Realtors Face U.S. Probe of Bylaw

By most measures, being a real estate agent these days has never been more lucrative. As home prices have skyrocketed, so have commissions.

But as agents seek to control their traditional way of doing business, the powerful trade group that represents more than 1 million of them is under federal investigation over whether it is trying to throttle competition from online rivals and discount brokerages.

The long-simmering dispute could come to a head this week when lawyers for the Justice Department and the National Assn. of Realtors meet in Washington. On Wednesday, the two sides are scheduled to discuss a pending trade group bylaw that would allow agents to withhold listings from online broker sites.

The bylaw, whose implementation has been postponed three times, is now supposed to take effect in July. But at the group’s midyear confab this week, brokers may vote to push back the rule’s start date yet again, said Steve Cook, the group’s spokesman.

“We have been in discussions for 18 months,” Cook said. “We have met with Justice Department officials before, and some of our members have been deposed.”

The Justice Department is “investigating the potential competitive impact of certain rules involving the display of residential real estate listing data over the Internet,” said department spokeswoman Gina Talamona. She declined to comment on a report in Monday’s Wall Street Journal that said antitrust officials were close to suing the Realtors group over the proposed bylaw, nor would she acknowledge that the group was the primary focus of the investigation.

In recent months, the federal government has stepped up scrutiny of potential anti-competitive real estate practices around the country.

The Justice Department and the Federal Trade Commission have objected to industry-backed proposed legislation in Oklahoma and Texas that appear to favor full-service agents and brokers at the expense of lower-fee, limited-service competitors. And last month, federal prosecutors sued the Kentucky Real Estate Commission when it sought to ban rebates by real estate firms to their customers.

Growing competition from discount and online brokers has roiled the tradition-bound home-selling business. It has long relied on a model in which property information has been tightly controlled and fees, while negotiable, have typically amounted to 5% to 6% of a home’s sales price, regardless of the length of time it takes to sell.

But the Internet is rapidly changing the nature of the customer-agent relationship. What had been an agent-controlled transaction has become one in which buyers and sellers often come armed with market research and other information gleaned from the Web -- not from an agent -- and they expect better service for fees rendered.

For agents, a lot is at stake. They reaped an estimated $61 billion in commissions last year, according to Real Trends, a Littleton, Colo.-based industry newsletter. That was up from $42 billion in 2000.

It’s a trend that already has swept through the travel and securities trading industries, said Steve Murray, editor of Real Trends. At first, traditional operators resisted the changes unleashed by the Internet, only later to see their benefits.

“This industry is not unlike others where their first instinct is to try to erect protective walls and barriers,” he said. “That’s the natural instinct by businesspeople to want to do that.”

Murray contends that by 2010, 12% to 14% of the home-selling industry will be controlled by “alternative” brokerages, such as those that offer lower rates or operate exclusively online.

Instead of standing in their way, Murray and other like-minded industry participants have devised a plan that addresses the changing nature of the business and how best to serve customers. In a 50-page “white paper” released Monday, the Real Estate Standards Institute calls on traditional agents and brokers to adopt uniform standards for conducting business.

“Standards are a way to boost value,” Murray said. “To get higher prices requires you to do more work, not less.”

One company that is hoping federal regulators will prevent trade group members from limiting online competition is ZipRealty Inc. The business model of the Emeryville, Calif.-based Internet brokerage is based in large part on giving its customers access to the multiple-listing service data, while also giving sellers rebates on their costs. The data are a compilation of information from broker-members on homes for sale in a given area and for decades was not available to anyone but real estate agents.

“We believe that the lack of transparency is what consumers have disliked about this industry for a long time,” said Patrick Lashinsky, ZipRealty’s vice president of marketing.

He said his company had been contacted by Justice Department officials and had “responded to their requests.”

Laurie Janik, general counsel for the trade group, said vigorous competition already existed within the industry. In an interview on CNBC on Monday, she said the proposed rule had “nothing to do with discounters” but rather about the listing broker’s decision on how best to market a particular home.

The broker, she said, shouldn’t have to be forced to make his or her listings “available to everyone.”