[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                    THE CHANGING REAL ESTATE MARKET

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 25, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-112




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
WALTER B. JONES, Jr., North          BARBARA LEE, California
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
GINNY BROWN-WAITE, Florida           BRAD MILLER, North Carolina
KATHERINE HARRIS, Florida            DAVID SCOTT, Georgia
RICK RENZI, Arizona                  ARTUR DAVIS, Alabama
STEVAN, PEARCE, New Mexico           EMANUEL CLEAVER, Missouri
RANDY NEUGEBAUER, Texas              AL GREEN, Texas
MICHAEL G. FITZPATRICK,              BARNEY FRANK, Massachusetts
    Pennsylvania
GEOFF DAVIS, Kentucky
CAMPBELL, JOHN, California
MICHAEL G. OXLEY, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 25, 2006................................................     1
Appendix:
    July 25, 2006................................................    63

                               WITNESSES
                         Tuesday, July 25, 2006

Brobeck, Stephen, Executive Director, Consumer Federation of 
  America........................................................    34
Farmer, Aaron, Broker/Realtor, Texas Discount Realty.............    36
Gorsuch-Bradbury, Kimberly, Senior Vice President, Real Estate 
  Networks, LendingTree, LLC.....................................    37
Kelman, Glenn, President and CEO, Redfin Corporation.............    39
Lewis, Geoffrey D., Senior Vice President and Chief Legal 
  Officer, RE/MAX International, Inc.............................    41
McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust 
  Division, Department of Justice................................     5
Ohlhausen, Maureen K., Director, Office of Policy Planning, 
  Federal Trade Commission.......................................     7
Vredevoogd-Combs, Pat, 2006 President-elect, National Association 
  of Realtors....................................................    43
Wood, David G., Director, Financial Markets and Community 
  Investment, Government Accountability Office...................     9

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    64
    Ney, Hon. Robert.............................................    66
    Brown-Waite, Hon. Ginny......................................    67
    Waters, Hon. Maxine..........................................    68
    Brobeck, Stephen.............................................    70
    Farmer, Aaron................................................    82
    Gorsuch-Bradbury, Kimberly...................................    91
    Kelman, Glenn................................................    97
    Lewis, Geoffrey D............................................   101
    McDonald, J. Bruce...........................................   108
    Ohlhausen, Maureen K.........................................   117
    Vredevoogd-Combs, Pat........................................   153
    Wood, David G................................................   132

              Additional Material Submitted for the Record

    Statement of the American Homeowners Grassroots Alliance.....   184
    Statement of Tom Kunz, Century 21 Real Estate, LLC...........   188
    Statement of Alex Perriello, Cendant Real Estate Franchise 
      Group......................................................   192
    Statement of Real Estate Agents for Real Agency, Inc.........   197
    Statement of Wayne Thorburn, Texas Real Estate Commission....   201
    From Horses to Houses, A Brief History of Agency and What 
      Real Estate Agency Means for you Today.....................   204
    Letter to Hon. Robert Ney from California Association of 
      Realtors...................................................   215
    Letter to Hon. Robert Ney from Cendant.......................   218
    Letter to Hon. Robert Ney from Missouri Association of 
      Realtors...................................................   220
    Letter to Hon. Randy Neugebauer from Texas Association of 
      Realtors...................................................   223
    Who is my Client? A Realtors Guide to Compliance with the Law 
      of Agency..................................................   226
    Response from U.S. Department of Justice to Question 
      Submitted by Hon. David Scott..............................   240
    Response from Federal Trade Commission to Question Submitted 
      by Hon. Emanuel Cleaver....................................   242


                    THE CHANGING REAL ESTATE MARKET

                              ----------                              


                         Tuesday, July 25, 2006

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:08 p.m., in 
room 2128, Rayburn House Office Building, Hon. Robert Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Miller of California, Baker, 
Brown-Waite, Neugebauer, Campbell, Oxley, Waters, Lee, Miller 
of North Carolina, Scott, Davis of Alabama, Cleaver, and Green.
    Also present: Representatives Sherman and Watt.
    Chairman Ney. The subcommittee will come to order. This 
afternoon, the Subcommittee on Housing and Community 
Opportunity meets to discuss the changing real estate market, 
and how these changes have affected brokers and consumers 
alike.
    Since the advent of the Internet, changes to the real 
estate market have become frequent and far reaching. The nature 
of real estate transactions and the effect on home ownership 
and consumers are a growing interest not only to this 
subcommittee but to the financial services industry as a whole.
    To understand changes to the market, we must first look at 
what is known as the traditional brokerage model. Traditional 
brokers offer a bundle of services that can include everything 
from marketing the seller's home to preparing offers and 
assisting in negotiations.
    Those traditional brokers belong to a multiple listing 
service or MLS, as it is called, that pools information about 
homes on the market so brokers can access a wide array of 
listings for their customers.
    This network of brokers utilizes a commission based pricing 
model where sellers pay a percentage of the sales price as a 
brokerage fee.
    Recent technological advances have changed the way 
consumers look for real estate and have facilitated the 
creation and expansion of alternatives to traditional brokers.
    In recent years, the real estate industry has used the 
Internet to market products and market new types of real estate 
services. In spite of increasing modernization, most consumers 
still choose to be represented by a traditional full service 
real estate broker or agent.
    The consumers who do not go with a traditional broker have 
opted for alternative or discount brokers. These real estate 
models offer low commissions in exchange for reduced services, 
and may operate solely or primarily via the Internet.
    Many different options are being offered by discount 
brokers, including flat fees for services, and rebates for 
buyers, which have been targeted by State laws.
    Despite the emergence of Internet based or discount real 
estate brokerage services, the growth of this segment of the 
market has not been substantial.
    Over the past few years, the real estate market has been 
met with challenges to MLS practices, minimum service 
requirements, and the need for competition to benefit 
consumers.
    For many American families, purchasing a home is often the 
most complex, expensive, and sometimes scary, transaction that 
they undertake.
    Therefore, it is important that the subcommittee continue 
to raise questions regarding competition and consumer 
protections within today's real estate transaction process.
    On a positive note, more people are owning homes today than 
ever before. We just passed--I should note and thank Chairman 
Oxley, who is present, and our ranking member, Maxine Waters 
and Mr. Frank, for the FHA bill, which I think is really a 
legacy bill for the chairman and this committee.
    If it was not for your work, Mr. Chairman, we may not have 
had the FHA down the road. I want to thank you for all of the 
work you have put into that.
    We have a rich history in America but it is always 
incumbent upon the subcommittee and the Full Committee to 
always look at the whole process of home ownership and how we 
can dig into the issues and make sure that Americans have the 
opportunity to own a home.
     With that, I will yield to Mr. Oxley, the Chairman of the 
Full Committee.
    The Chairman. Thank you, Mr. Chairman. Today, we will focus 
on residential real estate brokerage, a valuable service for 
millions of Americans each year, and the serious problems that 
we have recently learned about in the industry that can affect 
one of the most important financial transactions most people 
will ever undertake--buying or selling a home.
    An increasing number of observers from the Government, to 
consumer groups, to academics, are asking an important question 
about residential real estate brokerage, that frankly, Congress 
has been slow to consider.
    Namely, why is it that in an industry with more than 1.3 
million competitors, with home prices that vary widely, that 
brokers from Portland, Oregon, to Portland, Maine, so uniformly 
charge a 6 percent commission?
    Moreover, why has that 6 percent fee remained the same as 
home prices have soared and new technologies have made 
brokerage more efficient?
    Would not real competition produce varying services and 
varying prices?
    In March of 2005, Ranking Member Frank and I asked the GAO 
to examine price competition in real estate brokerage. That 
followed my request in November of 2004, the GAO report on 
barriers to electronic commerce in real estate.
    The GAO's report, the actions over the past 18 months by 
the Department of Justice and the Federal Trade Commission, as 
well as scholarly reports, explain what is happening.
    Real estate brokerage is self-regulated. Licensing rules 
are largely set by the brokers themselves, and real estate 
exchange rules are entirely set by the brokers themselves. The 
exchanges have become institutions to protect the interest of 
brokers, not consumers.
    Mr. Chairman, the last time we looked at an industry that 
was self regulated, it was the accounting industry. We know 
what happened in the accounting industry, with the bankruptcies 
of Enron, WorldCom, and many others.
    We let the stock exchanges in this country set their own 
rules, but only with the SEC reviewing and approving those 
rules.
    For residential real estate markets, there is no Government 
regulator to protect the public interest. There is only 
regulation of the brokers, by the brokers, and for the brokers.
    I generally believe that less Government regulation is a 
good thing. This is because robust markets can police 
themselves. Innovators with better products and lower prices 
will beat companies with anti-consumer ways.
    When competitors exclude innovators and restrain 
competition, which is the allegation of the Department of 
Justice's antitrust lawsuit against the National Association of 
Realtors, then markets simply cannot work, or at least work 
effectively.
    Congress needs to pay attention and certainly needs to act.
    On July 13th, the Federal Trade Commission announced an 
enforcement action against the Austin Board of Realtors for 
establishing rules that essentially froze properties out of the 
market if the seller used a service that traditional brokers 
did not like.
    The Austin Realtors set rules saying that exclusive agency 
listings, that is homes where the seller used a broker who 
performed very limited services, could not be listed in 
Austin's multiple listing service, or MLS, the local exchange 
for homes for sale.
    The settlement with the FTC nullifies the Austin Realtors' 
rule.
    We should wonder, is this going on elsewhere as well? That 
is not all. Organized real estate brokers are pushing for State 
laws to outlaw low cost minimum service brokerage, where 
brokers will charge less, perhaps tens of thousands of dollars 
less, and in exchange, provide less brokerage service.
    Innovative brokers complain of organized discrimination in 
the markets. If you are a broker who charges less, you might be 
blackballed in the industry, and other brokers will not show 
buyers the homes you are listing.
    The Wall Street Journal reported last October on an Ohio 
Realtor who had her listings pulled from the local MLS, in 
essence because she charged a low flat fee rather than the full 
6 percent.
    A lawyer for the MLS said, ``For sale by owner listings'', 
should not be in the MLS because it creates uncertainty about 
whether the buyer's broker will get paid for the sale.
    We, on this committee, know only too well that the NAR 
wants to keep national banks from providing real estate 
services and providing more competition in the industry.
    What do all these examples have in common? They show 
organized real estate brokers setting or using the rules to 
protect higher fees or stifle competition to the detriment of 
consumers and to the detriment of new brokerage models.
    This is one of the most important issues we have considered 
because it very directly affects millions of Americans each 
year, and because consumers could be saving billions of dollars 
each year.
    One industry publication called, ``The REAL Trends'', 
reportedly estimates consumers paid a whopping $61 billion in 
real estate brokerage fees in 2004. Others estimated it as high 
as $100 billion.
    Just think, if real estate brokerage fees were just one 
percentage point lower, consumers could save tens of billions 
of dollars per year.
    We, on this committee, have an obligation to make sure that 
markets are fair and open, and to protect consumers.
    I want to thank Chairman Ney for his leadership and for 
holding this very important hearing today. This should be the 
first step in our inquiry, not the last, and I yield back, Mr. 
Chairman.
    Chairman Ney. Thank you, Mr. Chairman. The gentleman from 
Missouri, Mr. Cleaver.
    Mr. Cleaver. A short comment, Mr. Chairman. I would just 
like to congratulate you and Ranking Member Waters for 
successfully ushering H.R. 5121 through today. It was very, 
very important that legislation pass. I thank you and Ranking 
Member Waters for all of the work you did on it.
    Chairman Ney. Thank you. I want to thank the gentlemen for 
his comments.
    At this point in time, we will move on. I have for the 
record, ``A Realtor's Guide to Compliance'' submitted by the 
National Association of Realtors; a ``Brief History of Agency'' 
submitted by the real estate agents for Real Agency, Inc.; 
letters from the Missouri Association of Realtors; testimony of 
Alex Perriello, president and CEO, Cendant Real Estate 
Franchise Group; testimony of Tom Kunz, president and CEO, 
Century 21; and a letter from Cendant Corporation, real estate 
agents for Real Agency, Inc., and American Homeowners 
Grassroots Alliance.
    Without objection, they will be made part of the record.
    With that, we will go straight to the witnesses. I want to 
welcome you today to the Housing Subcommittee.
    First, we have Bruce McDonald, who is a Deputy Assistant 
Attorney General with the Department of Justice's Antitrust 
Division. Since 2003, he has been one of two deputies in charge 
of civil antitrust enforcement.
    Prior to his appointment in 2003, Mr. McDonald was a 
partner in the antitrust group of the Houston law firm of Baker 
and Botts.
    Maureen Ohlhausen is Director of the Office of Policy 
Planning at the Federal Trade Commission. The FTC assures a 
competitive marketplace for both American consumers and 
businesses by preventing unfair anticompetitive commercial 
practices.
    David Wood is the Director of Financial Markets and 
Community Investment at the Government Accountability Office 
(GAO), an independent and non-partisan agency that works for 
Congress. GAO is often called, as we know, the Congressional 
watchdog, because it investigates how the Federal Government 
spends taxpayers' dollars and how well Executive Branch 
agencies do their jobs.
    I want to welcome all the members of the panel today. We 
will start with Mr. McDonald.

   STATEMENT OF J. BRUCE McDONALD, DEPUTY ASSISTANT ATTORNEY 
       GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

    Mr. McDonald. Thank you, Mr. Chairman. Mr. Chairman, and 
members of the subcommittee, I am pleased to be here on behalf 
of the Department of Justice's Antitrust Division, to discuss 
the competitive implications of developments taking place in 
real estate brokerage markets.
    The Antitrust Division has a long history of pursuing 
enforcement actions to protect competition and consumers in 
this industry against antitrust violations. Today, we are also 
working to educate State governments about potential 
anticompetitive effects of State rules restricting brokerage 
services.
    Competition in these markets is important. Every year, 
millions of Americans purchase real estate brokerage services. 
Last year, over eight million homes were sold in the United 
States. According to the GAO, consumers paid over $60 billion 
in real estate brokerage fees in 2004.
    When the brokerage industry does not function 
competitively, it can be very expensive for home buyers and 
sellers.
    In the last few years, although the cost of providing 
brokerage services has if anything decreased, consumers have 
been paying more. Because commission percentages have remained 
high, as home prices have climbed, the dollars paid to broker 
commissions have climbed also.
    From 2000 to 2004, fees paid for brokerage services grew 
much more quickly than the CPI.
    As Chairman Oxley pointed out, commission percentages do 
not seem to vary significantly with house prices, service 
quality, or geography. This is not how one would expect a 
competitive market to behave.
    Today, the Internet is bringing new possibilities for 
increased competition to real estate brokerage services, as it 
has in other industries throughout our economy. Web-based 
brokers can provide online information to their clients about 
homes for sale. Home buyers can learn about neighborhoods and 
explore suitable homes more efficiently on their own time, 
saving broker time and expense, which can translate into lower 
broker fees.
    By taking charge of some of the services themselves, 
customers can reduce the services they need to purchase from 
brokers.
    At last year's joint DOJ/FTC hearings on real estate 
competition, one of the topics discussed was the negative 
effect that some restrictive State laws and regulations are 
having on competition in brokerage markets.
    Consistent with our practice in other industries, when we 
learn that significantly anticompetitive State laws or 
regulations are under consideration, we approach State 
officials to advise that they take into account the benefits to 
consumers of a more competitive approach.
    We have had a number of opportunities to do this on 
proposed measures affecting real estate brokerage services. One 
example is State practice-of-law rules. Over the last decade, 
we have advised State legislatures, courts, and bar 
associations on the implications of proposals to expand the 
definition of practice of law in ways that would prohibit non-
lawyers from providing routine real estate closing services.
    The evidence does not suggest that excluding non-lawyers, 
like most real estate brokers, from providing these services 
actually protects home buyers and sellers, as real estate 
lawyers have claimed.
    When non-lawyers are allowed to provide these services, 
consumer complaints actually do not increase. Non-lawyers 
typically charge lower fees for the same services, and this 
competition results in lower lawyer fees for these services as 
well.
    Another example is the minimum-services rules that some 
brokers recently have urged their State legislature or local 
real estate board to adopt, requiring that all real estate 
brokers provide a specified minimum package of services.
    Some consumers prefer to purchase less than the full array 
of traditional brokerage services, handling certain tasks 
themselves, and paying less.
    In response, new broker business models have begun to offer 
smaller packages of brokerage services, often on a menu basis, 
in exchange for a smaller total fee.
    Where this consumer choice is allowed, home sellers and 
buyers have saved thousands of dollars per transaction.
    Some brokers are resisting, seeking imposition of minimum-
services rules. This is portrayed as protecting consumers from 
unwittingly agreeing to substandard service. We have found no 
evidence of consumer confusion, so it appears that the 
restrictions do not protect consumers, but just interfere with 
their freedom to choose and pay for only the services they 
want.
    Over the last few years, the Justice Department and FTC 
have advised a number of States on the competitive implications 
of minimum-services proposals. Our efforts have been successful 
in a number of States.
    Restraints by market participants also can be harmful to 
competition. Of course, they are fully subject to the antitrust 
laws.
    The Justice Department recently brought two enforcement 
actions against restrictive real estate brokerage rules that 
violated Section I of the Sherman Act.
    Chairman Ney. I am sorry, Mr. McDonald. Your time has 
expired, but if you would like to conclude, then we will enter 
the rest for the record.
    Mr. McDonald. Thank you, Mr. Chairman.
    Home ownership is a cornerstone of the American dream. 
Purchasing a home is the largest financial decision made by 
most families. Home sellers and home buyers are harmed when 
Government or private restrictions on real estate broker 
competition prevents brokers from offering innovative services 
or adopting new cost-saving practices.
    Therefore, the Antitrust Division will continue to use both 
law enforcement and competition advocacy tools to protect 
competition and consumers in real estate markets.
    Thank you for the opportunity to testify. I am happy to 
answer any questions.
    [The prepared statement of Mr. McDonald can be found on 
page 108 of the appendix.]
    Chairman Ney. Thank you, sir.
    Ms. Ohlhausen?

