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Real estate agents under fire...again
Justice Dept. charges the National Association of Realtors with anti-competitive practices.
September 13, 2005: 6:00 PM EDT
By Les Christie, CNN/Money staff writer
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New York (CNN/Money) - Are home buyers any closer to actually saving money on commissions?

The Department of Justice last week sued the National Association of Realtors over its "opt-out" policy -- the latest shot in an ongoing war to force competition in the real-estate industry, and one that could just maybe lead to a lowering of the standard 6 percent commission.

The opt-out policy allows NAR members to keep their real-estate listings from being broadly disseminated over the Internet.

Real-estate brokers regularly share information about listings. That enables them to put together buyers and sellers more efficiently. But if an agent opts out, it means that none of his listings can be displayed on other agents' Web sites. And he cannot list other agents' properties on his.

If a buyer begins his home search on the Web, he may never see some of the properties available. That, to the Justice Department, does a disservice to consumers. Buyers would have fewer homes to choose from. Sellers would have fewer buyers bidding for their properties.

Why would a broker want to opt out? After all, it's in the agent's best interest to have as many buyers as possible see (and bid on) a property, and the agent has a fiduciary responsibility to get the seller as high a price as the home can command.

NAR spokesman Peter Cook said that the opt-out policy is simply a way to provide good service -- many clients don't want their properties widely displayed on the Internet. Some of the wealthy and the famous wish to avoid publicity and some sellers have safety or security issues.

But critics, such as Bruce MacDonald, deputy attorney general in the antitrust division of the Justice Department, said this opt-out system is designed to "elbow out" Web-based competitors.

The issue is simple, according to one of these competitors, Manuel Iraola, who founded HomeKeys, a Florida-based Internet real estate marketer: "[Realtors] are thinking, 'How do we protect the 6 percent commission?'"

Past victories

This is not the first effort by the Justice Department to shake up the real-estate industry.

Previous victories for the government agency came in Kentucky, on July 13, when the state real-estate commission agreed to allow real-estate brokers to offer rebates, discounts and other inducements to consumers to win their business.

A similar agreement was reached in South Dakota this August. The Kentucky and South Dakota cases established the policy that brokers are allowed to lower their fees to drum up business.

It all threatens to chip away at the industry's longstanding way of doing business. If the Justice Department prevails, it could mean full-commission real-estate brokers would have to operate in a more competitive world in which low-cost innovators such as Internet-based marketers would claim greater share. In a more competitive marketplace, fees for the full-service brokers would almost certainly fall.

The savings could be substantial. The standard 6 percent commission on a $300,000 home works out to $18,000. If working with a discount broker becomes a more viable option, buyers and sellers could save half of that, if not more.

Clients choice

Colby Sambrotto, chief operating officer of ForSaleByOwner, said that full-service brokers shouldn't fight the future. Real-estate brokers may be wary of real-estate following the trend in some other industries, such as stock trading and travel booking where Internet business models creamed the old way of doing things.

But Sambrotto said the examples aren't exactly parallel. "You can't get around the fact that with real estate, you have a physical property," he said. "That keeps it rooted in local markets."

In other words, there should always be a need for local real-estate agents in place, on the ground, to take customers down that final road to new homeownership.

It's whether they'll still receive a 6 percent commission for doing it that may be in doubt.

For a look at the pros and cons of selling your home without a full-service broker, click here.

The impact of Hurricane Katrina is starting to be felt in real estate markets. Click here for more on that story.


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