit of Barry Diller's IAC/InterActiveCorp.
About 15 states ban or restrict rebates. Iowa's Legislature recently amended its real-estate laws to ban rebates involving referral services like Lending Tree. "We're going to get very aggressive about knocking them out of the state," says Martin Lee, chief executive of the Iowa Association of Realtors. Many Realtors don't want third parties such as LendingTree to grab a slice of the commission.
Now, traditional Realtors and discounters are beginning to trade punches over advertising claims. Realty Select Inc., a discounter in Lancaster, Pa., recently ran an ad estimating that traditional agents might earn $1,000 an hour for selling a $300,000 home at a standard commission. That ad and others like it prompted Coldwell Banker Homesale Services Group to file a complaint with the Lancaster County Association of Realtors, charging Select Realty with breaching the association's code of ethics. (Coldwell Banker is a franchise system owned by Cendant Corp., New York.)
The Coldwell complaint asserts that the ads are misleading and imply "our industry is trying to hoodwink the public." Ryan Hess, chief executive of the holding company for Realty Select, says he is contesting the complaint.
In April 2004, Corey Scholtka, the owner of BuyHomes.com LLC, a discounter in the Milwaukee area, ran an ad in Milwaukee Journal Sentinel claiming to have "revolutionized self-service." He says the newspaper's advertising staff told him the ad had caused an uproar among other brokers and refused to let him run additional ads in the same prominent position with a similar pitch.
A spokeswoman for the owner of the newspaper, Journal Communications Inc., said: "We don't comment on individual relationships with particular advertisers." |