 STATEMENT OF MAUREEN K. OHLHAUSEN, DIRECTOR, OFFICE OF POLICY 
               PLANNING, FEDERAL TRADE COMMISSION

    Ms. Ohlhausen. Chairman Ney, Chairman Oxley, and members of 
the committee, I am pleased to present the FTC's testimony on 
competition in the real estate brokerage industry. The 
Commission's full testimony has been submitted for the hearing 
record, and my statement, and any answers I may provide, 
reflect my own views and are not necessarily those of the 
Commission.
    New technologies have given rise to alternative brokerage 
models that offer a promise of greater competition and greater 
savings for consumers. The FTC is committed to using its 
enforcement advocacy and research capabilities to protect the 
interests of consumers in this important market.
    For buyers, the Internet has become an indispensable source 
of information on properties, neighborhoods, and the home 
buying process itself. For example, new alternative brokerage 
models, such as virtual office Web sites, allow buyers to view 
detailed MLS information online, and they often also offer a 
rebate.
    For sellers, the Internet has replaced the yard sign as the 
most used marketing tool. Home sellers can now perform tasks 
that were once the exclusive domain of brokers, likely spurring 
the increased demand for non-traditional services, such as 
limited-service brokerage, or a seller pays the broker a flat 
fee for listing the home in the local MLS and providing some 
selling aides while handling the rest of the transaction him- 
or herself. This option allows the consumer to save potentially 
thousands of dollars in commissions in exchange for doing more 
work.
    As alternative brokerage models have proliferated, however, 
we have also become aware of actions by MLS' and State bodies 
that make it more difficult for alternative business models to 
compete against traditional brokers.
    For example, the Commission recently charged the Austin 
Board of Realtors with violating the antitrust laws by adopting 
a rule that prevented properties with non-traditional listing 
agreements from appearing on important publicly accessible Web 
sites.
    The Commission alleged that this conduct impeded the 
provision of non-traditional brokerage services to consumers.
    The Commission's consent order with the Austin Board which 
settled the charges prohibits it from adopting or enforcing any 
policy to deny, restrict, or interfere with the ability of its 
members to enter into non-traditional listing arrangements.
    Over the past 2 years, several State legislatures and real 
estate commissions have considered or adopted minimum service 
requirements which effectively force consumers to purchase a 
set bundle of real estate brokerage services.
    Because these measures are likely to harm consumers, the 
FTC and DOJ have filed advocacy comments opposing their 
adoption. Our comments concluded that by eliminating many 
popular limited service options, these laws would reduce 
consumer choice and competition among traditional brokers and 
limited-service brokers.
    We also noted the lack of evidence that such laws are 
necessary to protect consumers. Further, at the FTC/DOJ real 
estate workshop, panelists who represented both traditional 
brokerages and new business models all stated that they did not 
see a need for minimum service laws.
    It is important to emphasize that the Austin enforcement 
action and our advocacy efforts do not reflect any attempt by 
the Commission to favor one form of brokerage business model 
over another. Rather, the Commission's work is intended to 
protect competition in the market, not particular competitors, 
so that consumers can select the services that best meet their 
needs.
    The structure of the real estate brokerage industry appears 
to exhibit some characteristics of a competitive market, 
including low market concentration and low barriers to entry.
    Despite these structural features, there is a perception 
supported primarily by anecdotal evidence, that commission 
rates remain at a super competitive level. This perception 
arises from the observation that commission rates do not appear 
to vary with geography, the price of the house for sale, or the 
agent's experience level or quality of service.
    Although relatively recent survey data indicates that 
average national commission rates have fallen somewhat over the 
past few years, significant increases in property values over 
this period appear to have more than offset any such decreases 
in commission rates.
    Our experience in this industry points to several possible 
factors that may explain why price competition appears to be 
lacking.
    First, private anticompetitive conduct that disadvantages 
new business model reduces their ability to put downward 
pressure on commission rates.
    Second, State imposed restrictions, such as minimum service 
laws and prohibitions on rebates, also limit the ability of new 
business models to compete with traditional brokerage models on 
price.
    Third, disparagement and harassment of non-traditional 
brokers may deter brokers from engaging in vigorous price 
competition.
    Finally, consumers appear to be uninformed about certain 
facts critical to price competition, such as the negotiability 
of commission rates and the duties their broker or agent owes 
them.
    The FTC plans to remain actively engaged in this area 
through enforcement, advocacy, research, and consumer 
education, and we are committed to ensuring that consumers can 
enjoy the benefits of competition in real estate brokerage.
    We are willing to assist your committee in any way that we 
can. Thank you.
    [The prepared statement of Ms. Ohlhausen can be found on 
page 117 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Wood?

  STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND 
     COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Wood. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here today.
    When preparing our report to the committee last year, we 
found very quickly that our ability to examine price 
competition was severely limited because there is simply no 
single place where one can find comprehensive brokerage price 
data.
    Accordingly, our work consisted largely of reviewing the 
academic literature and interviewing a variety of market 
participants.
    Our findings regarding price competition can be summed up 
in a few key points. The first is that while real estate 
brokerage has competitive attributes, a large number of players 
competing for a limited number of home listings, historically, 
the competition has been based more on non-price factors, such 
as quality or level of service.
    A principal reason for this view is that within specific 
local markets, there seems to have been limited variation in 
commission rates.
    The lack of comprehensive data, both historically and 
currently, makes it difficult to determine the extent of 
variation in commission rates. However, the picture that 
emerges from the limited data available is that within a given 
market, a single rate has predominated.
    For example, the Federal Trade Commission examined random 
samples of properties sold in the late 1970's in several 
cities. In Boston, 72 percent of listings had exactly the same 
commission rate. In both Los Angeles and Minneapolis, it was 88 
percent, and in Seattle, 90 percent.
    In another example, academic researchers reported that of 
the homes sold in Lincoln, Nebraska, in 1986, 88 percent had 
exactly the same commission rate.
    Academic studies also suggest some causes for the limited 
variation in rates that was observed. For example, one study 
found that lower commission rates were associated with more 
expensive houses, and with houses that were vacant or renter 
occupied.
    Finally, as Ms. Ohlhausen noted, anecdotal data suggests 
that commission rates have declined from the 6- or 7 percent 
level that the FTC found in the late 1970's to a typical range 
of 5- to 6 percent now.
    Although the lack of data precluded empirical analysis, we 
did identify several factors that might inhibit price 
competition. The first of these is the cooperation among 
competing brokers facilitated by the multiple listing service 
or MLS.
    While MLS' provide important benefits to both buyers and 
sellers, practices that encourage cooperation among 
participating brokers may, in effect, discourage deviations 
from prevailing commission rates.
    For example, MLS listings give brokers information on the 
commission that will be paid for producing a successful buyer. 
To ensure that brokers will show prospective buyers their 
homes, sellers may be reluctant to offer anything less than the 
standard prevailing commission.
    A second factor is certain State laws, as Chairman Oxley 
and the previous witnesses have noted.
    Finally, a third factor is the lack of consumer pressure 
generally. For many consumers, selling a property is an 
infrequent event. They may be unaware of alternatives to a 
traditional broker charging a standard commission. However, 
this is one factor that is likely being affected by the 
Internet. Some three-quarters of home buyers now use the 
Internet during the home buying process.
    The Internet has helped provide both buyers and sellers 
with much information that previously was available only by 
contacting a real estate broker.
    In addition to permitting buyers to easily search for homes 
on their own, the Internet has facilitated options for 
consumers, such as fee for service brokerage, and alternatives 
to MLS listings.
    However, some factors may inhibit using the Internet for 
accomplishing the full range of activities associated with a 
real estate transaction. For example, even with the 
availability of virtual tours, consumers still like to visit 
properties firsthand.
    Also, as we noted in our report, a key factor is the extent 
to which properties listed in an MLS continue to be widely 
available online.
    Mr. Chairman, that concludes my prepared statement. I will 
be happy to answer any questions you have.
    [The prepared statement of Mr. Wood can be found on page 
132 of the appendix.]
    Chairman Ney. Thank you. I am going to begin questions and 
yield my time at this point to Chairman Oxley.
    Before I do, I want to ask, just for clarification. Ms. 
Ohlhausen, you have a statement prepared. It says, ``Prepared 
Statement of the Federal Trade Commission.'' Did you say in the 
beginning that your comments are your personal comments?
    Ms. Ohlhausen. My oral remarks are my own. The statement 
that has been submitted is the official statement of the 
Federal Trade Commission.
    Chairman Ney. The questions?
    Ms. Ohlhausen. Any answers are again my views.
    Chairman Ney. Thank you. Chairman Oxley?
    The Chairman. Thank you, Mr. Chairman.
    Mr. McDonald, can you explain, if you can, what regulatory 
structure for real estate law now exists? What kind of a 
regulatory structure do we have going forward with real estate 
sales and commissions?
    Mr. McDonald. Mr. Chairman, I do not hold myself as an 
expert on the regulatory structures in the various States that 
govern real estate transactions or real estate brokerage.
    I think I can say generally that real estate brokers are 
governed almost solely by State laws, including State real 
estate broker commissions, and in many of those States, the 
broker commissions are by law or rule required to be real 
estate brokers, or some percentage of the board are required to 
be real estate brokers.
    In most States, the real estate commission is set at a 
market rate and is not specifically controlled by regulation.
    The Chairman. What about the Justice Department and efforts 
at Antitrust? Is this an effort to try to induce competition in 
the real estate industry? What was the purpose behind the 
Justice Department's antitrust activities regarding real 
estate?
    Mr. McDonald. Mr. Chairman, we have engaged in two general 
kinds of activities. One, competition advocacy, in which we 
encourage State decision makers to not pass laws or regulations 
that restrict competition in providing brokerage services. One 
example is the minimum-services rules that you mentioned.
    Our other set of efforts are enforcement actions. We have 
brought two in recent years, although we have a history over 
the decades of bringing enforcement actions in this area.
    One of those recent enforcement actions was against the 
Kentucky Real Estate Commission, which had passed a rule that 
prohibited brokers from giving rebates of commissions to their 
customers.
    More recently, we brought an action against the National 
Association of Realtors, which imposed a set of rules 
applicable to its local multiple listing services nationwide 
that allowed brokers to discriminate against fellow brokers who 
communicate with their customers on the Internet.
    These rules discouraged competition from new business 
models that take advantage of Internet technology and they are 
anticompetitive and violate the antitrust laws.
    The Chairman. What is the current status of the Kentucky 
case and the NAR?
    Mr. McDonald. Mr. Chairman, the Kentucky Real Estate 
Commission abandoned the rule and settled the case shortly 
after we brought it.
    The action against the National Association of Realtors is 
pending in Federal court in Chicago.
    The Chairman. In the Kentucky case, does that have any 
meaning outside of the Commonwealth of Kentucky or is that 
simply a settlement that would only apply to the Kentucky 
situation or set of facts?
    Mr. McDonald. Mr. Chairman, that settlement applies 
directly only in Kentucky. We did see after that case was 
brought and it was settled that two other State real estate 
commissions that had similar rules abandoned them.
    The Chairman. The Kentucky settlement was considered a 
template for those?
    Mr. McDonald. Mr. Chairman, I think the Kentucky settlement 
set an example of the consequences of having such rules.
    The Chairman. The suit that the Justice Department brought 
against NAR, if the outcome is favorable to the Justice 
Department, would that precedent then apply nationwide?
    Mr. McDonald. Mr. Chairman, the rules that NAR has 
promulgated do apply nationwide. If the Government's lawsuit is 
successful, those rules would not apply anywhere.
    The Chairman. Thank you.
    Ms. Ohlhausen, regarding the Austin Board of Realtors' case 
with the Federal Trade Commission, as I understand it, that 
agreement nullifies the Austin Realtors' rule, which basically 
would not allow all but full service Realtors to list with the 
MLS; is that correct?
    Ms. Ohlhausen. That is correct. What the rule did was it 
prevented the MLS from sending the data for the non-traditional 
listings to popular, publicly accessible Web sites. They could 
still have their listings in the MLS, but a lot fewer people 
saw them.
    The Chairman. Will that ruling or that decision have any 
application outside of Texas?
    Ms. Ohlhausen. We are investigating other similar rules. We 
have other cases in the pipeline. If other MLS' have a similar 
rule, that is something we would be interested in pursuing.
    The Chairman. That was a settlement, was it not?
    Ms. Ohlhausen. That is correct.
    The Chairman. You are saying, essentially, even though it 
is the Federal Trade Commission, those settlements or 
agreements have to be done State by State?
    Ms. Ohlhausen. Yes. It would be individual MLS', by 
individual MLS.
    The Chairman. Mr. Wood, you had indicated, I think, in your 
initial statement, that you had difficulty obtaining price 
competition figures in your study. Is that correct?
    Mr. Wood. We had difficulty getting price data. Ideally, 
what we would have liked to have been able to obtain would be 
brokerage commission data across markets, across time. There is 
no one source that you can go to to get that data.
    The Chairman. There is no database and no transparency?
    Mr. Wood. These are private entities. It is their data. 
They are certainly under no obligation to provide it to GAO. In 
the timeframe that we were working in last year, we did not 
seek to survey MLS' or try to obtain data from them because we 
saw what a giant task that would be.
    The Chairman. The European market, the commissions seem to 
be much lower, half lower than they are in the United States. 
Are any of you familiar with the European model and what those 
commissions are?
    Mr. Wood. I only know from reviewing some of the academic 
literature. There are one or two articles that look at 
international brokerage. Basically, the conclusion is that this 
is an area that needs more study.
    I believe there are differences in the commission rates, 
but there also may be differences in the brokerage models, the 
types of services that are provided.
    Trying to control for all those differences is not 
something I am sure has been done.
    The Chairman. Mr. McDonald, the effort by the Justice 
Department heretofore has been on an antitrust enforcement 
basis; is that correct?
    Mr. McDonald. That is correct, Mr. Chairman.
    The Chairman. Are there any other tools available to the 
Justice Department besides the antitrust issue that is being 
considered or could be considered?
    Mr. McDonald. Mr. Chairman, that is an interesting 
question. As I sit here today, I am not aware of any.
    The Chairman. I have no further questions. Thank you, Mr. 
Chairman.
    Chairman Ney. Thank you, Mr. Chairman. Our ranking member, 
the gentlelady from California.
    Ms. Waters. Thank you very much, Mr. Chairman. I was just 
sitting here going over some of the statements, and recalling 
my experiences with buying houses and the last experience that 
I had purchasing property.
    I could not have imagined going through that experience 
without my real estate agent, and all of the complications of 
the transaction.
    I suppose the general question that I have is what kind of 
problems do you think the average home buyer would encounter 
if, in fact, they did not have the kind of real estate services 
that have served us well over the years?
    As I think back through my last experience, and I am 
thinking about any number of concerns, that I would not have 
known how to address had it not been for the real estate 
services that I was receiving.
    How do you think an average person would fare without the 
traditional real estate services that are available to us? 
Anybody can answer that question.
    Mr. McDonald. Ranking Member Waters, your question 
implicates the issue that we have discussed on whether States 
should impose minimum services requirements on brokers.
    As we have mentioned, new business models have developed in 
which brokers have responded to consumer demand for the 
provision of limited services.
    Certainly, there are home buyers and sellers who for 
whatever reason do want the full range of brokerage services, 
everything from listing and marketing the house to 
communicating buy and sell offers, to being represented at 
closing, the services that traditional full service brokers 
provide.
    There are also many consumers who, whether it is because 
they are taking advantage of the Internet or because they are 
especially comfortable with the home purchase transaction, are 
comfortable with purchasing only a few services from a broker, 
and handling the rest of the services themselves.
    The point of our criticism of minimum services legislation 
is that minimum services rules take that choice away from some 
consumers. With or without minimum services legislation, the 
home buyer or seller who wants a full range of services can get 
it. We are trying to preserve the competitive option for 
consumers who want to buy less than the full range of services, 
to buy fewer services, handle the rest themselves, and pay 
less.
    Ms. Waters. Mr. Chairman, I will listen to the responses 
from questions that will be generated from other members. I am 
a little partial in all of this because of all of the stories 
that I have heard year in and year out about what home buyers, 
in particular, encounter in this very, very complicated and 
competitive business.
    Let me just hear what they are answering to other questions 
that are coming up.
    Chairman Ney. I have a question, and then we will move on 
to the gentlelady from California, Ms. Lee.
    The question I have is for Mr. McDonald. The Department of 
Justice has not supported State measures that have sought to 
mandate the minimum service requirements for real estate 
professionals. What is the methodology of that, of opposing the 
State measures that seek to mandate minimum service?
    Mr. McDonald. Mr. Chairman, from our pro-competition 
perspective, in general, Government regulation where it is not 
necessary can have a market distorting effect.
    As it relates to minimum services rules, those rules limit 
the ability of limited-service brokers to sell to customers 
less than the full array of brokerage services. It prevents 
consumers who would like to purchase less than the full array 
of brokerage services from doing so.
    The option that competition brings is to have various 
different kinds of brokerage business models, various different 
kinds of options available to consumers. Some consumers who 
want more services can buy more services and pay more. 
Consumers who want fewer services can buy fewer services and 
pay less. That increases competition throughout the market. 
Minimum service legislation prevents that consumer choice.
    Chairman Ney. It is not a matter of the Federal versus the 
States. It is a matter of minimum services applied by the 
States would not create as much competition?
    Mr. McDonald. That is correct, Mr. Chairman. It undercuts 
competition.
    Chairman Ney. Thank you. I had a question, and if anybody 
else wants to answer these questions, please feel free.
    On the statement from the GAO, do you not believe there is 
an over saturation of real estate brokers and agents in the 
market? Is that what GAO has thought?
    Mr. Wood. I do not know that we would characterize it as an 
over saturation. I think you will see in the testimony from NAR 
that their membership has certainly grown in recent years.
    The lack of data that we have found extends to any kind of 
measure for the demand for brokerage services. Even though 
clearly housing prices have gone up, more agents have come to 
work, we do not have a good measure of the actual demand for 
broker services.
    There is some interesting research in this area. For 
example, some researchers have looked at this question of agent 
productivity and found that generally when prices go up, if 
commission rates stay the same, the number of dollars, of 
course, is going up, and that tends to attract more people into 
the business.
    Chairman Ney. I guess I should ask it this way. If there 
was an over saturation of real estate brokers and agents, would 
that or would that not help because you have more agents, more 
competition, or does it not run that way?
    Mr. Wood. The picture that emerged from our research was 
that there is indeed a lot of competition. There is competition 
to get listings and so forth. It is just that on the basis of 
the available evidence, which is limited, there does not seem 
to be much price competition.
    Chairman Ney. One question I had actually for all three of 
you, if you want to answer, do you consider the MLS a public 
utility, or a private hybrid?
    Ms. Ohlhausen. I will answer first since we just sued the 
Austin Board of Realtors, which is an MLS. We have not treated 
that as a public utility. Instead, it is an association among 
private competitors, which is a traditional subject of the 
antitrust laws, agreements among horizontal private 
competitors.
    Chairman Ney. Mr. McDonald?
    Mr. McDonald. We agree, it's a joint venture among 
competitors.
    Chairman Ney. Mr. Wood?
    Mr. Wood. I think GAO has no opinion and would leave it to 
the experts.
    Chairman Ney. Good answer. In my small remaining time, has 
there been any discussion amongst any of you in what you have 
done to look at this issue about total transparency of the MLS? 
Total transparency, including internal listings? I am going in 
the direction that you put some private things on there, you do 
not want somebody in your house because you have a small child, 
at certain times of the day?
    Mr. McDonald. Mr. Chairman, I am familiar with that issue. 
There is some information in the MLS database that is by rule 
available only to brokers, and not to the public. A very good 
example is the example we discussed with NAR, information that 
the children are home alone at a certain time in the 
afternoons, so buying brokers should not bring potential buyers 
around.
    One of the questions has been, by putting listing 
information on the Web, do you create a risk that private or 
secure information might get exposed to the public?
    A properly designed Web site will not do that in the same 
way that a brick and mortar broker, a traditional broker, who 
is providing information on paper to his or her customers will 
not provide that information.
    Chairman Ney. It is technological?
    Mr. McDonald. Right.
    Chairman Ney. Thank you. My time has expired. The 
gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you, Mr. Chairman. Good afternoon.
    Let me ask you, Mr. McDonald, with regard to this question, 
with regard to States. Have any States reported that consumers 
have been led to believe they would receive the full broker 
services when in fact they had to do the actual service 
themselves? Has there been any type of false advertising?
    Mr. McDonald. Congresswoman, we have not found any evidence 
of significant complaints by consumers who thought they were 
purchasing a full-service package of brokerage services but 
instead, were misled and were actually purchasing only a 
limited-service package.
    Ms. Lee. Good. Let me ask you on the Internet piece of 
this, of course, we all recognize that the Internet has really 
dramatically lowered the costs of services and the way 
consumers purchase goods and services and the transaction costs 
go down ultimately.
    What happens to those individuals who do not have access to 
the Internet? Low income individuals. The digital divide is 
still alive and well in America.
    I am concerned whenever we see--this is the way of the 
world now. Do we lose people if they do not have access to the 
Internet in terms of their access to the type of services they 
should be able to benefit from, just as those who have access 
to the Internet?
    Mr. McDonald. Congresswoman Lee, that is a question that 
certainly goes far beyond the issues that we are discussing 
today on real estate, and it is something that I know Congress 
has addressed in a number of ways.
    What I can offer you in the real estate situation--
    Ms. Lee. I am talking about in terms of the real estate 
situation, with regard to the services, the basic services that 
are allowed in terms of MLS services.
    Mr. McDonald. Yes, ma'am. The fact that real estate listing 
information is available on the Internet has not led to it 
being unavailable off the Internet, with a brick-and-mortar 
broker, one can still get information about houses for sale on 
paper or in a conversation on the telephone.
    In a market in which there is increased competition from 
new broker business models, such as brokers who use the 
Internet to communicate efficiently and cost-effectively with 
their customers, that increases competition across the entire 
market. One would expect that all brokers, those who use the 
Internet and those who do not, should, in a market that works 
competitively, work harder to provide better quality and lower 
cost services. That benefits all consumers, those with access 
to the Internet and those without.
    Ms. Lee. Good. You do not really see a problem there at 
all, in terms of the type of discounts or broker models or 
services that are provided. That is a good thing.
    In so many instances, for example, where job listings are 
posted only on the Internet, you are told go to the Internet, 
go to our Web site, and we will let you know what jobs are out 
there. That is the only way that those notices are posted.
    You are saying with regard to real estate services, the 
traditional services still are available through non-Internet, 
non-computer technology approaches?
    Mr. McDonald. That is correct, Congresswoman.
    Ms. Lee. Thank you very much. Thank you, Mr. Chairman.
    Chairman Ney. Mr. Campbell?
    Mr. Campbell. Thank you, Mr. Chairman.
    Mr. Wood, you referenced some statistics in various markets 
from 1978 and 1986, more than 20 years old. You have no more 
recent statistics than that?
    Mr. Wood. The most recent empirical data that we could find 
in the study was from Baton Rouge, Louisiana, and that data 
series was from like 1987 to 1993. There is just a real 
scarcity of current data.
    Mr. Campbell. That data really is not applicable today. The 
Internet--
    Mr. Wood. Right. It is very likely, as I think we stated in 
our report, that commission rates overall seem to have 
declined. There is anecdotal evidence that they have declined. 
One of the factors that might be responsible for that is, in 
fact, the Internet.
    However, we also heard from a number of market participants 
that the phenomenon of a single rate predominating still 
exists, but we just do not have empirical data to show that.
    Mr. Campbell. That was my next question. You then cited 
that commissions had been in the 6- to 7 percent range and now 
they are in the 5- to 6 percent range. Where are you getting 
that?
    Mr. Wood. The historical data, the studies that we found 
with actual empirical data, including the FTC's study, which 
was the most comprehensive, rates of exactly 6 percent and 7 
percent were the ones that were most commonly found.
    The more recent data comes from an industry source, REAL 
Trends, which derives the data differently. They take basically 
an average. They compute an average based on reported sales 
from the largest brokerages.
    Mr. Campbell. Is your data--the things you have cited, is 
it residential only, or are you including commercial?
    Mr. Wood. No. We focused on residential only.
    Mr. Campbell. Why is that?
    Mr. Wood. That is what we were asked to focus on.
    Mr. Campbell. Mr. McDonald or Ms. Ohlhausen, has your focus 
in this regard been only residential or residential and 
commercial?
    Ms. Ohlhausen. We focused on residential for the consumer, 
consumer protection, competition side of things.
    Mr. Campbell. Mr. McDonald?
    Mr. McDonald. Likewise, Congressman, residential only. I 
believe that is a fairly distinct market from commercial real 
estate brokerage.
    Mr. Campbell. I know in California, at least, if you 
include multi-family residential as commercial, I think you 
have more than a third of all property values in commercial.
    If we are looking at how a market behaves and how 
competition behaves, would there really be much distinction? 
Might not looking at commercial be of some value, at least as a 
comparison or benchmark? It is still multiple buyers, multiple 
sellers, and multiple property.
    Ms. Ohlhausen. I think we would have to examine more 
closely the different characteristics of the marketplace. For 
example, in residential real estate brokerage, it tends to be 
for the buyer or for the seller an infrequent transaction. In 
the commercial area, it might be very different. It might be 
something that is done much, much more often.
    Mr. Campbell. Mr. McDonald, absent State law, which you 
have addressed, both you and Ms. Ohlhausen have talked about 
some situations where perhaps State law was anticompetitive or 
appeared to be anticompetitive, in most real estate markets, 
there are thousands of agents and dozens of brokers or 
brokerage firms, which arguably you would say wow, that is 
about as competitive as it can get, so there has to be some 
structure.
    If something is not competitive, there has to be a 
structure in place that is impeding that competition. If it is 
State law, then it is State law.
    Other than that--I think I heard it in your testimony. I 
would just like to hear, do you disagree with that statement, 
and if not, what are those vehicles through which competition 
is impeded?
    Mr. McDonald. Congressman Campbell, putting aside State 
regulation, yes, there are some characteristics of residential 
real estate brokerage markets that would make you think those 
markets would behave more competitively, and some of those are 
discussed in some detail in the FTC testimony and in the GAO 
report.
    Of course, there are in most localities a large number of 
brokers. The brokerages are relatively not large. The markets 
are unconcentrated.
    Despite that, we see aspects of the market that do not 
behave competitively, and we have discussed some of those. The 
best example is the fees that home sellers and buyers pay for 
brokerage services, which are commission-based, and do not seem 
to fluctuate based on what the consumer is getting, based on 
the quality of the service, based on the geography, and based 
on different parts of the country, as Chairman Oxley pointed 
out.
    That suggests, in terms of price competition, that these 
markets are not behaving competitively. That is one of the 
reasons, I believe, the GAO was asked to do its report, and one 
of the reasons that the FTC and the DOJ jointly held hearings 
on real estate competition last year and are preparing a report 
on that. The markets do not seem to behave competitively, and 
we want to know why.
    Mr. Campbell. I see my time has expired, Mr. Chairman. I 
guess that is my question, if multiple competitors, why not? 
What gets in the way? Thank you.
    Chairman Ney. The gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. McDonald, you are the Deputy Assistant Attorney General 
for which area?
    Mr. McDonald. Congressman Scott, I am a Deputy Assistant 
Attorney General in the DOJ's Antitrust Division.
    Mr. Scott. You are familiar with cut rate fees. Do you have 
concerns that cut rate fees would cause a race to the bottom 
for real estate services where there would be more focus on 
selling larger transactions, and where lower income buyers will 
receive little service?
    Mr. McDonald. Congressman Scott, that is not a great 
concern of mine for a couple of reasons. One, even though some 
brokers are seeking to discount their fees, on average, the 
fees remain high. Two, there are, today at least, many, many 
real estate brokers and not that many high-dollar transactions. 
There are plenty of brokers for all the work that needs to be 
done.
    Speaking more generally, in competitive markets, the price 
that a provider of services, like a provider of brokerage 
services, receives is balanced according to supply and demand. 
You would expect that so long as there is demand for brokerage 
services involving transactions to sell expensive homes or 
inexpensive homes, the market still would provide for services 
up and down the spectrum.
    Mr. Scott. Has the Department of Justice conducted any type 
of survey that would determine what services home buyers 
typically want?
    Mr. McDonald. Congressman Scott, we have not conducted a 
survey, per se. We have examined that question and have found 
that in the past, traditionally that is, home buyers and 
sellers have purchased a full array of services, everything 
from listing the home in the multiple listing service database, 
to marketing the home, to showing prospective buyers around the 
home, to exchanging of offers, offers to sell, and representing 
the customer at closing.
    Today, we find that many home sellers and buyers would like 
to purchase fewer services and pay the broker less. That is one 
of the competitive options that we believe it is important to 
protect.
    Mr. Scott. Given the limited resources of the Department of 
Justice, would you not think that the Department of Justice 
would not help home owners more by spending their limited 
resources on discriminatory practices?
    There probably is no more pointed area of commerce and 
transaction in our society today where discrimination is so 
rampant and obvious. Redlining, you name it, as well as 
predatory lending practices.
    Would you not think that given the limited resources of the 
Department of Justice, there needs to be more focus on 
remedying the discrimination that exists in housing and real 
estate transactions, and the targeted, predatory lending 
discrimination? These are targeted areas. We know where they 
are. They are there.
    What is the Department of Justice doing in those areas?
    Mr. McDonald. Congressman Scott, I am not especially well 
versed in this area, which is the responsibility of the Civil 
Rights Division. I do know generally that the Civil Rights 
Division believes that sort of discrimination is a problem and 
they are addressing it.
    From an antitrust perspective, our view is the more that we 
can promote competitive options, and the more that we can 
prevent private restraints on competition, the better off are 
consumers of all sorts.
    Mr. Scott. Finally, I want to ask this question. A home 
buyer has several real estate service options, including 
looking at homes listed as for sale by the owner, and going to 
open houses, and working directly with a listing agent.
    Do you know what percentage of real estate transactions 
occur without a licensed buyer's agent?
    Mr. McDonald. Congressman Scott, I do not have that number.
    Mr. Scott. Is there any way of getting that number? I think 
it would be very important to have that number. Is there any 
way of assessing that number?
    Mr. McDonald. I am afraid I do not know the answer to that 
question either, but certainly I will look into it and respond 
appropriately.
    Chairman Ney. The gentleman's time has expired.
    Mr. Scott. Thank you, Mr. Chairman.
    Chairman Ney. If you could look into that and get the 
answer for Mr. Scott.
    Mr. Scott. And provide it for the committee, too.
    Mr. McDonald. Yes.
    Chairman Ney. The gentleman from Texas, Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. McDonald, are you an attorney?
    Mr. McDonald. Yes, Congressman, I am.
    Mr. Neugebauer. Are there any other people on the panel who 
are attorneys, also?
    Ms. Ohlhausen. I am, as well.
    Mr. Neugebauer. Would you say that real estate services is 
a professional service? Mr. McDonald?
    Mr. McDonald. I have no reason to disagree with that, 
Congressman.
    Ms. Ohlhausen. I agree, as well.
    Mr. Neugebauer. One of the things about buying a home, it 
is probably the largest single investment that a lot of people 
make.
    Would you say attorneys' fees over the last 40 or 50 years 
have gone up or down?
    Mr. McDonald. Congressman, I have not seen real dollar 
numbers, but I would not be surprised if they have gone up.
    Ms. Ohlhausen. I think Mr. McDonald's intuition is correct.
    Mr. Neugebauer. Would you say professional services over 
the last 30 or 40 years in engineering have probably gone up?
    Mr. McDonald. Congressman, I am sorry. I do not have a feel 
for that.
    Mr. Neugebauer. I think most people would think that those 
services have gone up. Yet, in fact, the data that Mr. Wood 
shows is, in fact, that the amount of percentage commission has 
actually gone down.
    If this is professional services, we have a history here 
where attorneys' fees are going up, and the engineering fees 
are going up. In fact, the professional services delivered by 
professional real estate individuals have actually not gone up, 
over a fairly inflationary period of 40 to 50 years.
    Would you say that is a true assumption?
    Mr. McDonald. Congressman, I think in terms of gauging 
competition in these markets, you are looking at the right 
dimension of competition, the price of the fees paid to brokers 
for brokerage services that they provide.
    It is correct that the percentage commission has dropped 
slightly in the last few years from the traditional 6 or so 
percent to something between five- and five-and-a-half percent.
    Even though the commission percentage has dropped, because 
the price of homes has increased, the actual dollars paid to 
brokers for the services they provide have increased. That is 
not explained by an increase in the cost of providing those 
services or increase in the number of services provided or an 
increase in the value of those services, per se.
    That is one of the reasons we are looking at these markets, 
to try to determine why they are not behaving more 
competitively.
    Mr. Neugebauer. The reason they have not is because in 
those other instances, for engineers and attorneys, physicians, 
and those kinds of people, they have covered the cost of their 
increased costs of doing business because their product is 
defined by a different unit. They have had to raise the hourly 
rate.
    Attorneys, when I got out of school, were getting $25 to 
$50 an hour, and now they charge $500, $600, $1,000 an hour. 
They are doing that because obviously there is a market for 
their services, and secondly, the cost of doing business in 
1972, when I got out of Texas Tech University, and the cost of 
doing business today in 2006, is remarkably different.
    Would you say that is a true assumption? The cost of doing 
business is more today than in 1972?
    Mr. McDonald. Congressman, I could not possibly disagree 
that is true. I am not familiar with--I have not seen any close 
comparison of the cost of doing business for lawyers and real 
estate brokers.
    Mr. Neugebauer. Call some of your buddies who have been in 
private practice for a while and ask them what they were 
billing their hours out when they came out of school and what 
they are today.
    I think the issue here is that there are discount 
brokerages available in just about every market in this country 
today. Evidently, the market place, people that are making the 
largest single investment decision, are not choosing as much 
for those people that want to list your house for $500 and that 
is all they are going to pay you.
    In fact, every one of these Realtors, they are individual 
business people. They are independent contractors, as defined 
by the Internal Revenue Service.
    Each one of those has a cost of doing business. Some have 
chosen to be a consolidator of information. That is a prevalent 
situation in the Web business. I have all this information, I 
will assemble it for you, and I will make it available to you, 
and I will charge you a fee for that.
    Some people when they are making an investment decision 
want to know about the soil conditions of that particular home. 
Is this house in a special assessment district? What is the 
history of this neighborhood as far as re-sale? Some people who 
are spending that kind of money want that kind of information.
    Then we have the State legislatures that have increasingly 
every time they meet, and sometimes frequently, have increased 
the amount of risk that it takes for independent business 
people, because of more and more consumer protectionism.
    In fact, passed laws that you are, in fact, opposing in 
saying when somebody is representing an individual or on one 
side of the transaction or the other of making this very large 
purchase, we want to make sure that they are getting the right 
information so they do not make a poor decision.
    I think the marketplace is very clear and transparent here. 
You can pick up the phone book or a newspaper, and if you want 
discount real estate services in this country, they are 
available to you.
    Chairman Ney. Your time has expired.
    Mr. Neugebauer. Thank you.
    Chairman Ney. Mr. Cleaver?
    Mr. Cleaver. Thank you, Mr. Chairman.
    I received a letter from the Missouri Association of 
Realtors. They raised an issue. I could have answered the 
question about the legal fees rising. I am not a lawyer. I have 
some empirical evidence. That is not what I wanted to ask.
    The question I received from the Missouri Association of 
Realtors, they raise an issue that they received complaints 
when a licensee abandons a listing. They would take the 
listing, place it in the MLS, and then walk away, leaving 
others to sell the property.
    Is that something that is prevalent? Is it something that 
is growing? Is that something you have ever heard of?
