Hardly Matters in Cincinnati

new_york_times:http://www.nytimes.com/2008/05/28/business/28realty.html

By ERIC LICHTBLAU
Published: May 28, 2008
WASHINGTON — The Justice Department and the National Association of Realtors reached a major antitrust settlement Tuesday that government officials said should spur competition among brokers and ultimately bring down hefty sales commissions.
The deal frees Internet brokers and other real-estate agents offering heavily discounted commissions to operate on a level playing field with traditional brokers by using the multiple listing services that are the lifeblood of the industry, government officials said.
The Justice Department sued the National Association of Realtors in federal court in 2005 on antitrust grounds, charging that its policies were stifling competition and hurting consumers. That case was scheduled to go to trial in Chicago in July.
The settlement “is a win for consumers, certainly, who will now have the benefit of unrestricted competition,” Deborah A. Garza, deputy assistant attorney general for antitrust, said in an interview. “There inevitably will be more efficiency and more competition in the market.”
Real estate agents earned $93 billion in commissions in 2006, with a median commission of about $11,600, Justice Department officials said. Internet brokers, offering pared-down services, provided average rebates of 1 percent on commissions that normally ran 5 or 6 percent, translating into thousands of dollars per sale.
Consumer advocates hailed the settlement as an important and somewhat surprising step by the Bush administration, which has staked out a position on many antitrust issues seen as favorable to business interests.
“I was very pleasantly surprised,” said Stephen Brobeck, executive director of the Consumer Federation of America, which tracked the case. “Given the reluctance of anyone in Washington before the Justice Department to improve competition in the real-estate industry, this settlement represents a milestone.”
The National Association of Realtors, with more than 1.2 million members, said that the settlement was “a win-win” for both the real estate industry and consumers. It noted that the association admitted no wrongdoing and paid no fines or damages as part of the deal.
Laurie Janik, the association’s general counsel, said in a telephone interview that the settlement would have no real impact on home buyers or sellers.
“I don’t think they’ll see anything different,” she said. “This lawsuit never had anything to do with commission rates, or discount brokerages.”
She added that the lawsuit and the settlement arose from misunderstandings about the way the Realtors’ association works. “This was a five-year education of the Department of Justice, unfortunately, and the real estate industry had to pay for that education,” she said.
Since the 1990s, online real estate brokers have offered a popular and cheaper alternative to the bricks-and-mortar variety. But such brokers, known in the industry as “virtual office Web sites,” complain that the industry’s practices have denied them the chance to make full use of the multiple listing services to determine what homes are for sale.
The agreement between the Justice Department and the Realtors’ association must be approved by a federal judge, probably this summer. As now structured, the deal bans the Realtors’ association from treating online brokers as different from traditional brokers or discriminating against them, and it ensures that they will not be excluded from membership in the listing service based on their business model.
In one instance, the Justice Department said an unnamed online broker was forced to shut down its Web site because all the traditional brokers on the local listing service, in response to the national association’s policy, had withheld their listings from the online broker.
After the Justice Department sued the Realtors’ association in 2005, the group suspended the exclusionary policy. Officials said the settlement would ensure that online brokers are given full access and that its policies are made uniform.
“For us, it’s a great result,” said Pat Lashinsky, chief executive of ZipRealty in Emeryville, Calif., which offers online users rebates of up to 20 percent off standard sales commissions. “We think it’s a great result for consumers.”
Norman Hawker, a business professor at Western Michigan University who organized a symposium on the Justice Department litigation as a senior fellow for the American Antitrust Institute, predicted that the settlement would ultimately mean a drop in sales commissions of 25 percent to 50 percent as a result of increased competition.
“It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models,” including discounted fees and virtual offices on the Internet, he said. “There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.”