Competition in the Real Estate Brokerage Industry - #5

In Section C, the DOJ/FTC report describes alternative nontraditional real estate brokerage business models. The first is the "Full Service Discount Broker." There's not a lot of explanation necessary for this model, as it basically offers all the traditional services of brokerage at a price below an area's "prevailing rate." The specific example used is a commission of 3 to 4 percent in an area where the prevailing rate is 6 to 7 percent.

Discussion of rebates is a significant portion of this item. Here's a quote: "Rebates are an important form of price competition under the traditional structure of real estate transactions because the seller and seller’s broker, not the buyer’s broker, determine the amount of the buyer’s broker’s commission via the listing agreement. Without rebates, if the buyer’s broker were simply to reduce his or her commission, the savings would go to the seller’s broker, not to the home buyer." This is reinforced again with this: "Rebates, therefore, can be powerful tools for price competition between brokers."

As we'll see elsewhere in the report, this is important language. There are states that have made rebates to home buyers illegal. This report makes it clear that the DOJ and FTC consider these laws harmful to consumers.

Entire series: #1, #2, #3, #4, #5, #6, #7, #8, #9, #10, #11, #12, #13, #14, #15, #16, #17, #18, #19 & final