    Ms. Ohlhausen. We have asked a number of States about that. 
Thus far, we have not heard from State officials that this is a 
prevalent problem. I do not know the background of that letter. 
I do not know if that involved the limited-service broker or 
not. Perhaps it did.
    In our inquiries thus far, we have not gotten systematic 
evidence that there seems to be a lot of consumer harm, a lot 
of these problems occurring in the markets where limited-
service brokerage is permitted.
    Mr. Cleaver. Thank you. I am going to ask the Missouri 
Association of Realtors if they would provide some detailed 
information, if they have it available.
    I would like, if possible, to submit it to you some time 
after the hearing. If this is something that is growing, 
certainly it is something that the Federal Trade Commission 
would need to know about.
    Ms. Ohlhausen. Yes. We certainly would be happy to receive 
that.
    Mr. Cleaver. My final question is based on what has 
happened in the Gulf Coast area, have there been any particular 
problems or practices that have developed in the aftermath of 
Katrina and Rita, and as survivors begin rebuilding and 
redeveloping?
    What kind of activities are going on in that area? There is 
a lot of anecdotal information that comes to us about all kinds 
of practices going on, where poor people are having their 
property essentially stolen. The real estate agents come in and 
offer a small amount of money for homes, to people who are 
desperate to sell.
    What is the activity in the Gulf Coast Region?
    Ms. Ohlhausen. I would say I have not heard those reports 
personally. I would say that the FTC is always concerned about 
any kind of fraud that is going on.
    Certainly, if there seems to be some sort of fraud 
happening, we would definitely welcome receiving that 
information.
    Mr. Cleaver. Ranking Member Waters--we had a hearing a few 
months back where residents came to Washington from the region. 
Sometimes, in the midst of a lot of pain, which they are in, 
many of them are not getting the proper insurance response, 
``proper'', defined by me, then it becomes easier to see 
conspiracy and rip off's.
    I do not know if we had those people here, that they could 
say this happened on February 3rd, and this is the agent who 
did this. I do not know. My curiosity was whether or not 
complaints were coming your way as a result of the massive 
displacement and people now trying to go back and rebuild or 
people who have been displaced from their properties.
    Ms. Ohlhausen. I know the FTC has been involved with 
Katrina recovery efforts, and has been involved in trying to 
ameliorate any kind of fraud problems that are going on down 
there.
    I just do not know whether there have been any particular 
associations with real estate kinds of transactions.
    Our Bureau of Consumer Protection has been very heavily 
involved, as I said, with fraud. They have done it after a 
number of hurricanes in certain areas.
    Mr. Cleaver. Do you have any knowledge of what they found 
thus far?
    Ms. Ohlhausen. I could certainly ask them and get back to 
you with that.
    Mr. Cleaver. I would appreciate that. Thank you. Thank you, 
Mr. Chairman.
    Chairman Ney. Thank you. The gentlelady from Florida, Ms. 
Ginny Brown-Waite. I am sorry, if you could suspend for a 
second, the gentleman from Texas.
    Mr. Neugebauer. I failed to ask for unanimous consent. I 
have two documents to submit for the record. One from the Texas 
Association of Realtors, another is a white paper by Mr. Wayne 
Thornburn on, ``Public and Private Restraints to Alternative 
Business Models for Consumers.''
    Chairman Ney. I thank the gentleman. Without objection.
    The gentlelady from Florida, Ms. Brown-Waite.
    Ms. Brown-Waite. I thank the gentleman. I also would ask 
for unanimous consent to be able to submit my remarks, my 
opening remarks, for the record.
    Chairman Ney. Without objection.
    Ms. Brown-Waite. Thank you, Mr. Chairman.
    Recently in the newspapers in Florida, there was a headline 
that said something like Florida home buyers pay much more for 
title insurance than in any other State.
    I would just like to ask Mr. McDonald, Ms. Ohlhausen, and 
Mr. Wood, representing DOJ, FTC, and GAO, have you all ever 
been concerned about say mortgage insurance, PMI, title 
insurance costs?
    Ms. Ohlhausen. There is a slight complication with the FTC 
because under our jurisdiction, under the McCarran-Ferguson 
Act, there are certain protections for insurance. A number of 
years ago, we did prosecute a suit called Tycor Title 
Insurance, that had to do with competition in this market. It 
is a market where we have had some involvement.
    Mr. McDonald. Congresswoman, I am not familiar with any 
recent allegations of anticompetitive conduct in title 
insurance markets in Florida, but would be interested if you 
have some information on that.
    Ms. Brown-Waite. I think you can just do a Google search of 
the ``title insurance, Florida.'' I think you will certainly be 
able to find it.
    Mr. Wood?
    Mr. Wood. We do have some work currently underway looking 
at title insurance. I am not familiar with the details because 
I am not personally involved. I would be glad to find out and 
supply it for the record when we expect a report on that.
    Ms. Brown-Waite. The reason I asked is I hear from people 
about these issues. I was a State senator for 10 years. Now, I 
have been in Congress for 4 years. I have not heard complaints 
about Realtors. What I have heard complaints about is the fact 
that people who sign up with a discount or one cost broker end 
up going to the closing without anyone there. The discount 
broker person expects just his or her commission check to be 
mailed to them.
    When questions come up at a closing, Realtors, let's say 
one of the parties is represented by a Realtor, who shows up at 
the closing, and the other one is represented by a discount 
company, the concern is that the person who is the Realtor is 
there answering questions that the discount broker who is 
getting a commission certainly should be there to answer.
    They are the kinds of concerns that I hear from 
constituents. Just this past week, actually, on talk radio, one 
of the financial advice shows, was saying exactly this same 
phenomenon, that it is a very dangerous thing when both of the 
parties do not have a real estate person at the closing. People 
are finding this out sometimes not until the closing, that you 
are going to be there by yourself.
    There seems to be some concern over that. I do not know 
about the other members, but I am not hearing complaints about 
the regular ``Realtors.''
    As the housing market, and if the housing market nationwide 
cools off, I think you will see people saying, ``Okay, I have 
my house listed for $200,000. I am only going to get $150,000. 
If I am taking this lower amount to sell my house, Mr. or Ms. 
Realtor, you are going to have to take a lower amount.''
    Would all of you agree that may very well be a phenomenon, 
as the housing market cools off from that which it was maybe a 
year ago?
    Mr. McDonald. Congresswoman, that is what one would expect 
in a market that behaves competitively. One of the curiosities 
that we have tried to report in this hearing is that we have 
not seen such price competition in real estate brokerage.
    If I may speak to your earlier question, it is a question 
we have considered, the consequences of the two parties to a 
real estate transaction appearing at closing and only one of 
them is represented by a real estate broker because the other 
has hired a limited-service broker, purchased fewer services, 
not including appearance at the closing, and was able to pay a 
lower fee.
    Certainly, it can put the other broker in an awkward 
position of being asked advice by a person to whom that broker 
does not owe any fiduciary duty.
    The two approaches to that could be either to ban limited-
service brokers, that is to require that every broker provide 
the full array of services, including appearing at closing, 
which of course, increases the broker's costs, increases the 
price that all consumers pay, and takes away from consumers the 
limited choice option.
    The other way to approach that is through regulation that 
requires full disclosure to the person buying a limited package 
of brokerage services, so that the consumer is not under the 
impression that he or she is going to have a broker at the 
closing when in fact he or she has contracted not to have a 
broker at the closing.
    Ms. Brown-Waite. I think that is exactly the problem.
    Mr. McDonald. Congresswoman, if that is a problem, then 
full-disclosure regulations seems, from a competitive 
perspective, to be the right way to approach it. It leaves the 
competitive option open for all consumers, but addresses this 
disclosure question for those who need it.
    We have not found evidence that a significant number of 
consumers buying limited-service options have faced this 
problem, but if there are reports of additional problems out 
there, we would like to know.
    Chairman Ney. Time has expired. The gentleman from Texas, 
Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member as well, and the members of the panel for the 
information you have imparted.
    Let me ask you about the Austin case, if I may, the 
restraint of trade action that was placed against the Austin 
Board of Realtors.
    In that case, there seems to be an indication that the 
discount brokers were excluded from the MLS listings. Is that 
true?
    Ms. Ohlhausen. The traditional, the exclusive right to sell 
listings and exclusive agency listings, which are typically 
associated with non-traditional services, were both allowed 
into the MLS database. What the rule that we objected to did 
was it prohibited the MLS from sending the information about 
the non-traditional listings, of the data on it, to a number of 
publicly accessible Web sites, where there was a lot of 
exposure for these properties.
    Everything was allowed into the MLS, but only the 
traditional listings got this important Internet kind of 
exposure through the MLS.
    Mr. Green. Who produces the MLS?
    Ms. Ohlhausen. The MLS is a private association of real 
estate agents in certain areas.
    Mr. Green. Is there a proprietary right in the product, the 
work product?
    Ms. Ohlhausen. I believe there is, but I am not an expert 
on that in particular.
    Mr. Green. Mr. McDonald?
    Mr. McDonald. The question has been raised whether Realtors 
have a copyright in the listing information, and from an 
antitrust law perspective, that actually does not matter.
    The MLS is a joint venture among brokers. They all 
contributed their listing information, copyrighted or not, to 
that joint venture. Because the joint venture is necessary to 
compete in that market, they are not free to exclude other 
competitors because of the way they compete.
    Mr. Green. We have talked about consequences, and sometimes 
it is difficult to talk about unintended consequences. In 
making this change, are we putting ourselves at risk of having 
some unintended consequences that might be adverse to the best 
interest of the consumer?
    Ms. Ohlhausen. By the, ``change,'' do you mean limited-
service brokerage, or do you mean the Austin--
    Mr. Green. By putting consumers in a position where 
notwithstanding full disclosure, they find themselves at 
closings without the aid, use and benefit of a broker, where 
they find themselves without the use and benefit of the advice 
that a broker gives along the way that can be of great 
importance in making a decision about the whole process of home 
purchase.
    Is there not a possibility of some unintended consequences 
developing as we eliminate the advice that is being conferred 
right now?
    Ms. Ohlhausen. There would certainly be a possibility that 
consumers could be injured, but what we have found is in the 
markets where limited-service brokerage has been allowed, we 
have not seen evidence or been presented with evidence that 
consumers who choose this option are being harmed.
    Mr. Green. Have we seen any evidence or do we have 
empirical data to support the notion that the Realtors are 
being complained against to the extent that they merit this 
additional competition?
    I have not heard you respond to the notion that the 
gentlelady from Florida raised about complaints against 
Realtors. Do you have complaints against them that have been 
quantified such that we can conclude that their services are 
not up to standard?
    Ms. Ohlhausen. Our inquiries have not approached it in that 
way. What we have seen is that regardless of the current 
competitiveness of the market, we are concerned when a new 
business model, particularly one that offers a lower cost, is 
being kept out of the market, that would reduce competition.
    It is not necessarily that we are saying--we are certainly 
inquiring about the level of competitiveness currently in the 
market, but our concern is when a competitive business model is 
being foreclosed from the market and consumers are being denied 
that choice, without any indication that having that choice 
harms consumers.
    Mr. Green. What about the quality of the competitiveness? I 
think competition is great. By the way, I want to see the 
prices down. My concern is the quality of service that is going 
to be imparted.
    Have you looked at the quality of the service in the new 
model? Have you quantified any opinions about the quality of 
service?
    Ms. Ohlhausen. We have not measured the quality of service 
directly. Instead, what we have tried to discern is whether 
consumers are being harmed by choosing this lower package of 
services. Certainly, we believe that the higher level of 
services should also still be available in the market, that it 
should not be that the market is all one thing or the other, it 
should really reflect the diversity of consumer needs in the 
marketplace.
    Mr. Green. Given that we have some other examples, and I 
will try to be nebulous, but at least give you some ideas of 
what I am talking about, where consumers have big businesses 
that move in, they drive prices down. They drive other 
businesses out of business, and then the prices go up.
    Competition can sometimes eliminate competition to the 
extent that what you really need is no longer available to you.
    Are we concerned about those unintended consequences?
    Chairman Ney. Time has expired. If you would like to answer 
the question, go ahead.
    Ms. Ohlhausen. What I would say is to the extent that you 
are concerned about something like predatory pricing or 
something, that is something that the antitrust laws are 
equipped to address.
    Mr. Green. Mr. McDonald, do you have a response?
    Mr. McDonald. Congressman, we have not seen any evidence 
that discount brokers have significantly changed the quality of 
service provided by brokers in any locality.
    I will add that our enforcement actions are not in response 
to complaints about the quality of services provided by any 
type of broker, but instead, are in response to restraints on 
competition by new broker models. It is competition to provide 
different kinds of services, perhaps even different quality of 
service. We are trying to protect that competition, so 
consumers can purchase the range of services or the quality of 
service they choose and can pay a price appropriate for that.
    Mr. Green. Thank you.
    Chairman Ney. Our ranking member has some time she is 
reclaiming.
    Ms. Waters. Mr. Chairman, I may be asking the wrong 
question here, but all of this is a non-issue now; is that 
right? The suit was settled; is that right?
    Ms. Ohlhausen. The Austin case?
    Ms. Waters. Yes.
    Ms. Ohlhausen. Yes, that was settled in Austin. We do have 
other cases that we are looking at, in other MLS'.
    Ms. Waters. In what way? As I understand it, when the suit 
was first filed, it was over a policy basically that no longer 
exists, and then there was just one other issue having to do 
with the listings in these MLS' that got resolved.
    What else is left?
    Mr. McDonald. Ranking Member Waters, in the U.S. vs. 
National Association of Realtors' lawsuit, there are two sets 
of rules at issue. The first set of rules is the one that the 
National Association of Realtors had in place previous to our 
action.
    Ms. Waters. I know that. When you filed, it no longer 
existed. You went onto the second problem that you saw, which 
got worked out?
    Mr. McDonald. On the morning that we filed the action, NAR 
revised its rules, didn't eliminate its rules, but revised 
them. Our amended complaint addresses both the original rules 
and the revised rules. Neither set of rules in our view 
complies with the antitrust laws. Both, we think, violate the 
antitrust laws.
    The problem has not gone away because, as to the first set 
of rules, there are some local MLS' that did adopt them, and 
those are in place, and as to the second set of rules, those, I 
believe, are in abeyance but, but for the lawsuit, would be put 
in place.
    Ms. Waters. Having said all that, the lawsuit was settled?
    Mr. McDonald. To be clear, the Austin lawsuit was settled, 
and that deals with--
    Ms. Waters. What is pending now?
    Mr. McDonald. The lawsuit that is pending in the Federal 
District Court in Chicago is the Justice Department's suit 
challenging the National Association of Realtors' rules, which 
apply nationwide. That has not been settled.
    Ms. Waters. Is it calendared? Where is it?
    Mr. McDonald. It is in a pre-trial stage. There is a motion 
to dismiss that the National Association of Realtors has filed 
that is briefed and ready for decision by the Federal judge.
    Ms. Waters. As I understand it and what you are telling us 
is the case that you just dealt with, that dealt with that 
area, that jurisdiction, and now you want to make sure that the 
rules that were adopted by the National Association of Realtors 
are applicable to all this country; is that right?
    Mr. McDonald. Ranking Member Waters, you are correct that 
the Austin lawsuit, which the Federal Trade Commission brought, 
dealt only with Austin, with a particular kind of rule that 
applied only in Austin.
    The Department of Justice's lawsuit--sorry, we have two 
agencies here working on the same kind of matters--the 
Department of Justice's lawsuit addresses a slightly different 
kind of rules that apply nationwide.
    The Austin matter has been resolved. The nationwide matter 
has not been resolved.
    Ms. Waters. It seems to me that the settlement of the 
Austin lawsuit indicates that the Realtors have been very 
cooperative in working with you.
    Was there some discussion and an attempt to walk through 
whatever rules you are concerned about nationally prior to 
going back to court?
    Mr. McDonald. Preceding the Department of Justice's filing 
the lawsuit against the National Association of Realtors, there 
were extensive settlement discussions that did not lead to a 
satisfactory result.
    Ms. Waters. Because you did not get the results that you 
desired, you went back into court, and it is not about the 
rules, it is about settlements that you were not able to get?
    Mr. McDonald. In the National Association of Realtors' 
matter, NAR did not agree to change its rules in a way that we 
thought would bring those rules into compliance with the 
Federal antitrust laws. Therefore, we proceeded to file that 
lawsuit.
    In the Austin matter, which came up after, I believe, the 
National Association of Realtors' lawsuit was filed, in the 
Austin matter, the Federal Trade Commission investigated a 
different kind of rule, and announced a challenge to that rule. 
Announced it would bring a lawsuit, did so, and the Austin 
Board of Realtors backed down.
    Ms. Waters. Mr. Chairman, I do not know, because I was a 
little late in coming, whether or not they have described to 
you exactly what it is they are challenging at this point.
    Have you heard that today? Has anybody heard exactly what 
it is they are challenging with the Realtors nationally?
    What is it you do not like about what they are doing?
    Mr. McDonald. Ranking Member Waters, let me explain that 
and refer you, if I do not give you enough detail, to my 
prepared testimony.
    The National Association of Realtors' rules authorize 
broker members of the local MLS', traditional brokers, to 
discriminate against their fellow brokers who communicate with 
their customers using the Internet, Web-based brokers.
    Ms. Waters. That has all been solved. I just want to know 
what it is that you are going after now nationally. You solved 
the local issue with Austin; is that right?
    Mr. McDonald. Forgive me. I was not clear. The National 
Association of Realtors' rule--put aside the Austin rule. It 
was a different kind of rule that was challenged.
    The National Association of Realtors' rule applies 
nationwide. It applies nationwide in that it requires that each 
local MLS adopt that rule. The rule allows a broker to withhold 
his customer's listings from the Web site of competing brokers.
    Ms. Waters. Mr. Chairman, it seems to me that the same kind 
of work that was done with the National Association of Realtors 
relative to Austin has not been done to resolve whatever the 
Justice Department and others--questions they may have.
    I just do not quite understand what it is they are saying. 
They are saying in essence that the National Association of 
Realtors disagreed to do this in any other jurisdiction other 
than Austin. Is that what you are saying?
    Mr. McDonald. That is not what I am saying, Congresswoman. 
The National Association of Realtors' rules that are challenged 
in the Department of Justice's lawsuit are a different kind of 
rules than the rule that was imposed by the Austin Board of 
Realtors in Austin.
    Ms. Waters. I asked you to tell me what it was, and you 
still have not told me what the difference is.
    Mr. McDonald. In Austin, if I understand it correctly, the 
local Board of Realtors prevented certain kinds of brokers from 
putting their listing information on some public Web sites.
    Ms. Waters. I got that.
    Mr. McDonald. That is the Austin action. The National 
Association of Realtors' rule allows brokers, members of the 
MLS, to withhold their listing information, to withhold it from 
the Web sites of competing brokers. That undercuts competition 
from brokers who use Web sites to communicate with their 
customers, limits competition from that new business model, and 
we believe violates the antitrust laws.
    That rule, NAR has not agreed to--
    Ms. Waters. I thought there was some kind of opt-out 
agreement that everybody basically agreed to, to say that if 
the Web site does not want to participate, they do not have to 
participate, they cannot use the other person's listing, and 
they can opt out. I thought that was worked out.
    Mr. McDonald. You are correct that the rule that I 
described is called an ``opt out.'' You and I are talking about 
the same rule. It is an agreement among competitors, which is 
part of what makes it unlawful. There has not been an agreement 
to eliminate those rules. Therefore, our lawsuit--
    Ms. Waters. What you are arguing about now is the opt out 
so-called agreement between the Realtors and the Web site 
owners?
    Mr. McDonald. The opt-out rule is not an agreement between 
the brokers and the Web site owners. It is a rule imposed by 
the NAR, a trade association, which itself is an organization 
of competitors, it is a rule that might be favored by 
traditional brokers and opposed by brokers who use Web sites to 
communicate with their customers.
    Ms. Waters. You still see it as an antitrust issue?
    Mr. McDonald. That is correct.
    Ms. Waters. They are working with it okay, it is all right 
with everybody but you?
    Mr. McDonald. I think it is probably okay with the National 
Association of Realtors.
    Ms. Waters. Nobody is asking you to do this. You just think 
it is not quite what you would like to see; is that right?
    Mr. McDonald. It is not our view that we get to decide what 
kinds of competitors get to participate in the market, and what 
kind do not. It is our view that this rule, which undercuts 
competition from one kind of competitor, is anticompetitive and 
does violate the antitrust laws.
    Ms. Waters. It seems to me you are the only one unhappy.
    Chairman Ney. Time has expired.
    Ms. Waters. Thank you.
    Chairman Ney. Chairman Baker?
    Mr. Baker. I thank the chairman for the time and for 
calling this hearing.
    Mr. McDonald, I want to come back at it one more time. I 
know you are enjoying this immensely.
    Is the view by your agency, as best I can understand it, 
that parties ought to be free to contract on terms they 
negotiate for services that are described by terms of the 
contract, for whatever price may be deemed appropriate by both 
consenting parties?
    Mr. McDonald. As a general matter, that is correct, 
Congressman.
    Mr. Baker. Where you find people who are prescribing the 
terms that say on the one side, all house painters in America 
get together and say if you are going to give a quote on 
painting any portion of a house, the quote must be for painting 
the entire house; is that correct?
    That would be a collaborative violation of free market 
principles?
    Mr. McDonald. And very likely an antitrust violation.
    Mr. Baker. If I wanted to hire a guy to paint my front 
porch, and I assume it will cost $200, and he says the price is 
$1,000, and I am going to paint the whole house. I am then 
constrained if I want the porch fixed. I have to pay for this 
entire service whether I want it or not.
    What I have heard members say or represent, I believe, is 
that those who are on the lower rungs of the financial ladder, 
who may not have resources, would be better protected if they 
have a full service agent, because that enables them to pay 
more of the money they do not have.
    Is that the argument?
    Mr. McDonald. That is the way I see it, Congressman.
    Mr. Baker. Let me see if I can understand the way the 
market is working. If I want to sell my home and I am going to 
refer--because I know they are going to come up in a little bit 
and you are going to be absent, I suspect, to the Realtors' 
testimony, which I think goes at issue with the pending 
litigation--on page one, the statement is, ``NAR welcomes all 
professionals engaged in various aspects of the real estate 
industry.'' That is a terrific statement.
    On page 14, there is an accusation NAR rebuts saying, ``NAR 
discriminates against non-traditional discount limited-service 
brokerages. Such assertions are absolutely not true.'' That is 
on page 14. I think that is a terrific statement.
    On page 17, the real estate industry is recognized as, 
``The most enthusiastic users of the Web.'' Again, a great 
statement of technology utilization.
    On page 19, running over to 20, there is the statement 
that, ``All real estate professionals have access to the MLS.'' 
That is terrific.
    ``In some cases, it may be limited to those who hold 
membership in the Realtor association.'' That is 
understandable, perhaps.
    As I read those statements and put them together, it would 
seem to me that if a real estate broker was an Internet 
operative business, advertising limited service at a low price, 
was a member of the Realtor organization, there should be no 
impairment with that individual Realtor having access to the 
MLS.
    Have you found that to be the case?
    Mr. McDonald. Congressman, I could not agree more that 
there should be no impediment to that Realtor having full 
access to the MLS. Our lawsuit challenges a rule that limits 
the Realtor's access, in that the Realtor may not be allowed to 
post on his Web site all of the listings that are in the MLS.
    Mr. Baker. I got it. My point is if you read the statement 
here and the testimony about to be given, it would create the 
view that anyone engaging in any entrepreneurial method of 
lawfully selling real estate, who is a licensed Realtor, who 
abides by the rules of the State jurisdiction in which they are 
licensed, should have access to the MLS.
    What I hear you saying is, well, that may be the case, but 
we will enable the local broker by operation of national 
Realtor rule to preclude Mr. Campbell's listings from being 
given to me for whatever reason he may deem. One of the 
precursors might be that I am an Internet user and he may not 
share his listings with Internet users.
    In another instance, I may be a discount broker. He may not 
do business with discount brokers.
    Is that a fair assessment of the facts?
    Mr. McDonald. That is a fair assessment, and our lawsuit 
challenges one of those situations.
    Mr. Baker. If one is to get into the real estate business 
and offer a product with lower service charge, with a clear 
understanding up front of what those services are, then it is 
really left up to the individual broker organization and the 
business community in which he resides to determine who is in 
the club and who is not.
    Mr. McDonald. Subject to violations of the antitrust laws, 
that is correct.
    Mr. Baker. What you are trying to do is enable people to 
enter into agreements for services they choose from a licensed 
professional in the trade who may have a different way of doing 
business than the full service organization?
    Mr. McDonald. I could not have said it better myself, 
Congressman.
    Mr. Baker. Thank you. I yield back my time.
    Chairman Ney. Mr. Sherman?
    Mr. Sherman. Thank you, Mr. Chairman, for letting me 
participate in these hearings. Given the weather outside, I 
thought I was in Sacramento, California. Given the issues here, 
I wonder whether I am in the State legislature.
    I kind of wonder what the Federal/Congressional role is 
here, given the fact that professional regulation, whether it 
is taxidermists or lawyers or real estate agents, is 
traditionally done at the State level. Consumer protection is 
primarily done at the State level.
    Real estate is the least interstate of all commerce. In 
fact, everything we deal with in life, except real estate, has 
probably gone across the State border before we bought it.
    One of the methods that I have seen professions use to try 
to deal with competition is to try to limit entrance, limit 
licensing. There are those who accused the American Medical 
Association many years ago of trying to limit the number of 
doctors in the country, limit entry to the field.
    Perhaps the gentleman from Justice could indicate, is there 
any evidence that the Realtors have tried to limit the number 
of Realtors in the country or denied a license to those who 
demonstrated their qualifications? Do we have a shortage of 
Realtors that is driving up the price?
    Mr. McDonald. Congressman, I am not aware of efforts to 
limit the number of licensed brokers in the country. Our 
concern relates more to restraints on the ability of brokers 
who want to use new business models to compete.
    Mr. Sherman. The first rule of creating competition is to 
have enough sellers, and this is a country where we have maybe 
only two or three companies selling data about the 
creditworthiness of individuals. We have only four big 
accounting firms. We have about 1.3 million Realtors. At least, 
we have a lot of competitors out there.
    I have been a bit concerned about the argument that somehow 
it is wrong for Realtors to petition State legislatures to make 
their arguments in favor of minimum services.
    Is there any reason to think that the State legislatures 
are somehow gullible, and we here in the Federal legislature 
are perceptive and brilliant, and for that reason, we should 
protect State legislatures from the lobbyists of the National 
Realtors Association or its State affiliates?
    Ms. Ohlhausen. None of our advocacy comments have been 
directed at the right or the ability of Realtors to lobby State 
legislatures.
    Mr. Sherman. It is not an anticompetitive practice to go to 
a State capitol and argue in favor of a minimum service law?
    Ms. Ohlhausen. To a State legislature, no, it is not. It is 
protected by an antitrust doctrine called the Noerr Doctrine.
    Mr. Sherman. Not to mention the First Amendment and the 
right to petition.
    Ms. Ohlhausen. The Noerr Doctrine is an application of the 
First Amendment.
    Mr. Sherman. It is a close call whether if I were in a 
State legislature, I would be in favor of minimum service 
requirements or not, when I think of myself as a buyer, I have 
done a lot of real estate transactions, and I would just as 
soon not pay for services I do not need, and yet at the same 
time, I would be concerned that the very most vulnerable in our 
society are the ones who might pick the cheapest broker and be 
most in need of professional services.
    Is your work at all concerned with the fact that in some 
States, you have to have an attorney involved in the 
transaction, whereas, in California, it seems to be working out 
well to have escrow agents and title insurance companies, not 
only is it considerably cheaper than in States requiring an 
attorney, but also in my State, you get a guarantee that your 
title search was done right, and even if they non-negligently 
made a mistake, they pay you.
    Here on the East Coast, if your careful attorney fails to 
be able to detect that there is an easement running across your 
living room, then you have an easement running across your 
living room.
    Are you folks focused at all on whether the Federal 
Government should tell the States that it is wrong to require 
an attorney?
    Ms. Ohlhausen. What we have done is a number of competition 
advocacies, pointing out to States the competitive effects of 
requiring an attorney at all real estate closings, and the lack 
of empirical evidence that States where non-attorney closings 
are allowed have greater amounts of consumer harm from non-
attorney closings.
    Mr. Sherman. You share your expertise with State 
legislatures, but generally, leave it to them to decide what 
their State laws on real estate and real estate transactions 
would be?
    Ms. Ohlhausen. That is correct.
    Mr. Sherman. One of the things that makes it difficult to 
have a discount in real estate sales is that you are doing 
business, in effect, not only with your own broker, but with 
the buyer's broker as well.
    I would think you would just negotiate--one of the things 
that would concern me is that I could find a broker who would 
do it for 3- or 4 percent, but which buyer's broker is going to 
come and look at my home if they are only promised 1- or 2 
percent commission?
    If I am a buyer, am I allowed to pay my broker and say, 
look, I want to go see all the homes that are for sale by 
owner, I want to go see all the homes that are for sale by 
discount brokers that only pay you 1- or 2 percent, and I will 
pay you the rest?
    Is there any law that prohibits that?
    Chairman Ney. Time has expired, but if you would like to 
quickly answer.
    Ms. Ohlhausen. I am not aware of any law that would 
prohibit that.
    Mr. Sherman. Thank you.
    Chairman Ney. With that, we will conclude the first panel. 
One question, and I do not want to prolong this, we have a 
second panel, but did the inception of the Internet have 
anything to do with looking at this differently than the old 
days where the Realtor had the notebook binder and you had to 
go look at the property? Did the Internet give any different 
look towards this idea or not of looking into this?
    Mr. McDonald. Mr. Chairman, the Internet is probably the 
single most important factor in creating new opportunities for 
competition, as we have discussed, because it does allow quick 
and efficient communication of information about homes for sale 
to customers.
    I think it is the confluence of events that has raised 
these issues, the introduction of Internet technology and the 
increase in home sale prices.
    Chairman Ney. Thank you very much. I want to thank the 
panel, all of you, for your time. I think it was very 
interesting testimony. Thank you.
    We will take a 5 minute recess.
    [Brief recess]
    Chairman Ney. Thank you. We will move onto panel two. If 
you have never testified in Congress, and because at 5:00 p.m., 
we have H.R. 5121, the FHA bill up on the Floor, when the 
yellow light comes on, you have about 45 seconds. When the red 
light comes on, then your testimony will be finished.
    Without objection, all of your statements will be entered 
into the record, and we will have 5 minutes of questions.
    We have Stephen Brobeck, executive director of the Consumer 
Federation of America. The membership includes 300 non-profit 
organizations. On their behalf, the Federation promotes 
beneficial Government policies affecting the Nation's 
consumers.
    Aaron Farmer joins us today from Austin, Texas, where he 
founded Texas Discount Realty. Texas Discount Realty offers a 
flat fee real estate listing service while employing broker 
agents in five major Texas cities.
    Kimberly Gorsuch-Bradbury is senior vice president for Real 
Estate Networks at LendingTree, a net loan provider, located in 
Charlotte, North Carolina. She is also responsible--I think we 
are going to have a statement in a second here--for developing 
the company's online real estate loan business, including the 
Internet site realestate.com.
    Glenn Kelman is the chief executive officer at Redfin 
Corporation located in Seattle, Washington. Redfin is an 
Internet brokerage business providing online services for real 
estate consumers.
    Geoffrey Lewis is a senior vice president and chief legal 
officer at RE/MAX International, headquartered in Greenwood 
Village; they have all those hot air balloons all over the 
place. The RE/MAX franchise network is a global real estate 
system of franchisee owned and operated offices.
    Pat Vredevoogd-Combs is the 2006 president-elect of the 
National Association of Realtors, a trade organization 
representing more than one million members involved in the 
residential and commercial real estate industry.
    Ms. Vredevoogd-Combs is a broker/owner of AJS Realty, a 
residential real estate company in Grand Rapids, Michigan.
    We will defer to Mr. Watt.
    Mr. Watt. I am not even on the subcommittee, Mr. Chairman. 
I appreciate you allowing me to welcome Ms. Gorsuch-Bradbury, 
one of my constituents from the Charlotte area to the 
committee, and I am looking forward to hearing her testimony, 
and I thank her for being here.
    Chairman Ney. Thank you, Mr. Watt.
    We will begin with Mr. Brobeck.

