Op-Ed

Commission Accomplished

Robert E. Litan

As the housing market cools, buyers and sellers should be more sensitive than ever to the real estate brokerage fees they pay. Although average commissions have fallen over the last decade, the typical seller pays more than 5 percent of the sales price in broker fees, which for many middle-class families will easily exceed $15,000.

The industry is doing its to best to hang onto its revenues, which hit roughly $61 billion in 2004, in the face of growing competition from discount and online brokers. At the urging of traditional local brokers, states have passed statutes preventing the use of customer rebates and outlawing cut-rate, limited-service packages, which many home sellers would rather have.

Now such protectionist tactics are beginning to attract the government’s attention. In late 2005, the Justice Department sued the National Association of Realtors for orchestrating a conspiracy enabling brokers to withhold their listings from other brokers’ Web sites. And next month, hearings on the changing real estate market will be held by the House Financial Services Committee, whose chairman, Representative Michael G. Oxley, Republican of Ohio, has criticized anticompetitive practices.

But if Congress wants a more competitive real estate market, it should start by rectifying the industry’s fundamental problem: brokers themselves set the market’s rules, with no effective oversight to protect home buyers and sellers.

A comparison with our securities markets is instructive. Ask E*Trade what I.B.M.’s stock sells for and you are likely to get the same information as if you made the request of a Merrill Lynch broker. The markets are transparent and efficient, and transaction costs are low. Some discount securities brokers now charge $7 for trades that in the early 1970’s would have cost hundreds or thousands.

But if you want to sell or buy a house, you generally need to go through multiple listing services, the exchanges that are to houses what the New York Stock Exchange and Nasdaq are to stocks. The more than 800 multiple listing services nationwide are typically operated by the dominant local brokers in a given city under rules set by the National Association of Realtors. Each is run separately. If you don’t go through a licensed Realtor in that city, you don’t get access to the listings.

An even more important contrast is how the two “markets” are supervised. The Securities and Exchange Commission, state regulators and an independent industry body (the National Association of Securities Dealers) oversee the securities markets. But there is no state or federal oversight of the listing services — the industry association runs the show.

Although the National Association of Realtors might claim to represent the interests of home sellers and buyers, it clearly looks out for its 1.3 million members. It operates one of the most powerful political action committees in the country. It also earns licensing fees from and sits on the board of Homestore, which operates the dominant home listings Web site, www.realtor.com. At the same time, the association sets the industry rules that govern — or impair — other brokers’ online activities.

Congress should fix this clear structural conflict of interest by empowering the Federal Trade Commission, with its statutory mandate to protect consumers, to oversee the National Association of Realtors. The enabling legislation also should instruct the commission to ensure that real estate markets are competitive.

For starters, this legislation should make clear that multiple listing services must provide all properly licensed brokers access to the marketplace on equal terms. Moreover, while individual states are the primary regulators of real estate markets, this legislation should enable the Federal Trade Commission to monitor and pre-empt laws that are intended more to protect Realtors from new competition than to protect consumers from possible abuses by discount real estate agents.

Like a stock exchange, multiple listing services make markets more efficient, but only if they don’t discourage entry by new competitors. As Arthur Levitt, the former chairman of the Securities and Exchange Commission, once put it: “Markets of fairness, markets of integrity and markets of quality should not be the most investors hope for — but the very least they should expect.” Homeowners, and aspiring homeowners, deserve the same.

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