US studies realtors' rule on Net listings

Some industry practices possibly anticompetitive

By Kimberly Blanton, Globe Staff | May 10, 2005

At a time when Massachusetts real estate brokers face growing competition on the Internet, the federal government is investigating whether the brokerage industry is trying to restrict competition nationwide.

As part of a multipronged effort to promote the interests of home buyers and sellers, the Department of Justice confirmed yesterday that it is looking into unspecified industry practices. The Wall Street Journal reported the government is preparing to sue the National Association of Realtors for policies that "illegally restrict discounting of sales commissions" in home purchases and sales.

"We're investigating the potential competitive impact of certain rules involving the display of residential real estate listings data over the Internet," said Justice Department spokeswoman Gina Talamona. The NAR did not return calls seeking comment.

The federal investigation adds clout to efforts by alternative real estate services, available through the Internet, to develop their market share and help drive down commissions for buyers and sellers. Business is growing among services that list properties for a flat fee, brokers willing to rebate fees, and for-sale-by-owner services. That is largely due to the ability of consumers to access listings on the Net to help them gain more control of marketing their properties or buying houses.

The association policy at the center of the industry controversy would allow its members to withhold the houses they are listing from competitors who also want to show those listings online. Small rival services seeking to compete with major players said the policy would set up a closed system that could benefit the market's dominant players and shut small firms out.

"If NAR adopts the new policy, it will undermine the ability of alternative brokers to compete and save consumers millions a year in commissions," said William Wendel, owner of The Real Estate Cafe in Cambridge, which provides a variety of fee-based services.

There is little data on market share held by alternative services, but the turf battle between major players such as Coldwell Banker and Century 21 against upstart firms is clearly heating up. Nationwide, for example, about 14 percent of all homes sold are sold by the owner. But Massachusetts has been slow to adopt alternatives, with only 6 percent sold by owners.

Massachusetts home buyers and sellers may be turning to online and other alternatives in part because house prices have appreciated so much, specialists said. A fixed percentage on an expensive house drives up the total commission paid, prompting closer scrutiny by consumers.

Bill Jebb, who opened Jebb & Driggin Realty Inc. in January, said firms like his that cater exclusively to buyers are still fairly rare in Massachusetts. "Big companies," he said, "don't want this to change."

A new law backed by the Massachusetts Association of Realtors that goes into effect July 1 in Massachusetts will make it easier for a single real estate firm to represent both buyer and seller. "Brokerage firms have been representing both parties for a very long time," said Margaret Grant, MAR associate general counsel. The July 1 rules, she said, will merely "clarify the disclosure and consent requirements to protect consumers."

But Jebb said the large firms are preserving the status quo, which he says is a conflict of interest when the buyer and seller are both using the same firm. "The big names represent the sellers and buyers," he said. "By its nature it can't be done."

The Internet is shaking up the US real estate market, and real estate specialists and alternative services said tech-savvy Massachusetts is not immune. Alternatives such as Zip Realty Inc. said its business is growing in the state. The ziprealty.com website provides prospective buyers with complete listings of homes that are available for sale, including the address, list price, and other details not always available on traditional brokers' websites.

Pat Lashinsky, Zip Realty's vice president of marketing, said consumers pay nothing to peruse its listings on ziprealty.com, and they receive a rebate if they use his firm to negotiate the purchase of the home. Typically, commissions amount to about 5 percent of a house's sale price, with half the commission paid to the seller's broker and half to the buyer's broker, or 2.5 percent each.

"If we get 2.5 percent, we'd give [the buyer] 0.5," said Lashinsky, whose firm now employs 124 agents in Massachusetts, up from 47 a year ago.

His business is thriving in the state, because "consumers are finding it's much easier to use our site to find homes that are available" than to use traditional brokers' sites.

"There are options out there, and you have to be willing to work a little bit to find them," he said.

Listforless.com is among services that charge home sellers a flat fee simply to list their property on the Multiple Listing Service, a service used by all real estate agents.

Pat Rioux, who owns Listforless.com, said she charges $555 to list a home on MLS for six months. Rioux said she was the first to start this type of business in Massachusetts, in 1998, but said she has about a dozen competitors.

"The Internet was the genesis of it," she said. "I think consumers are shaking things up."

Kimberly Blanton can be reached at blanton@globe.com.