  STATEMENT OF STEPHEN BROBECK, EXECUTIVE DIRECTOR, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Brobeck. Chairman Ney, Ranking Member Waters, and 
members of the subcommittee, the Consumer Federation of America 
appreciates the opportunity to share our views on residential 
real estate brokerage services, and these views also represent 
those of the American Homeowners Grassroots Alliance.
    From a consumer perspective, this real estate brokerage 
system seems cockamamie. For most firms, information about 
prices and services is not readily available. Their prices, in 
fact, are high and nearly uniform. Brokers offering lower 
prices and limited services are few and far between in most 
markets.
    Only one comprehensive source of information about houses 
for sale is available, but buyers are limited in the 
information available to them from the source, especially if 
they do not work with a broker.
    Moreover, complaints about brokerage services are 
increasing, yet there is no independent regulation of the $60 
billion plus industry. Practicing brokers control almost all 
State real estate commissions and boards, as a study we 
released last week demonstrates.
    There is a relatively simple explanation for a system that 
seems cockamamie to consumers. Working through their trade 
association, many traditional brokers have tried with much 
success to control prices and services. In most areas, they try 
to maintain commission rates of either 6- or 7 percent. When 
they fail, it is mainly because home sellers are increasingly 
refusing to pay a $24,000 or $28,000 commission on the sale of 
a $400,000 home.
    These traditional brokers have also succeeded in 
restricting or even banning limited service or discount brokers 
in some areas. They do so in three ways.
    First, they have persuaded a number of State legislatures 
to pass anti-rebate and/or minimum service laws.
    Second, through multiple listing services, they restrict 
information about homes for sale, not only to consumers, but 
also to non-traditional brokers.
    Third and most importantly, through informal mechanisms, 
they discriminate against non-traditional brokers, especially 
those that discount, rebate, or charge fixed fees.
    The correct term for an industry that effectively controls 
prices and services is a ``cartel.''
    Since State regulators have been captured by industry, it 
is fortunate that the Department of Justice, the Federal Trade 
Commission, and the Government Accountability Office, have 
taken the initiative to try to ensure greater real competition 
and consumer choice in this marketplace.
    We urge Congress to give these Federal agencies even 
stronger mandates, authority, and financial support to ensure 
freer real estate brokerage markets.
    As a first step, Congress could direct one of these 
agencies, and our preference is the Federal Trade Commission, 
to study industry practices carefully. In its 2005 report, the 
GAO noted that, ``There is no comprehensive data on brokerage 
fees.''
    Both Congress and these agencies would benefit greatly if 
they had available the results of a study that focused 
particular attention on prices and multiple listing services.
    Our written testimony suggests specific types of 
information that would be useful to collect.
    Mr. Chairman, that concludes my oral statement.
    [The prepared statement of Mr. Brobeck can be found on page 
70 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Farmer?

