Justice Dept. comes down full force on the real estate industry
Monday, September 12, 2005
By Jessica Swesey
The Justice Department’s lawsuit against the National Association of real estate agents filed Thursday is the latest in an antitrust attack that’s taking place at multiple levels. The basic fundamentals of the industry are being questioned for alleged anti-competitive practices.
The Justice Department’s concerns started with its investigation of NAR’s policies for Internet listings two years ago. Until Thursday, the agency was quiet about what it found in its investigation and what action would be taken.
Since the initial investigation opened in fall of 2003, the Justice Department has ramped up action relating to alleged anti-competitive behavior within the real estate industry. In the last year, the agency has warned legislators and policy makers in Oklahoma, Texas and Alabama, among other states, not to pass rules or legislation they say could restrict competition and harm some business models.
More than one dozen states have proposed or passed legislation that typically requires brokers to accept and present all offers and counteroffers to their clients and answer any questions their clients have. In addition, real estate regulators in several states have adopted similar rules to establish new service requirements for real estate brokers.
Alabama, Delaware, Illinois, Iowa, Kansas, Maine, Michigan, Missouri, Oklahoma, Texas, Utah and Wisconsin have taken action or considering new rules or laws.
The impetus for these new policies often comes from Realtor® associations that in several states have made the issue a top legislative priority. The Justice Department and the Federal Trade Commission have argued that such rules could unfairly limit competition, and the agencies in a handful of states have warned officials not to pass the measures.
Proponents of the so-called limited-service or minimum-service measures argue that they aim to protect consumers who may not understand that they are not being fully represented by a limited-service broker. But opponents argue there is no evidence of consumer complaints and that the measures serve only to make it more difficult for discount real estate business models to succeed.
While the National Association of Realtors® has not formally endorsed these efforts by state Realtor® associations to pass similar minimum-service laws, the association has provided legal advice about such laws and has not discouraged the associations from pursuing the laws.
The Justice Department this year also has been involved in getting anti-rebate laws lifted in a couple of states. In March, the agency filed an antitrust lawsuit against the Kentucky Real Estate Commission over its anti-rebate rule for real estate transactions, which forbids agents and brokers to give back a portion of their sales commission to buyers and sellers. The commission in July agreed to scrap its rebate restrictions to settle the lawsuit
Also this year, the South Dakota Real Estate Commission lifted its ban on rebates for real estate services. The Justice Department notified commission officials in early June that it was investigating the state’s rebate policies, and the commission acted later that month to nullify its earlier rulings on rebates.
Several other states maintain a ban on real estate rebates, including Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, Oklahoma, Rhode Island, South Carolina and West Virginia.
The Justice Department has said that regulations prohibiting inducements restrict competition and cause consumers to pay higher prices for certain real estate services.
The Justice Department is not alone in cracking the antitrust whip at real estate. Rep. Michael Oxley, R-Ohio, chairman of the U.S. House Committee on Financial Services, in March called for a federal investigation of price competition for real estate brokerage services.
Oxley’s latest probe also follows a request he made last November for the General Accounting Office to look into how the real estate industry is evolving as a result of e-commerce, what barriers it may have created and how consumers and real estate professionals are affected.