"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."
Adam Smith
The Wealth of Nations
I have been so busy in the last few weeks that I haven't been browsing the Active Rain Blogs as religiously as I used to. Because of my hiatus, I am not really sure if anybody has addressed this yet, there may have been somebody brave enough to touch it, but then again, this might be something a lot of people in the Real Estate industry might prefer gets swept under the rug. I know the media has been ultra-quiet about it. Because of the length, a lot of people will never read this, and I hope they won't because it will save me time from all the people who take everything I say as some kind of a personal assault all the time. All I ever really aim to do is create intense and intelligent debate. You all know me though...I never was afraid to put myself out there.
On October 16, 2006 I read a very interesting article in the Wall Street Journal's online Real Estate Section, entitled "Real Estate Services Face FTC complaint on Web Policy." Now I am sure most Realtors are far more up-to date on info like this than I am, because of the NAR and other local trade groups keep them in-the-know about these kinds of things. In fact I think my favorite Realtor Maureen Francis at the mioaklandcountyblog gets regular updates as most of you probably do. Maureen has even posted about it on her blog, but the average consumer really should know more about what is going on in our business. When I read this article I have to say I wasn't the least bit shocked, and being from the Metro-Detroit area and working in the Real Estate Industry I was interested to say the least.
It seems The Federal Trade Commission accused two local Detroit area (MLS) multiple listing services of restraining competition by discriminating against a type of service commonly known as "discount real-estate brokers." The two Michigan MLS operators charged by the FTC are Realcomp II Ltd. and MIRealSource Inc. Since I started writing this monstrosity of a post, one of the two MLS providers, MIRealSource has already settled with the FTC, but the fall-out from this new movement isn't going away anytime soon. The FTC has already reached consent agreements with MLS services operating in other states, including Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, to discontinue use of the policies in question. The FTC claims that the various MLS services owned and operated by the Real Estate Brokers are intended to block the listings of certain homes for sale from being displayed on Realtor.com and other web sites often used by consumers to search for homes. The listings that are blocked from reaching consumers are typically the listings of homes for sale that are being offered by certain "discount real-estate brokers."
The far reaching implications of these proceedings in the real estate industry are everywhere and promise not to be going away anytime soon. Just look at the Law suit the government has brought against the standard oil company, I mean the National Association of Realtors. Peter Coy over at Business Week's Hot Property Blog, posted back on November 30th that: "There was big news this week in the government's antitrust case against the National Association of Realtors, but the press missed it. The news is that a federal court in Chicago on Nov. 27 allowed the Department of Justice's antitrust suit against the Realtors to proceed. The DOJ argues that the Realtors' rules illegally limit competition from brokers who use the Internet." "Consumers who work with brokers that operate Discounted Real Estate Service Brokerages are better able to educate themselves about available properties that may meet their requirements. By working with a discount broker, customers can search the database of local property listings on their own, using their home computers to obtain the same information other brokers provide by less convenient means, such as by hand at their office or via fax, mail or e-mail. Because these alternative service providers enable consumers to research and learn about the marketplace at their own pace and on their own time, brokers who provide this service can, in turn, lower their costs by reducing the time that their agents spend searching the Multiple Listing Service (MLS) database or showing homes the customer dislikes, the Department alleged. Because the Internet can be used to deliver brokerage services more efficiently resulting in better service and lower prices to consumers brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department said."
What has been the NAR's response to this festering, expanding mess? A revised policy. The policy, approved by directors of the NAR at the convention in New Orleans, involves information about homes that real-estate brokers get from their local MLS for their individual websites. "The revised policy states that brokers must use "objective criteria" if they screen out some listings. The criteria could include location, type of property, compensation offered for agents who find a buyer, or the level of service provided by the listing company. Thus, listings from brokers providing limited service for lower fees could be excluded from other brokers' sites...By contrast; the policy now states that multiple-listing services must make all types of listings available to the Web sites of participating brokers. It would be up to brokers -- not the MLS -- to decide which listings are used on individual brokers' sites." This is the NAR's response, to take a step back and tell the justice department and the FTC," hey. As a group we no-longer are encouraging unfair trade practices, we are now leaving it up to our individual members, and if they want to restrict competition and ultimately hurt the American consumer, well that is up to them on an individual level.
It is a widely documented fact that the majority of consumers begin their search for a new home on the internet. (Estimates indicate that something like 80% of new-homebuyers start looking online) By limiting or restricting what houses can actually be found on the internet, they can control what houses consumers see and therefore what houses they ultimately buy. Since the Real Estate Industry controls the primary means by which this information is shared, but then restricts any listings that are offered with a "discounted" commission, then we could have a major problem. A reasonable person might agree that the Real Estate industry is engaging in anything from a kind of ex-post-facto price fixing or other violations of the Sherman and Clayton Anti-Trust Acts. I am not quite sure that I agree with the FTC entirely, but more on that later.
The various multiple listing services are owned and operated by the local area Real Estate Brokerages. While these MLS systems claim to have a right to set up rules that are favorable to the interests of the brokers who operate and own the systems, The FTC maintains that restrictions on certain listings deprive consumers of the right to save money by using limited-service brokers. While I agree that as privately owned and operate service, MLS providers do have the right to make rules that are favorable to the interests of the brokers who operate and own the systems, They need to understand that even though Craig's List and Google and Yahoo Real Estate, and other internet portals are tapping into the real estate realm, the majority of internet listings still come from the same place: Industry operated sites like Realtor.Com or the individual broker and Realtor sites in the smaller geographic areas. They therefore control the market, and have a responsibility to the consumer to not only make available all the listings within their databases, regardless of compensation offered, but to also make all listings available to all paying members of the MLS, regardless of what these members decide to charge for their own real estate services.
I think that with the NAR's new policies, in full swing, it will be much more difficult for the government to pin any anti-trust conspiracy on them, either illicit or tacit, but even though in my opinion their new policies mean they technically no longer will be violating any rules, I am not so sure the consumer will ultimately benefit. In my own industry, the mortgage industry, the bank I work for severely limits the amount of compensation I can make on a given loan, but there are still many brokerages nationwide that can make as much or as little as they want, provided the cost is disclosed. My industry has been turned-upside down though in the last 10 years with all of the "Internet based lenders" who offer the lowest rates around, discounted services, and flat fees for mortgages. Many clients decide to go there, and many still come back for my services, after they have a poor experience with a discount or online lender. They are usually unhappy, because the discounted fee is not worth the poor service they received. Every Realtor I know is an expert in their field and I would never work with them if they weren't. They are worth every penny they charge and I would never think twice about recommending them to any of my friends, family or clients. I guess what I am trying to say is this: There is room for many, many different business models in our market. Supply and demand and competition ultimately bring out the best of all possible outcomes for consumers...the best service possible for the best price, determined by the market, not by the individuals providing the goods and service. There is no reason to fear competition, if the demand for your service is that great, and you are worth the price you charge, then the consumer will forgo all other options and pay any price for it. I don't fear my competition, I am confident in the product and service I provide, and you shouldn't fear your's either.
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice."
--Adam Smith
The Wealth of Nations
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