   STATEMENT OF AARON FARMER, BROKER/REALTOR, TEXAS DISCOUNT 
                             REALTY

    Mr. Farmer. My name is Aaron Farmer, and I am a Realtor and 
broker at Texas Discount Realty in Austin, Texas.
    In September of 2002, the Texas Real Estate Commission 
said, through its filings in the Texas Register, that as a real 
estate broker, I should charge a full commission, instead of 
offering a menu of services at reduced fees, and being the 
first State to pass what is now known as the ``minimum services 
rule.''
    I filed suit against this rule, aimed at eliminating 
limited-services listings, and it was eventually overturned.
    Again in 2005, Texas became one of 10 States to now pass a 
minimum-services law, over strong objections from FTC and DOJ, 
and despite the fact that there has never been a single 
consumer complaint in Texas about limited-services listings.
    My business still takes limited-services listings as part 
of our unbundled menu of services listing model. While it is 
still possible to do limited-services listings, the goal of the 
law, to effectively rebundle the listings, has been somewhat 
effective. Complying with minimum-services laws takes us much 
more time and energy than it did in the past.
    It has also forced many of my agents who perform limited-
service listings to re-think the way they handle this type of 
listing. Most of my agents will now only offer limited-services 
listings to experienced investors and/or home owners.
    The uncertainty of the effects of this new law over the 
last 3-plus years has forced me and many other brokers to 
change the way we operate, what we charge, and how we plan or 
do not plan for the future of our business.
    As any businessperson will tell you, uncertainty is bad for 
business. Uncertainty in the marketplace also creates barriers 
to innovation. While the barriers created by changes in MLS 
rules, changes to data sharing rules and State sanctioned 
minimum service laws are well documented; many barriers are 
felt at a more basic level.
    All too often, alternative or innovative brokers encounter 
discrimination, ridicule, and harassment from traditional 
agents, who are resentful about new competition, new 
businesses, and new businesses which may have different pricing 
models, are more technology based, or just have different 
attitudes and business cultures than their companies have.
    I have personally heard traditional agents telling 
potential customers that our company would be going out of 
business soon, or that what we are doing is against the law, 
which is false, of course.
    Traditional agents have told sellers that other agents 
would not show their home if they listed with us. We have yard 
signs stolen from front yards, and recently, had a whole 
billboard ripped out of the ground.
    I have even seen a traditional agent ridicule one of my 
agents at a Realtor tour event for being a discount agent and 
offering reduced fees.
    The closest thing I have to a smoking gun to this type of 
activity is an e-mail sent to one of our agents recently, after 
he was asked to stop advertising in the Waxahachie Texas Daily 
Newspaper's HOMES Magazine. Waxahachie is a suburb of Dallas.
    The whole e-mail is attached to my written comments as 
Exhibit 2. The following is an excerpt of the e-mail from the 
sales department of this newspaper, and I quote:
    ``I was told by several real estate agents in Ellis County 
that they would not advertise with HOMES Magazine if we let 
Texas Discount Realty advertise. I was also told by several 
agents that our competitors would never let Texas Discount 
Realty advertise in their products.''
    These actions of conspiracy and discrimination have 
prompted my agent to ask if he could operate under a different 
name and even explore leaving my brokerage altogether.
    Fear of these types of bully tactics has the effect of 
preventing other brokers and agents who might otherwise 
consider trying an innovative model from doing so, thus, 
stifling innovation.
    In an effort to combat some of these barriers to entry, I 
have become a founding member of the American Real Estate 
Broker Alliance, or AREBA. AREBA can be found at areba.org, and 
is a national alliance of flat fee limited-services real estate 
brokers and agents formed in 2006 who advocate innovation, free 
market competition, full disclosure, informed consent, and 
consumers' rights to choose their level of desired brokerage 
services.
    AREBA believes anticompetitive practices which discriminate 
against my members must be prohibited.
    In conclusion, I would like to applaud the actions taken by 
the FTC and the DOJ to fight barriers to innovation in the real 
estate industry. However, I would urge them to take an even 
closer look and study the bullying that sometimes goes on by 
agents at companies, which tend to create barriers to 
innovation on a State and even local level.
    Until the attitudes and actions of local brokers and agents 
change, barriers to innovation will continue to exist.
    I would like to thank the committee for asking me to 
testify today. Thank you.
    [The prepared statement of Mr. Farmer can be found on page 
82 of the appendix.]
    Chairman Ney. Thank you. Your experience of the stolen 
signs and ripped down billboards--welcome to the world of 
Congressional campaigns. It is what happens to us--in about 100 
days, especially to the incumbents. We do not do that, but they 
do it to us.
    Ms. Bradbury?

