QUESTIONS AND ANSWERS CONCERNING COMPETITION IN THE REAL ESTATE MARKET

Why should customers care about real estate brokerage sector competition?

The purchase or sale of a home is the single greatest financial transaction that the majority of Americans will ever undertake in their lifetimes. 

What are the services provided by typical full-service brokers?

Traditionally, real estate brokers handled almost all aspects of home buying and selling, including:

  • Marketing the home.
  • Reviewing contracts.
  • Dealing with prospective house buyers and sellers.
  • Finding suitable houses for prospective buyers.
  • Organizing property inspections for interested buyers.
  • Providing relevant information about a neighborhood to prospective buyers and sellers, such as relative property values, most recent selling prices, and property taxes.
  • Evaluating potential buyers of financing alternatives.
  • Assisting in the creation and negotiation of offers, counter-offers, and acceptances.
  • Assisting with the transaction's closing.

Real estate brokers typically charge a single fee (the commission) that ranges from 5% to 6% of the home's sales price.

What other choices do customers have?

Fee-for-Service Contracts

Brokers ready to sell a subset of real estate brokerage services, sometimes known as fee-for-service brokers, have proliferated across the country. Fee-for-service brokers "unbundle" the package of real estate services typically provided by traditional full-service brokers and charge a flat or hourly fee for specific services such as listing the home in the MLS, negotiating or closing contracts, and pricing the home. These brokerage models generally allow consumers to save thousands of dollars by allowing them to buy only the services they require.

Rebates and Inducements

Some real estate brokers are increasingly competing for customers by providing cash rebates or other incentives to home buyers and sellers. Direct rebates to buyers or sellers reduce costs on both sides of the transaction. Cash rebates are typically calculated as a percentage of the broker's commission and can result in the consumer receiving thousands of dollars back.

Is it permissible for a real estate agent to rebate a portion of the agent's commission to the borrower? If this is the case, how should the rebate appear on the HUD-1?

Yes, real estate brokers may rebate a portion of their commission to the borrower in a real estate transaction, according to HUD. The refund must be reported as a credit on page 1 of the HUD-1 in Lines 204-209, along with the name of the party providing the credit. Commission rebates to borrowers by real estate agents or brokers do not violate Section 8 of RESPA as long as no part of the commission refund is related to a recommendation of business.

Why would some customers choose to use a fee-for-service broker?

Most buyers want to make as much money as possible on the sale of their home and spend as little as possible when buying a home. In many cases, the standard broker's commission can offset a portion of a seller's equity value or push the price of a home beyond a buyer's purchasing power. Consumers who want to perform some of the steps involved in selling a home can save money by purchasing only the real estate brokerage services they require. Just as the Internet has enabled consumers to save money by purchasing plane tickets and stocks directly, it is now enabling home sellers and buyers to do more of the work themselves and pocket the savings.

How do minimum service requirements work?

Minimum service provisions are laws or regulations that specify the services that a consumer must purchase when contracting with a real estate broker. They accomplish this by requiring real estate brokers to provide a package of services, regardless of whether the consumer wishes to purchase all of them. Brokers cannot agree to provide less than the required services in states with such provisions. While many consumers prefer to purchase all of the services that these provisions require a broker to provide, others prefer to save money by performing some of the services themselves.

What are the consequences of minimum service provisions for consumers?

Consumers are harmed in two ways by minimum service provisions.

  • For starters, they limit consumer choice by compelling them to acquire real estate services they may not want.
  • Second, they frequently induce brokers who previously provided less than the mandated package to add more services and demand greater rates.

There has been no evidence presented to the Antitrust Division indicating that minimum-service laws benefit consumers.

What are the consequences of rebate bans for consumers?

Rebate prohibitions unfairly raise the cost of real estate services. Consumers are being forced to pay thousands of dollars more for a home than they would if refunds were permitted. Rebate bans effectively prohibit brokers from competing on price, forcing all brokers to charge—and all consumers to pay—the same inflated price.

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