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Wednesday, July 26, 2006

Ind. Law - DOJ Antitrust Division testimony on competition in real estate brokerage services

Here is a link to testimony offered yesterday before a U.S. House SubCommittee, concerning competition in real estate brokerage services. Some quotes from the transcript:

Mr. Chairman and Members of the Subcommittee, I am pleased to be here on behalf of the Department of Justice Antitrust Division to discuss the competitive implications of developments taking place in the real estate brokerage marketplace. * * *

[A]s in other industries, laws and regulations in real estate brokerage can impede competition from innovative business models. Our experience in other industries has highlighted the negative effects government restraints can have on markets. Therefore, where it comes to our attention that significantly anticompetitive state laws or regulations are under consideration, we approach state officials to advocate that they take into account the benefits to consumers of a more competitive approach. Our experience analyzing competitive practices in a wide variety of markets often is useful in understanding the effects that state laws or regulations may have on competition and consumers.

The Antitrust Division has had a number of opportunities to offer states our pro-competition perspective on proposed measures affecting real estate services. For example, over the last decade, some states considered expanding the definition of "practice of law" so as to prevent non-lawyers from providing routine real estate closing services. Asked for our view, we have advised numerous state legislatures, courts, and bar associations as to the effects on consumers of prohibiting non-lawyers from providing these services. * * *

In more recent years, state authorities have been urged by some to adopt so-called "minimum services" rules, which would require that real estate brokers provide a certain minimum package of services. The traditional broker model provides virtually all nonlegal services associated with a home sale transaction, including those related to marketing, negotiating, and closing, in exchange for the broker's percentage commission. Some consumers prefer to purchase fewer services, handling certain aspects themselves and paying less to brokers. In response to this consumer demand, new broker business models offer smaller packages of broker services, often on a menu basis, in exchange for a smaller total fee. Where this consumer choice is allowed, home sellers and buyers have been able to save thousands of dollars on individual home sales.

Some brokers are resisting these developments, encouraging their state legislatures, regulators, or local real estate boards to impose restrictions that prevent any broker from offering less than a specified list of the "minimum services." This is portrayed as protecting consumers from unwittingly agreeing to substandard service. But we have not found evidence of consumer confusion, so it appears that the effect of these restrictions is not to protect consumers, but to interfere with their freedom to choose, and pay for, only the services they want.

As the ILB has noted in a number of entries (see partial list here), the Indiana General Assembly enacted, and the Governor signed into law, such an anti- discount real estate brokers ("minimum services") law earlier this year -- HEA 1339. For the most recent ILB entry, see this one from July 22nd.

See also Indianapolis attorney Gary Welsh's blog, Advance Indiana, which also has had numerous postings on the new law, including this one from July 22nd.

Posted by Marcia Oddi on July 26, 2006 07:02 AM
Posted to Indiana Law