STATEMENT OF KIMBERLY GORSUCH-BRADBURY, SENIOR VICE PRESIDENT, 
             REAL ESTATE NETWORKS, LENDINGTREE, LLC

    Ms. Gorsuch-Bradbury. Good afternoon, Chairman Ney, Ranking 
Member Waters, and members of the subcommittee.
    My name is Kimberly Gorsuch-Bradbury, and I am a senior 
vice president of Real Estate Networks at LendingTree. We 
appreciate this opportunity to share our views of the changing 
real estate market.
    LendingTree was founded on the idea that better choice and 
competition can empower both consumers and lenders. We have 
built relationships with over 300 lenders around the country, 
with large lenders, such as Citibank and BankOne, but also with 
many, many smaller lenders who built their businesses around 
LendingTree.
    Here is how it works. A borrower fills out one simple form 
and almost instantly gets up to four offers from lenders. The 
consumer uses this information to comparison shop and negotiate 
the best deal.
    While the value to consumers is clear, a key to our success 
is that it is also valuable to our lender partners. Our 
partners have funded well over $140 billion in loans through 
LendingTree since its inception.
    We have applied a similar approach to real estate 
brokerage, enabling choice and competition. We operate 
RealEstate.com, where we have built a network of over 500 local 
real estate brokers and 12,000 real estate agents across the 
country.
    Consumers can use our Web site to learn about homes for 
sale, get an automated home price check, learn about the 
process of buying or selling a home, and much, much more.
    Our goal is to provide consumers with the information, 
tools and resources they need to be smart and confident buyers, 
but when the consumer is ready, we also connect them with a 
local professional on our network.
    We firmly believe that the real estate professional is 
essential. Many consumers want professional assistance for such 
an important transaction.
    Switching gears, today, I would like to talk about two 
challenges facing our industry. The first relates to fee for 
service brokerages, which many of the other witnesses have 
spoken about. These companies offer real estate services that 
are unbundled. Some of them allow a consumer to choose services 
from a menu, giving them the flexibility to purchase just the 
services they need.
    For instance, a consumer may ask for a broker to place 
their home in a multiple listing service, but handle the rest 
of the transaction on her own, or she might ask for help in 
pricing the home and handling open houses, but select a lawyer 
to handle price negotiation and contracting.
    The point is that the services are flexible and she has a 
choice.
    While this innovation should be applauded, last year, we 
saw many States considering new licensing laws that impaired 
these new brokerages. Unfortunately, around 10 States have 
adopted new licensing laws that force all brokers to follow the 
traditional model of providing full service brokerage.
    That is like saying when a consumer goes to McDonald's for 
a coke, the law requires them to buy the burger and the fries.
    We believe Government should encourage new competition from 
innovators and not limit it.
    A second challenge to innovation comes from the anti-rebate 
laws. One of the ways that many brokers, including 
RealEstate.com, attract consumers is by offering a rebate on 
close transactions. This effectively lowers the cost of 
brokerage for the consumer. Since inception, we have provided 
nearly $60 million in savings through rebates.
    Of course, consumers are delighted with this result, but 
importantly, it also works for our partners.
    Since the year 2000, our brokers have closed almost 40,000 
sales with our assistance, and that is a lot of transactions.
    As you heard from prior witnesses, the competition 
authorities view anti-rebate laws as barriers to competition. 
Consumer advocates report no complaints or problems in the 39 
States that allow rebates, and yet 11 States still block or 
limit them.
    Prohibiting rebates means millions of dollars in lost 
savings for consumers. For example, in New Jersey alone, 
consumers could have saved nearly $200 million last year if 
rebates were permitted. That is a lot of money.
    In summary, real estate brokerage is a business of enormous 
importance to both consumers and the economy. Moreover, it is a 
business in which innovation offers great promise. Removing 
barriers such as those described today will result in a more 
efficient and more productive housing market.
    We thank the committee for examining competition in real 
estate, and we hope that your continued efforts will lead to a 
freer marketplace, with fewer competitive obstacles, where 
innovation can flourish.
    Thank you for the privilege of testifying today, and I will 
be happy to answer your questions.
    [The prepared statement of Ms. Gorsuch-Bradbury can be 
found on page 91 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Kelman?

     STATEMENT OF GLENN KELMAN, PRESIDENT AND CEO, REDFIN 
                          CORPORATION

    Mr. Kelman. Good afternoon, Chairman Ney, Ranking Member 
Waters, and members of the subcommittee. Thank you for inviting 
me to testify.
    I am Glenn Kelman, president and CEO of Redfin, America's 
first online national broker of real estate.
    I am here today to ask that Congress ensure Internet 
innovators get equal access to listing data, and that it 
regulate State laws designed to limit consumer choice.
    In 2004, Redfin was the first company to show real estate 
listings on an online map, like MapQuest. In 2006, we launched 
Redfin Direct, a service to allow home buyers to buy a home 
online. Clients find properties to tour on our Web site, draft 
an offer via our online forms, and rely on us to handle the 
negotiations.
    The average client saves $10,000 because we refund two-
thirds of our commission.
    As one of the first online brokerages for buyers and 
sellers, we have a unique perspective on how the industry is 
stifling innovation. A brokerage that does not employ field 
agents is a radically new service at a radically new price, and 
it has engendered resistance on a radically new scale.
    Competing agents have threatened us with violence and tried 
to intimidate our clients, concocting grade school legal mumbo 
jumbo about the perils of Internet service.
    We expected a combative reception, but it is the industry's 
impunity that has come as a shock.
    We have drafted complaints to the State commission, only to 
realize that the commissioners ran the brokerages we were 
complaining about. We posted photos of agents who were blocking 
our customers to a Web site that we called the Hall of Shame, 
only to have Realtors apply to join.
    The industry has failed to regulate itself.
    Despite all this, we have represented clients on hundreds 
of offers over the past 6 months. Our client satisfaction rate 
is 98 percent. We have been featured in the Wall Street 
Journal, the New York Times, Business Week, and on National 
Public Radio.
    We are on pace to refund nearly $1 million in commissions 
in our first 6 months.
    This begs the question, if Redfin is so great, why has 
there not been a Redfin before, a national e-trade of real 
estate?
    The Realtors would have you believe it is because real 
estate consumers do not want e-commerce, but the truth is 
different. I came to Redfin as an experienced entrepreneur, 
having co-founded a software company raising six rounds of 
financing and taking it public.
    Funding Redfin should have been very easy. It was not. 
Everyone in Silicon Valley knows that Realtors control the 
listing services, the MLS, and that many States have 
effectively outlawed online brokerages.
    Investors who put $6 million into a Web site in Sweden that 
lets you dress up a Barbie doll will not touch online real 
estate.
    The only reason we could raise money was because of our 
friends in the first panel, the Department of Justice. We cited 
that ruling over and over again, and it became the basis for 
investors to believe that for the first time, you really could 
have an online brokerage.
    We feel that without Congressional action, the Department 
of Justice will at some point shift its attention elsewhere, 
and real estate innovators like Redfin will be left high and 
dry, without access to the listings because the Realtors have 
cut us off.
    Listing services stifle innovation not just in business 
models, but in how Web sites share data. I do not think we have 
focused on this enough today. You can find out more on the 
Internet about an eBay beanie baby than you can about a $1 
million home.
    Multiple listing services have told us we cannot allow 
public commentary on a listing. We cannot let people search by 
time on market. We cannot display for sale by owner listings 
alongside commission properties, and that we have to register 
our users.
    Rules like this are a thousand tiny shackles on Internet 
businesses. Imagine if Amazon got legal threats when a customer 
published a ho-hum book review. Imagine if Google had to 
register its users before they could perform a search on some 
types of data.
    The Internet would be a gigantic marketing brochure rather 
than a useful consumer tool, and it would be a less powerful 
engine for economic growth.
    This is exactly what is happening in online real estate 
today.
    Redfin must ask that Congress act to give brokerages of all 
types equal and unfettered access to listing data, and 
authorize the Federal Trade Commission to regulate States' 
minimum service and anti-rebate laws, so consumers can make 
their own choices about commissions.
    No other proposal before Congress could save American 
families more money, and none would do more to improve real 
estate service.
    If you let innovators innovate without fear of losing 
listing access, service will be much better than any of us in 
this room can say or imagine.
    Thank you for letting me testify. It has been an honor.
    [The prepared statement of Mr. Kelman can be found on page 
97 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Lewis?

STATEMENT OF GEOFFREY D. LEWIS, SENIOR VICE PRESIDENT AND CHIEF 
           LEGAL OFFICER, RE/MAX INTERNATIONAL, INC.

    Mr. Lewis. Chairman Ney, Ranking Member Waters, and members 
of the subcommittee, my name is Geoff Lewis, and I am senior 
vice president of RE/MAX International. Thank you for allowing 
me to testify today on behalf of RE/MAX.
    RE/MAX International is not engaged in the brokerage 
business, and we do not belong to any MLS. We are a franchiser 
of real estate brokerages. Neither I nor RE/MAX International 
claim to speak on behalf of our independent brokers or agents.
    Let me address the issue of commission rates. It is often 
overlooked that full service agents work on a success basis. If 
the seller does not sell his house, he pays nothing, and the 
agent gets a zero percent commission. If a buyer does not buy a 
house, the agent gets a zero percent commission.
    When an agent does earn a commission, it often comes 
several months after he has expended his time and money with no 
guarantee of a closing on a sale. Realtors drill a lot of dry 
wells.
    In cases where successful transactions are completed, full 
service commission rates have been trending down over the past 
decade. They have gone from 6.1 percent in 1991 to the current 
average rate of 5.1 percent. That is not a 1 percent decrease; 
it is a 16 percent decrease.
    With the rapid rise in housing prices recently, many have 
questioned why commission rates have not come down further. The 
answer is that agent income has not increased correspondingly.
    The median gross income for real estate professionals in 
2004, as reported by the National Association of Realtors, was 
$38,000 for sales agents and $53,000 for brokers. That is gross 
commission income, without health care and retirement benefits, 
which are paid for by the agent. That is also before the agent 
pays for advertising, Web site hosting, gasoline, and other 
expenses.
    Over the past 2 years, agent gross income is down 6 
percent. The lack of increase in agent gross income, despite 
rising housing prices, is due to the large increase in the 
number of agents in the industry.
    NAR reported a 26 percent increase in membership over the 
past 2 years, and a 40 percent increase over the past 5 years. 
In 1995, NAR reported having 1.2 million members.
    These agents are being drawn in by the increase in housing 
prices, but as a result of the increase in the number of agents 
searching for transactions, the average number of transactions 
per agent is decreasing.
    This countervailing force puts resistance on the ability of 
commissions to continue to come down further. Nonetheless, as I 
have described, commissions have been coming down.
    Let me address Internet companies and new business models. 
It is easy to say that the Internet has brought down costs in 
other industries, so it should do the same for real estate, but 
not all industries are the same.
    The Internet has not decreased prices for doctors, 
accountants, attorneys, newspaper subscriptions, landscaping 
contractors, or a myriad of other businesses, nor has it done 
so for Government services.
    Not every business is going to be impacted by the Internet 
the same as airline ticket vendors, stock brokers, or book 
sellers. After all, these industries are selling commodities. 
Real estate agents are selling unique properties and providing 
individualized service.
    The Internet has enabled hundreds of real estate companies 
with new business models. These companies offer rebates, flat 
fee services, and discounted commissions.
    A quick Internet search will reveal any number of national/
regional companies providing these services in every market. 
New companies appear on a daily basis. Internet giants, Google, 
Yahoo! and eBay have all jumped into the business of allowing 
home sellers to list their homes on online classified ads. 
Media titans, including Tribune Company, Washington Post, Belo 
Corporation, and Gannett have formed an online classified 
service that has a primary focus on real estate.
    It should also be noted that in the last few years, we have 
seen one of the hottest real estate markets in history. In 
parts of the country, sellers have been able to attract 
multiple offers the instant their home goes on the market. Some 
sellers receive above their asking price. It is not surprising 
in these markets that many sellers have been tempted to avoid 
full service brokers in favor of limited-service providers or 
discount brokers.
    It is these same conditions that have caused the explosion 
in new business models.
    It should be noted that since the beginning of the year, 
the market has returned to more normal levels. Inventories and 
time on market have increased considerably over the last year.
    Let me conclude by making one comment about the MLS, and 
that is that the MLS no longer has the exclusivity it once did 
for real estate listings. The Internet has enabled many new Web 
sites that allow brokers or individual home sellers to upload 
property information for free.
    Chairman Ney. Time has expired, if you would like to 
conclude.
    Mr. Lewis. These are all alternatives to the MLS, and with 
more than 80 percent of consumers using the Internet in real 
estate transactions, all of these services are available to 
them.
    Thank you very much.
    [The prepared statement of Mr. Lewis can be found on page 
101 of the appendix.]
    Chairman Ney. Thank you.
    Ms. Vredevoogd-Combs?

   STATEMENT OF PAT VREDEVOOGD-COMBS, 2006 PRESIDENT-ELECT, 
                NATIONAL ASSOCIATION OF REALTORS

    Ms. Vredevoogd-Combs. Chairman Ney, Ranking Member Waters, 
and members of the subcommittee, thank you for the opportunity 
to testify on the changing real estate market.
    My name is Pat Vredevoogd-Combs, and I am a broker/owner 
and partner of AJS Realty in Grand Rapids, Michigan. I actually 
sell real estate as my primary income.
    As the 2006 President-Elect of the National Association of 
Realtors, I am here to present the views of our 1.3 million 
members, who are engaged in all aspects of the real estate 
industry.
    Those who have criticized the real estate industry often 
oversimplify the issue by looking at real estate as one 
national market. Real estate is local. With that in mind, I 
want to highlight three positive developments we are seeing in 
today's changing market.
    First, competition is thriving. A recent study of 12 local 
real estate markets conducted by Steve Sawyer, associate 
professor at the Pennsylvania State University, found that 
competition within each market is fierce, including competition 
among agents affiliated with the same firm.
    The report sends an important message for all industry 
critics; there is no such thing as a national real estate 
market. Agents compete fiercely for listings from potential 
sellers, for potential buyers, and many times for both. 
Likewise, all brokers compete for the best real estate agents. 
Their competitive edge is based on a host of factors, including 
quality, reputation, service, and price.
    The overwhelming majority of industry participants are non-
salaried, independent contractors. In other words, they are 
self-employed. Fifty percent of these contractors are 
affiliated with an independent non-franchised firm.
    As home sales slow to a more reasonable pace, competition 
will likely increase among all service providers. NAR 
encourages and promotes fair competition.
    Our members represent almost every conceivable business 
model including full service, limited service, so-called 
discount models, Internet brokers, and others.
    Second, the price of real estate services varies. The 
latest research from REAL Trends, which Mr. Oxley referred to, 
actually indicates that commission rates decreased 16 percent 
from 1991 to 2004.
    RISMedia's 2006 power broker report and survey confirms 
this view, noting that the top 500 real estate brokers 
anticipate the average commission rate will decline to 4.9 
percent this year.
    NAR has a long-standing antitrust compliance policy, which 
says that each firm independently decides the price of services 
provided by Realtors. Again, a lot of factors determine the 
price for real estate services in a competitive market. There 
is no national commission rate.
    Third, consumers can access more property and transaction 
information through the Internet, thanks in large part to 
Realtors. According to our surveys, the number of Realtors with 
Web sites has increased 129 percent over the past 5 years, and 
nearly 90 percent of Realtors and their firms have Web sites 
with searchable property listings.
    NAR also created and operates realtor.com, giving consumers 
national access to local markets through the Internet. More 
than 900 local multiple listing services are powerful forces 
for competition. A listing placed by the newest rookie agent 
can reach just as many other brokers as the seasoned 
professional.
    Participation in an MLS is readily available to all real 
estate professionals, operating all kinds of brokerage business 
models.
    If the MLS system were restructured to prohibit listing 
brokers from marketing a property as they and their clients see 
fit, some brokers would pull out and create their own systems. 
This would hurt small and new competitors.
    Again, NAR favors competition in real estate.
    To clarify some of the other testimony, there is no minimum 
service legislation that only gives one a choice of either no 
service or full service. Every minimum service legislation out 
there, and everything that we see, is unbundled. You do not 
have to either paint the whole house or nothing at all, and you 
do not have to buy a Coke or a Coke and french fries and a 
burger. You can unbundle those services wherever you are.
    In conclusion, real estate is in many local markets. The 
best assessment of a competitive landscape is based on the 
local experience. In an economy in which large national 
corporations, such as Wal-Mart and Microsoft, increasingly 
dominate, real estate stands apart. It is one of the best 
industries for entrepreneurs, and it offers consumers a wide 
array of choices in both service and the price they pay for the 
service.
    Realtors are proud to be part of a competitive and growing 
industry that accounts for roughly 20 percent of our Nation's 
gross domestic product.
    Chairman Ney. Your time has expired.
    Ms. Vredevoogd-Combs. On behalf of our 1.3 million members, 
I again thank you for the opportunity to share our views with 
you. Thank you.
    [The prepared statement of Ms. Vredevoogd-Combs can be 
found on page 153 of the appendix.]
    Chairman Ney. Thank you very much.
    I want to start with Mr. Kelman. From your point of view, 
do you see a Federal solution to this vis-a-vis the Congress 
with a law?
    Mr. Kelman. I am not a legislator, but we feel that there 
are so many States where we cannot compete, where we have to go 
market by market, on our hands and knees, and beg the MLS for 
access to the data; they knock us up with all these ticky tacky 
rules about what we can and cannot display, and it really 
limits our ability to compete.
    That is why we feel a Federal law that just provides open, 
unfettered access to the MLS would be really important if you 
wanted to have a truly free market.
    Chairman Ney. Thank you. Mr. Lewis, as I have heard today 
from the first panel, and I am really frankly so confused on 
this, if you have more Realtors, you have a surplus of 
Realtors, or maybe not a surplus but more Realtors, would there 
not be competition? Would not the commissions go down? They 
seem to be at 6 percent, unless you have a hot market.
    Can you explain that? It does not seem like that variable 
works.
    Mr. Lewis. I think the number of Realtors in the industry 
is an indication of what a free and competitive market it is, 
and that there are no barriers to entry.
    When you look at average Realtor income, gross commission 
income, perhaps one of the factors for why commission rates 
have not come down lower than they have is that some Realtors 
would not be able to survive at anything less than current 
market rates.
    Chairman Ney. Let me ask another question for anybody who 
would like to answer, regarding online services. If you have 
the online service, your companies you represent, and right 
now, people look at those as that is where I can go to get my 
best deal possible, and I know how they operate, if you became 
part of the listing, the MLS, what happens to the person who 
wants to have full service from you, be there at the closing, 
do this, do that? What happens there?
    Mr. Kelman. Maybe I can answer that. First of all, to 
address your concern and Ranking Member Waters' concern, our 
goal is to actually provide better service than a traditional 
Realtor from offer to close. We are at the closing. We 
negotiate. We handle everything.
    What we do not do--
    Chairman Ney. I am sorry, not to interrupt you, you would 
physically have someone show up at the closing?
    Mr. Kelman. That is correct. What we do not do is the taxi 
service, where we drive you around looking for homes.
    The average Internet consumer finds a home 3 times faster 
than someone who is not using the Internet. Typically, what we 
hear customers say is that I can find the home on my own, what 
I want you to do is to win the deal, and protect my interests.
    Chairman Ney. How do they get into that house?
    Mr. Kelman. They get into the house in one of three ways. 
They visit an open house. They contact the seller. They contact 
the listing agent, or we can provide the tour by their request.
    Chairman Ney. There is no open house, say there is no open 
house. They would have the alternative to directly contact the 
seller?
    Mr. Kelman. Or the listing agent.
    Chairman Ney. Does that not concern you, the direct contact 
with the seller?
    Mr. Kelman. We understand that when our clients need the 
listing agent, as an example, who represents the seller, that 
many times, the listing agent will persuade the buyer just to 
work with him or her on both sides of the deal.
    Many of the folks want our advocacy, want our support.
    Chairman Ney. I am sorry. I should clarify. Not so much on 
the collusion. I just sold our house last year and we moved to 
the central part of the district. I bought a house.
    Sometimes if you get the buyer and seller together, you can 
have a horrific argument when the buyer says I think you 
painted this house terribly, what do you mean. Pretty soon, 
they are at odds and you cannot communicate.
    In the absence of a physical person, is what I am saying.
    Mr. Kelman. Generally, the most common ways people see the 
house are through a listing agent or through an open house. The 
agent who represents the seller will show the house.
    There have been cases where someone has been selling the 
house on their own, and the buyer and seller meet directly. 
That is not always the case.
    I think the important thing to remember is that it is a 
choice. There are going to be people who want full service and 
we direct them to traditional Realtors every week. There are 
people who want Internet service, who say I can find the home 
on my own; I want you to close it for me. We feel actually that 
we do a better job in part because instead of having an agent 
who is waiting every 2 months to do a deal, we have 
professional real estate agents working in each market that 
have really high deal flow.
    Chairman Ney. My time has expired. Ranking member?
    Ms. Waters. I was just sitting here thinking about the real 
estate business, and beginning to ask myself why I have been 
very pleased with those people I have met and worked with.
    First of all, I like it the way it is because it has opened 
up opportunities for a lot of women to become entrepreneurs and 
to earn a living. Women who oftentimes find themselves divorced 
and needing a way to earn some money, or people who oftentimes 
retire without a lot of retirement income, and so forth have 
been able to start their careers in real estate. The same thing 
is true of minorities, being able to get into a business, and 
through their own initiative earn a living, is a powerful idea.
    That is one thing that attracts me to this business and 
gives me an appreciation for what it has done for a lot of 
folks who perhaps would not have opportunities in other 
businesses.
    The other thing is, as I started talking earlier today 
about the complications of some of these sales, I was just 
sitting here thinking about a purchase that I was involved in 
where there was damage to the property from water that had not 
been reported by the seller of the property for a lot of 
reasons.
    When I started to look for insurance, and I started 
explaining to them about this big hole in the ceiling, they 
wanted to know if it was water damage, whatever, and then I 
could not get any insurance.
    The real estate agent that I was working with was connected 
to a lot of people in this industry, and therefore, was able to 
not only get a contractor to come out and do the evaluation so 
that I could tell the bank about the cost--they were going to 
hold back on the cost until I did the repairs--but also they 
helped to get the insurance.
    It was just a lot of convenient assistance from this full 
service Realtor; I was extremely appreciative for it. It is not 
to say that everybody needs that. For those people who do, we 
certainly want to have it available; it is critical.
    This claim that there is this exclusion and conspiracy to 
keep discount brokers from being able to market their product, 
to sell their products, is incredible. I do not spend a lot of 
time on the Internet, but I look from time to time, and even 
before I bought the last house, I looked to see what was 
available.
    It seems to me that it is about what is being described 
here. There are a lot of real estate opportunities. I liked 
looking at some of the Web sites of these creative entrepreneur 
women in particular, sometimes two of them team up on the 
sales, and they present themselves, and they describe what they 
do.
    There are a lot of Web sites like that. Where is the 
exclusion and discrimination, Mr. Kelman?
    Mr. Kelman. First of all, we have no animus against real 
estate agents. We are real estate agents ourselves. We hire 
women and minorities in the same proportion that you would see 
in the traditional industry.
    The exclusion comes when you apply to enter a new market, 
there are many agents and many brokerages, but when you are 
offering your services at a different price point, the listing 
service is looking for a way to deny you access.
    We have gotten multiple calls and letters from every 
listing service that we belong to trying to prevent us from 
displaying information.
    Ms. Waters. When they call you, what do they say? You 
better not do what?
    Mr. Kelman. They will say you cannot publish any commentary 
about a listing, to which we say but every other broker does 
what we are doing, why are you coming after us, or they will 
say you cannot let people search for homes that have been on 
the market a long time, so we allow you to do a search where 
you can say show me houses that have not sold in 90 days. The 
real estate industry does not like that.
    Ms. Waters. If you do a search in the way they do not like, 
what happens to you?
    Mr. Kelman. Nothing happens to the consumer, but that is 
the leverage point in this industry, the MLS threatens to cut 
off access to the brokerage, to us.
    Ms. Waters. Have they cut off access to you?
    Mr. Kelman. No, but we have had to--
    Ms. Waters. Who do you know where they have cut it off?
    Mr. Kelman. Before starting Redfin, we talked to E-Realty, 
which was the start-up that tried to be Redfin, before Redfin. 
He said that if it was not for the Department of Justice, we 
would go out of business in exactly the same way he did.
    Ms. Waters. It is just talk? Someone else came here today 
and talked about being bullied. You know, that is life. People 
talk. They threaten. That is the marketplace working. So what?
    Mr. Kelman. When you get a letter that tells you to take 
down a feature from the site that is very popular and useful 
for consumers, and then instead of building new features for 
the site, you have to re-engineer your site, it is material to 
a small business.
    Ms. Waters. What if you do not take it down?
    Mr. Kelman. If you lose MLS access, you will go out of 
business.
    Ms. Waters. You have not lost it. I hear a lot of talk 
about what they say or how they are in collusion against us, 
and they bully me, and I do not like the way they talk to me, 
but--
    Mr. Kelman. I am not here to whine. I love my job. I love 
this business. It is growing like gangbusters.
    Ms. Waters. You want us to stop people from bullying you; 
is that right?
    Mr. Kelman. All we want is fair, open access to the MLS.
    Ms. Waters. But you have it. You do not like the fact that 
there are people who do not like what you do, and they may say 
to you I do not like what you do and you better not do this, 
and you better not do that, but they have not stopped you, have 
they?
    Mr. Kelman. There are companies that are out of business 
that we could have called here. We feel that if we did not 
comply with their rules, they would pull our access and it 
would be the third rail for our business.
    Ms. Waters. Unless you have a list, unless you can tell us 
who those companies are, they do not exist.
    Mr. Kelman. Why don't we produce for the record the letters 
that we get from the MLS about--
    Ms. Waters. No, that will not do it. I want the result of 
the letters. I want people who are out of business because they 
got a letter.
    Mr. Kelman. Since I am in business, I cannot do it.
    Ms. Waters. I know. You are doing okay. They bully you.
    Mr. Kelman. There are States we cannot go into. We would be 
doing much better. We know 70 percent of consumers, as surveyed 
by the Wall Street Journal, are angry about their commissions. 
Fifty percent of the people--
    Ms. Waters. I am really angry about the price I pay for 
gas. I am really, really angry. There are a lot of prices that 
I am angry about. I am angry about insurance costs. I am angry 
about a lot of things.
    Mr. Kelman. I agree.
    Chairman Ney. Time has expired.
    Ms. Waters. Thank you.
    Chairman Ney. I am going to ditto on that gas part.
    Mr. Miller?
    Mr. Miller of California. Thank you, Mr. Chairman.
    This is really interesting. I have been in the building 
industry for over 35 years, which means I am older than heck, 
and I admit it. I have done a lot of real estate transactions 
over the years. I do not believe I have ever paid 6 percent for 
anything I ever wanted to list. I would always go to the 
Realtor and say, I will pay this amount for the listing agent, 
and this amount for the selling agent. I never had anybody say 
no.
    You can go to a Realtor and say I will pay you 2 percent to 
list, and I will pay you 2 percent to sell, but you know when 
you say 2 percent to sell, there are some selling agents out 
there who might say I would rather sell property where I can 
get 3 percent. You take a chance.
    I really enjoyed the testimony and it sounded like 
LendingTree, you are doing pretty well. I have heard your name. 
You guys are doing pretty good out there. You have the right to 
go out and advertise, I will list your home for 1 percent or I 
will sell your home for this amount.
    Can you not do that today?
    Ms. Gorsuch-Bradbury. No. That is not our business model 
today. What we do is we cooperate with brokers. We have a 
network of 500 brokers and 12,000 agents. We provide a 
marketing service for them.
    Mr. Miller of California. What is that marketing service?
    Ms. Gorsuch-Bradbury. A marketing service--LendingTree 
spends approximately $170 million a year in advertising, and 
part of that is directed at attracting consumers who need the 
services of a real estate broker.
    Mr. Miller of California. Are you telling me you cannot be 
flexible in your rates?
    Ms. Gorsuch-Bradbury. We refer those consumers to our 
broker partners, and part of what we offer--
    Mr. Miller of California. Then what do you want? I heard 
your testimony. I do not know what you want. Do you want free 
access to the MLS? Is that what you want? What do you want?
    Ms. Gorsuch-Bradbury. Our belief is that real estate is a 
very important industry, obviously, both to consumers and to 
the economy. We believe it is too important to be--
    Mr. Miller of California. What do you want?
    Ms. Gorsuch-Bradbury. We would like to make sure that the 
markets are free and there are not--
    Mr. Miller of California. That the MLS is available to you 
free, is that what you are asking for?
    Ms. Gorsuch-Bradbury. We believe--
    Mr. Miller of California. Yes or no?
    Ms. Gorsuch-Bradbury. We believe that the rules should be--
    Mr. Miller of California. Yes or no, you want it free or 
you do not want it free? You can join an MLS if you want to as 
a licensed broker, you can join an MLS?
    Ms. Gorsuch-Bradbury. There are some MLS' who would block 
our access to it.
    Mr. Miller of California. As a licensed broker?
    Ms. Gorsuch-Bradbury. Yes.
    Mr. Miller of California. Redfin, you seem to be having no 
problem participating in MLS'.
    Mr. Kelman. We apply to be in each MLS, and sometimes the 
application goes through easily. Other times, we have to make 
changes to our site that we feel are not in the interest of the 
consumer.
    Mr. Miller of California. You are a discount broker?
    Mr. Kelman. We consider ourselves an online broker.
    Mr. Miller of California. You could go out and spend all 
the money in the world you want to and advertise, we are going 
to offer you this online service and we are going to save you 
money, we are going to cut the rates for listings, we are going 
to cut the rates for the selling agent, you can do that 
currently, can you not?
    Mr. Kelman. We would just say that within the industry, it 
is indisputable that--
    Mr. Miller of California. I am having trouble getting the 
answer to a simple question.
    If I want to come and list a house with you and give you 2 
percent to list and 2 percent to sell, you can accept that or 
you can deny that?
    Mr. Kelman. Of course, we can.
    Mr. Miller of California. You can advertise that.
    Mr. Kelman. Of course, we can.
    Mr. Miller of California. What do you want then?
    Mr. Kelman. What we want is to be able to go into States 
where that is not legal.
    Mr. Miller of California. Let's talk about California. How 
are you doing in California?
    Mr. Kelman. We are doing well.
    Mr. Miller of California. What corrections do you want made 
in California?
    Mr. Kelman. The main issue is that you can display far more 
information about every product except a home on an Internet 
site.
    Mr. Miller of California. There should be some restrictions 
as to telephone numbers and addresses and stuff. Those should 
not be necessarily on an Internet site.
    Mr. Kelman. We agree completely that for privacy concerns 
and security concerns, but there are other reasons that the MLS 
restricts access to information.
    Mr. Miller of California. What information?
    Mr. Kelman. For example, they do not want you to search by 
how long a house is on the market. They do not want people to 
be able to add commentary on a house.
    Mr. Miller of California. They do not want you to search?
    Mr. Kelman. They do not want a consumer to be able to find 
houses--
    Mr. Miller of California. They do not want you to list on 
your Web site that these are homes that have been on the market 
for over 90 days, so you are probably going to get a better 
deal on the price. Who would want that?
    Mr. Kelman. Consumers definitely want that.
    Mr. Miller of California. If I was selling my property, I 
certainly would not want it, because then you become distressed 
property.
    Mr. Kelman. We understand it is not in the seller's 
interest, but it is in the buyer's interest.
    Mr. Miller of California. You are telling me that an 
individual who contracts with a Realtor expecting his 
information to be put on an MLS and being treated fairly has no 
rights to what you should do with that information?
    Mr. Kelman. I would not go that far.
    Mr. Miller of California. That is what you just told me. It 
might not be in the seller's interest, but it is in the buyer's 
interest. You are going to put a seller in a situation where 
they own a home and that home has been on the market for over 
90 days, somebody who might advertise it says oh, I have a 
home, they probably want to sell it in a bad way because it has 
been listed for a long time and we can probably get a better 
deal on this property.
    I would not want my home listed like that.
    Mr. Kelman. If I could respond to that, I have been an 
executive at a publicly traded company. We sold our stock on 
the market. There was plenty of information that we did not 
want buyers to have, but for free market to function 
effectively, we feel that just because the seller does not want 
to expose certain types of information, it does not mean that 
the information should not be available.
    Mr. Miller of California. Do all of you discount brokers--
this is a stupid question--you have an opportunity to form your 
own listing service. You could call it Cut Rate Listing 
Service. You could get every broker who wants to be involved 
and every individual out there who sells real estate to list 
with Cut Rate Listing Service, could you not?
    Mr. Kelman. We could, and if it was practical, we would.
    Mr. Miller of California. Why not do that? At some point in 
time, some Realtor came up with an idea, hey, let's start 
working together because when you list a piece of property, I 
do not know about it. When I list a piece of property, you do 
not know about it. There is going to be a cost associated with 
developing some type of a service, but let's do that, and we 
will all pay for advertising and we will list it and then pay 
to be a member of that and we will set guidelines and rules to 
be a participant in that.
    Somebody did that. What it sounds like is you are coming 
along today and saying yes, they did that and yes, they set up 
guidelines, I just do not like them.
    The nice thing about America is if you do not like what 
somebody is doing, you can do something different. Why would 
you not go out, if there is going to be this huge demand out 
there for your service, based on you are going to give them a 
better deal, but you are going to provide all these services, 
but you are going to tell them that if your home is on the 
market over 90 days, we will probably let people know you have 
distressed property, why not go out to the American people and 
start advertising like some Realtor did at some point in time, 
and create your own service?
    If it really is as good as you are telling me, you are 
going to have more business and make more money than you are 
ever going to be able to spend.
    Mr. Kelman. What we are disagreeing about, with all due 
respect, is whether or not the MLS asserts monopoly power. In 
our view and in the view of everyone, I think, at this table, 
people on either side of this issue, not having access to MLS 
data--
    Mr. Miller of California. You do have access to data. What 
you do not have is the ability to use that data in a negative 
way that would impact a seller, and you have real estate 
brokers and agents that acted in good faith when they signed an 
agreement to sell somebody's property that now they are being 
impugned in some fashion, their property is being impugned, 
because their property might be categorized as distressed, and 
you think that you have a right that supersedes the right of 
that seller who should have some control over the property they 
listed.
    That is where you and I disagree. That is why I think if 
you want to come up with a service that lists all those things, 
that people know they can take a chance at having their 
property categorized as distressed, and you think the American 
people want that, I think you would do really well.
    I do not believe people in this country who are selling 
their homes want their homes listed like that, to be put in 
categories that makes it appear that it is distressed property, 
and they cannot sell it. I do not think they want that.
    If I was going to sell my house, I darn sure would not sign 
with somebody who was going to do that with my property.
    You are saying, irrespectful of the understanding that a 
seller has with an agent or broker they listed with, that you 
want to go out and change the rules under which they entered 
into an agreement, and create your own rules, that you think 
benefits somebody who is not even a participant in the original 
contract.
    I have a real problem with that. That is just me as an 
individual saying if I was selling a property--if I was going 
out and trying to steal property, maybe as a shark, I think 
that is cool, because then I know who is hurting.
    The person who should have some control and some rights is 
the person who signed the original contract.
    Chairman Ney. Time has expired.
    Mr. Miller of California. I think you are trying to 
supersede that. Good luck in the future.
    Chairman Ney. Time has expired. We have to move on. Would 
you like to answer?
    Mr. Kelman. Just briefly.
    Mr. Miller of California. I am not your enemy. I just 
disagree with you.
    Mr. Kelman. I am shaking in my boots. I am a little nervous 
about this. All I was going to say is that an example that is 
pro-seller would be we have sellers who volunteer information 
about how the roof is and how the furnace is, and what their 
favorite room in the house is, and they provide enriched 
information around the listing, and the MLS has asked us to 
stop doing that.
    Mr. Miller of California. Mr. Chairman, I ask unanimous 
consent to submit a letter for the record.
    Chairman Ney. Without objection.
    Mr. Davis?
    Mr. Davis. Thank you, Mr. Chairman.
    Mr. Kelman, some of the frustration is a function of the 
fact that some of your testimony has been a little bit 
nebulous, so let me try to clarify a little bit.
    How many States right now, Mr. Kelman, would you contend 
contain restrictions against your access to the MLS?
    Mr. Kelman. Arguably, a dozen.
    Mr. Davis. Twelve. Presumably, in all those dozen States, 
you have the capacity to either go in and file a conventional 
legal claim under State law, or I suppose in some cases, under 
Federal law, or you have the capacity to go to the State 
legislatures in those States.
    The root of the problem, as I see it, given that Congress 
has frankly just not gotten that involved in this area, 
Congress has just not waded into regulation of the real estate 
industry, it is something that for years upon years has been 
essentially the province of State law, given the ample number 
of options that you have politically and legally, I do not see 
a strong case for Congress to intervene.
    Where am I wrong?
    Mr. Kelman. We are a 30 person business that has five law 
firms. I do not have an administrative assistant. There is no 
P.R. agency.
    Mr. Davis. The problem with that argument, Mr. Kelman--this 
is how I understand your argument. You are saying that you do 
not have the ideal perfect access to this market that you would 
desire. All of us can attest that there are third parties in 
America who do not have the ideal access to the political 
market they desire.
    There are small mom and pop retail stores in Birmingham, 
Alabama, who do not have the ideal access to the market they 
would desire. That is just kind of the tough breaks of 
capitalism sometimes.
    I understand you do not have all that you desire and do not 
have the playing field that you want. That is a common right in 
this society.
    Tell me the case for Congressional intervention in this 
instance as opposed to all those others.
    Mr. Kelman. First of all--
    Mr. Davis. Why should we guarantee a perfect access or 
market so you can do exactly what you want to do the way you 
want to do it?
    Mr. Kelman. First of all, I do not think any legislation 
should be crafted to benefit Redfin or any other online broker, 
discount broker. It just seems like we are having a 
conversation today about how the real estate industry will be 
affected instead of how the consumer will be affected.
    It seems self evident to us that if you were to lower the 
barriers to entry for companies operating at a different price 
point and prevent blackballing and prevent discrimination--
    Mr. Davis. Those are all good goals, Mr. Kelman. Tell me 
why the current antitrust laws and all kinds of legal remedies 
available at the State level do not accomplish exactly that 
goal right now.
    Mr. Kelman. They do not prevent discrimination from buyers 
that are working with low fee brokerages. They do not 
nationally apply to allow low fee brokerages to compete in 
different States.
    Mr. Davis. Let me raise a different set of concerns. One of 
the policy rationales that Congress has to consider is whether 
doing what you want would serve a pro-competitive agenda, and 
second of all, would it open up the real estate markets to 
people who are not a part of it right now.
    What is the economic profile from an income standpoint of 
people who utilize your service?
    Mr. Kelman. In our case, it is actually people who are 
buying houses more expensive than the median, and other types 
of discounters that do not operate through the Internet 
primarily, it is below the median. In our case, it is above the 
median price. Zip Realty would be an example of a company that 
operates well below the median.
    Mr. Davis. Is there any identifiable class of people you 
are reaching who you think are somehow not being served by the 
conventional Realtors in this country?
    Mr. Kelman. People who can find homes on their own using 
the Internet.
    Mr. Davis. People can find homes on their own using the 
paper right now. I am trying to identify some class of 
consumers who are not being served.
    Presumably, the individuals you talk about also can find 
access and service through the conventional real estate market 
and make the same range of choices they want, can they not?
    Mr. Kelman. All I am trying to do is characterize how we 
think about our market, and what we hear from the people who 
buy our service is, I found the home on my own, and I did not 
want to pay an agent 3 percent. They come to us and they use 
our online service to draft the offer, and to handle 
negotiations and closings.
    Mr. Davis. Right. The response to that would be that is 
exactly right, you have provided this alternative service to 
people who want to take advantage of it. It still raises the 
question of what extra regulatory tilt you want.
    Let me ask another set of questions. What is the default 
rate? Have you monitored default rates of people who engage 
your service?
    Mr. Kelman. We do. Generally, it is 3 percent and 3 
percent. Just to respond to your other question, it seems like 
Congress is not sensitive to the amount of blackballing that is 
going on.
    Our customers, as we testified, and as you have heard Mr. 
Farmer testify, feel like they are going through an experience 
that is completely extra legal, where there is no remedy for 
them when people refuse to show them properties, when they get 
hostile messages and things like that. It is just a very 
difficult climate for a consumer to operate in.
    Mr. Davis. For the consumer to operate in or for your 
industry to operate in? I guess there is a difference.
    Mr. Kelman. We are trying to take the point of view of the 
consumer here.
    Mr. Davis. Let me follow along those lines. One of the 
arguments you heard raised by Mr. Green in the earlier panel 
and by others is obviously, do not consumers often benefit from 
having to go through brokers, do they not benefit from going 
through a third party. Does that not give them information they 
would not have?
    You have dismissed that and you said if someone wants the 
physical presence at closing, we will provide that.
    Let's say you do that, you provide a physical presence at 
the closing.
    Mr. Kelman. We do.
    Mr. Davis. What duty of care do you owe in that instance to 
the buyer?
    Mr. Kelman. In that case, our duty is to offer better 
service from offer to close than a traditional agent. We 
specialize in the legalities, in the negotiations.
    I think in the more general case, I would refer to the 
testimony earlier today that you should disclose what you do 
and then give people the choice to buy what they want.
    Mr. Davis. Let me try to wrap this up. The concern that I 
think some of us have is, I think all of us would acknowledge 
that no, the real estate market does not work perfectly in 
terms of reaching underserved populations, in terms of reaching 
people who may be victimized by predatory lending, all those 
kinds of things.
    What is completely unclear to me is how your service does 
any better, or how your service meets any of these gaps. I am 
not trying to run you out of business. For the Federal 
Government to weigh in on these issues, when frankly they seem 
to be somewhat peripheral, somewhat limited to a few instances 
and in a few States, I do not see a compelling Federal 
rationale for that, when you cannot identify to me a population 
of people that you would reach or who are not reached by the 
conventional market, and frankly, when you do not indicate to 
me that you would mitigate any wrong that is happening in the 
current market.
    That is just my two cents' worth.
    Mr. Kelman. Current market--the current market is served by 
agents in a comprehensive way. People just pay too much. When 
they try to get a discount, there is anticompetitive behavior 
that is hostile.
    Mr. Davis. Mr. Kelman, what is a little bit bizarre about 
your argument, you are saying you want to cut some of the 
transactional layers that are involved in the real estate 
transaction. The real estate transaction is probably one of the 
most acute financial decisions someone can make over the course 
of his or her economic life.
    It would seem that, given how acute that risk is, you would 
want, frankly, as many guardrails built into the process as 
possible, and as much intermediation built into the process as 
possible.
    If you do not want to shorten steps, because if you shorten 
steps, you may cut information out. People may make enormously 
erroneous choices.
    Mr. Kelman. We would hold there are people who need those 
guardrails, and want those guardrails, but we also believe in 
free markets rather than a paternalistic approach, and we would 
just suggest there are people who feel confident to find the 
home--
    Mr. Davis. I am not saying you should go out of business. 
The ultimate question is whether the Federal Government ought 
to weigh in and do more than we are doing. I think all of us 
conservatives and liberals believe if you are coming to 
Congress wanting something, the burden is on you to tell us why 
we need it.
    I am getting mean looks from my chairman.
    Chairman Ney. Actually, I have to tell you something. This 
is the second time this has happened. The majority staff over 
here, I think they liked your questions. They accidently bumped 
the clock and you re-set for 5 minutes. I kind of think they 
favor you.
    Mr. Cleaver?
    Mr. Cleaver. Thank you, Mr. Chairman. I did think that was 
lengthy.
    I would just like to ask the panel, I am a Democrat, and I 
am very much interested in getting access to the Republican 
mailing list for contributors in my district. I want to know 
what you think should be done to allow me access.
    Mr. Kelman. We do not contribute to Republicans or 
Democrats. We read an article in the New York Times and called 
Clinton.
    Mr. Cleaver. There is nothing that would cause me to 
believe that I deserve to get that access.
    Mr. Brobeck. Can I respond to that question?
    Mr. Cleaver. Yes, please.
    Mr. Brobeck. The problem today is that sellers are under 
enormous pressure to list with a multiple listing service. If 
they do not list with the local multiple listing service, they 
are going to be disadvantaged in trying to sell their home for 
an adequate price.
    It is sort of a critical mass question. Microsoft and 
others tried to develop alternative listing services and failed 
because they could not reach the critical mass.
    We would like nothing better than to have every seller list 
on two or three different listing services. If that were the 
case--you probably saw the article in the New York Times 
several months ago that in Madison, Wisconsin, and it just 
surprised me a great deal, they achieved critical mass with 20 
percent of the market. I would have guessed you would have 
needed 40 percent.
    Maybe it is much lower. We need some alternatives to the 
multiple listing service. Now that we do not have them, it is 
essentially functioning as a monopoly.
    We are not criticizing the Realtors. They worked very hard 
to build it up and it is an extraordinary useful information 
source. It does have a monopolistic character.
    Either we need alternatives or we need some kind of 
oversight.
    As our report we released last week indicated, the 
practicing brokers are controlling virtually all of the State 
commissions, so we would prefer, as in insurance, independent 
commissioners to regulate the industry.
    If in fact the States turned around and decided to regulate 
this effectively, and I have to say for the ranking member that 
California is relatively independent of the industry--it is one 
of two or three States that has the most effective, not really 
effective, but the most effective State regulation.
    Absent that, there needs to be a Federal regulatory role. 
We propose the fairly modest step of a careful study of prices 
and the way multiple listing services function, so that this 
committee would have available information, adequate 
information, to make sound decisions about policies.
    Mr. Cleaver. Thank you. Mr. Farmer, I am from Waxahachie. I 
read the e-mail. My colleague, Mr. Davis, was a prosecutor 
before he became a Member of Congress. I just asked him a few 
questions before he left.
    I do not understand why you could not, or the Daily Light 
did not, simply contact the Texas Attorney General's Office. I 
have a cousin who actually works in that office. I was trying 
to e-mail him from here on my Blackberry to find out would they 
investigate that kind of charge.
    I do not understand why this cannot be dealt with by the 
State Attorney General or is there a request for greater 
oversight by the Federal Trade Commission, or do you need some 
kind of involvement from the Department of Justice.
    Mr. Farmer. I am not asking anyone to do anything. I am 
just showing this as evidence of the things we go through on a 
daily basis. To be honest with you, I am not asking Congress--I 
do not think there should be any Federal regulation of the real 
estate industry. I think it should stay on a State level.
    Mr. Cleaver. I do, too.
    Mr. Farmer. As far as this letter, we got this back in 
November. DOJ, I told them about it, and then DOJ actually 
asked me about it. I talked to my agent about it. He was kind 
of in fear of any kind of reprisal.
    As you know, Waxahachie is still a pretty small town. He 
was born and raised there, grew up there. It is still kind of a 
good old boy system. He is in fear of kind of what might happen 
when this came out. I did convince him, hey, this is the right 
forum for me to present this.
    I am not asking anybody to do anything. I have never asked 
anybody to do anything about it.
    Chairman Ney. Time has expired.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman Ney. Mr. Sherman?
    Mr. Sherman. Thank you, Mr. Chairman. Mr. Lewis, we have 
Mr. Brobeck here suggesting that we get this big investigation 
and report. What would be the advantage or disadvantage of 
implementing his suggestion?
    Mr. Lewis. There are over 800 multiple listing services in 
the country today. It is a very fragmented market. The point I 
made earlier, any home seller, whether it is a for sale by 
owner, using a fee for service provider, a discount broker, a 
full service broker, today, they can up load their property 
listing to Google, to Yahoo!, to eBay, to Craig's List, 
PropsMart, and Trulia. There are new Web sites popping up every 
day.
    There is no limit on the amount of exposure that a home 
seller gets. The MLS is no longer the exclusive preserve that 
it once was.
    Mr. Sherman. He wants us to do this study. Are you saying 
it is just unnecessary because it would be a study of the MLS 
which is kind of like studying Yahoo! and Google is taking over 
anyway?
    Mr. Lewis. I do not think it is as relevant as he is 
suggesting.
    Mr. Sherman. First of all, I want to thank all the 
panelists for coming to us, in large part, I guess, on the 
theory that wisdom and justice will come from Washington when 
it has not come from State legislatures. I am dumbfounded by 
such a belief, and doubt very much whether we are going to do 
or could do any better job.
    I have run out of specific questions. I do want to make the 
point that this price competition, I have seen not so much in 
the middle class district I represent now, but I used to 
represent Malibu, and as you might know, nobody gets 6 percent 
in Malibu, never got 6 percent in Malibu. We have seen Realtors 
compete on the basis of price.
    I am just going to refer to Ms. Vredevoogd-Combs, whether 
you have any additional comments.
    Ms. Vredevoogd-Combs. Yes. Thank you very much.
    One of the things that is just so obvious to me as I am 
listening to this, because I sell real estate every day and 
because I am in a marketplace in Grand Rapids, Michigan, that 
is just a little bit different than the California market, we 
have been seeing a down market for the last few years.
    It has been very interesting.
    Mr. Sherman. Even the last few years when the whole country 
is going up?
    Ms. Vredevoogd-Combs. Yes. Welcome to Michigan. We have 
some great values for you over there. Waterfront property.
    Mr. Sherman. Does this mean you are raising your percentage 
rates so you can make as much on each sale? It has been 
suggested that we should cut the rate when house prices go up. 
Your house prices are going down. Are you raising your rates?
    Ms. Vredevoogd-Combs. Our house prices are going down and 
we are not raising rates. I will tell you, in Grand Rapids, 
Michigan, every conceivable type of brokerage is out there.
    The first thing anyone asks you, even in a down market, is 
what is your commission rate, and what are you going to charge, 
and what are you going to co-op that with?
    I will tell you that there are discount brokers. There are 
Internet brokers.
    The other thing is I have to spend more money because I am 
on the Internet than I ever did just because I was doing print 
advertising.
    Mr. Sherman. The Internet is more expensive than print 
advertising?
    Ms. Vredevoogd-Combs. It is an additional thing that I have 
to pay for. I have my own Web site. In the mid-1980's, I had my 
own Web site built. I was the first person in Grand Rapids to 
have a Web site. Of course, nobody saw it because nobody had 
the Internet.
    I also had an e-mail address, and nobody e-mailed me 
because nobody had e-mail.
    I started in that. I have been selling real estate since 
1971. I have seen a lot of changes in the marketplace. It costs 
money to be on the Internet. Those of us who are in brokerage 
have to take into consideration not only the fact that we are 
in brokerage and we earn a commission and we are independent 
contractors, but we also have to pay for our own advertising. 
We have to pay for our own Internet. It is just an added cost.
    The other part is that there are a lot of free places you 
can go on the Internet. We can put them, just as Mr. Lewis 
said, I can put my listings up free on a number of sites. The 
listings that I have right now probably are on 15 or 16 sites. 
People can find them all over the place, in addition to the 
MLS, and our MLS happens to be open to the public, so people 
can go on our MLS site and search for houses.
    I think the market is much more open than it ever has been. 
We work with and cooperate with people who are doing all sorts 
of brokerage business.
    Mr. Sherman. I do not know which person to address this 
question to, but if you have a menu of services rather than the 
one fixed rate, I think one of the witnesses testified that 
they offer a menu of services, what is on that menu? What 
service would I buy independently of another, and what are the 
entrees that sell well, and what are the side dishes that sell 
poorly?
    Mr. Farmer. We have three different listing options when 
you list your home with us. We have a limited-service listing 
that used to be our most popular, now after the new State laws, 
it is not the most popular any more. It can still be done, but 
it is much more tedious.
    The most popular one is the one where we actually help with 
contract negotiations and basically, from the time a buyer is 
found, all the way through closing. It is essentially a full 
service listing. We charge a flat rate of $1,500, plus $495 at 
the time of listing for that.
    Mr. Sherman. That is full service.
    Mr. Farmer. We do not do any additional marketing of the 
property. We do have a full service option. We will do open 
houses, and we will make flyers, and we will do newspaper ads, 
and we will do whatever they want.
    Chairman Ney. Time has expired.
    Mr. Sherman. Thank you.
    Chairman Ney. By the way, we are waiting for the votes. If 
you have additional questions, we can do it.
    I wanted to also recognize Kara Mundy. It is her last day. 
Kara, do you want to raise your hand? Thank you. It is her last 
hearing, it is not her last day, as an intern from Ohio State. 
I wanted to mention that, a graduate of Ohio State.
    The question I had, I want to ask the Realtors. What is 
wrong with Mr. Kelman or Redfin, LendingTree, why can't they 
come to the Realtors and say, okay, I want to be part of this 
MLS and I am going to pay a fee like other Realtors would do to 
join, and do it nationally instead of going State by State and 
district by district?
    Ms. Vredevoogd-Combs. All of our MLS' are local. They are 
not national at all. We have MLS rules that are national rules. 
Some of those, or actually most of those rules are optional.
    Chairman Ney. That is what DOJ is objecting to, the 
national rules, correct?
    Ms. Vredevoogd-Combs. We have some national rules, and 
those are really there to protect our MLS', so they do not get 
sued by the DOJ.
    Chairman Ney. DOJ is objecting to the rules?
    Ms. Vredevoogd-Combs. Objecting to some of the optional 
rules that were set out prior to--those have been changed now--
that is what they are objecting to.
    Chairman Ney. None of your rules could override a State 
law, no matter what association?
    Ms. Vredevoogd-Combs. No.
    Chairman Ney. The State law would come in and undo a rule, 
and that would be the law of the land?
    Ms. Vredevoogd-Combs. You have to abide by State laws, but 
every one of our MLS' is local. The only thing the National 
Association of Realtors does is we promulgate various rules and 
regulations for MLS', and most of them are optional, if they 
want to do those, they can, and if they do want to do those, we 
set out the wording for them.
    Chairman Ney. Are there any groups, online groups, online 
companies, that can go all over the entire United States? I 
think there are 1,000 MLS'.
    Ms. Vredevoogd-Combs. All real estate is local. You have to 
join your local association. That is the beauty of the real 
estate industry.
    Chairman Ney. How much does it cost to join that local, do 
you know, on average?
    Ms. Vredevoogd-Combs. I do not. Maybe these guys do.
    Mr. Farmer. I belong to nine different MLS' in Texas. Every 
one of them has different rules, standards, and practices. Some 
of them make you go to orientation. I have to drive from Austin 
to Amarillo, which is about--I do not have to drive but I have 
to go to Amarillo to go to that board's orientation. Some MLS' 
have orientation, and some do not. It is very tedious.
    I am not here to complain about the MLS rules. I know that 
is part of the business and part of my job.
    Generally, it is going to run you, MLS fees alone will 
generally run you about $500 to $700 a year, and then 
additional dues as far as NAR, TAR, and local board dues, 
another $500 a year or so. Around $1,000 to $1,500, depending 
on the board, a year to belong to an MLS.
    Chairman Ney. Did you want to comment?
    Ms. Gorsuch-Bradbury. I think one of the issues is you need 
to go and join each of those MLS' individually, which by the 
way, realestate.com is completely fine with. I think one of the 
key points that probably several of us have tried to convey is 
that we are fine joining the MLS' and we are fine abiding by 
the rules.
    What we want to know, or have assurance of, is that when we 
join, we will not be discriminated against based on our 
business model. We want to have equal access as long as we are 
playing by the licensing rules and we are playing by all the 
MLS rules. We want to have the rules enforced equally so that 
we have a chance to compete fairly.
    What that does is it allows us to innovate knowing that we 
will have access to the key information, which is the listings.
    I think you have to think of an MLS as a market maker. That 
is where real estate is transacted. It is where buyers and 
sellers find each other. If, for whatever reason, we are 
excluded from that, it is very hard to compete.
    Chairman Ney. Yes?
    Ms. Vredevoogd-Combs. Just a comment. All of our MLS' are 
independent, and we welcome everybody to join these MLS' if 
they are licensed in that State, and if they do business as a 
brokerage, they are welcome. Our arms are open. What we are 
finding is that we want to do business in every way, but they 
all have to follow the same rules that we do in our businesses, 
too. I think they agree with that.
    Chairman Ney. Do you agree with that?
    Ms. Gorsuch-Bradbury. We do agree, but with all respect, I 
do not think the rules are necessarily enforced equally by all 
the MLS'.
    Mr. Farmer. I agree except for when MLS' go--when you 
create a business model, then they go and change the rules. 
That is what has happened in Austin. That is what the State of 
Texas has tried to do with minimum service laws.
    When you go and join and then some boards see this new 
competition and start changing the rules on you. That is what I 
object to.
    Chairman Ney. Mr. Kelman?
    Mr. Kelman. I was only going to reference again E-Realty. 
That is a company where the CEO testified before Congress 
saying that he felt his company was being discriminated against 
by the MLS'.
    In conversations with him, we have heard that his business 
would apply to be in the MLS. The application would be put on a 
slow boat to China. The MLS would confer with the National 
Association of Realtors. This was the issue he testified to 4 
years ago.
    In talking to him now, he said that he did not think 
Congress would act, but the Department of Justice would at 
least dampen the bullying effect of the National Association of 
Realtors.
    Chairman Ney. Thank you. Very interesting panel. I 
appreciate the testimony and look forward to talking with you 
all in the future.
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses, and to place their responses in the record.
    The hearing is adjourned.
    [Whereupon, at 5:29 p.m., the subcommittee was adjourned.]

                            A P P E N D I X



                             July 25, 2006
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