Despite testimony from the Federal Trade Commission, the Department of Justice, LendingTree, and a McCarthyesque diatribe against the real estate industry by the chairman of the House Financial Services Committee, U.S. Rep. Michael Oxley, R-Ohio (HFSC), and others, the HFS' subcommittee on Housing and Community Opportunity may not be convinced that the current system is harming consumers.

Witnesses were the same ones who have been making noise all along -- LendingTree, because it's been thwarted from access to MLSs it wants to attract consumers to its referral-fee based business model (third-parties aren't allowed to use MLS listings, only broker members); Aaron Farmer, a broker who insists that it's a service to let consumers use the MLS who don't want to pay for other brokerage services except MLS entry (this is the center of the minimum services rule that requires licensed brokers to perform minimum duties of care for consumers), otherwise, such brokers are simply providing an advertising service in a cooperative environment in which consumers don't belong; Stephen Brobeck of the Consumer Federation of America, who tipped his hand as an Oxley pawn when he outrageously suggested that if state legislatures couldn't provide adequate regulation of the real estate industry, then "there needs to be a federal role."

That's exactly what Oxley has been calling for, only the federal oversight would be via the Treasury, which oversees banks.

To Oxley, it's about the commissions. Real estate agents make too darn much money. He's baffled that there are more than one million Realtors in the country, yet commission rates are largely unchanged, he said.

Echoing his concern, the Federal Trade Commission conveniently told the Subcommittee that changes in the real estate industry, which increasingly incorporate the Internet into their business models, give consumers "the choice to save potentially thousands of dollars in commissions in exchange for taking on more work."

Maureen Ohlhausen, Director of the FTC's Office of Policy Planning told the Committee that on July 13, the Austin Board of Realtors settled FTC charges that their rules effectively prevented consumers using nontraditional listing agreements from gaining access to important public websites and made it more difficult for sellers to market their homes. The settlement bars the Board from adopting or enforcing any policy that interferes with members' ability to enter into nontraditional listing arrangements with clients. "It is important to emphasize that the ABOR enforcement action does not reflect any attempt by the Commission to favor one form of brokerage business model over another. Rather, the Commission's enforcement action, and all of its work in the sector, is intended to protect competition in the market -- not competitors -- so that consumers can select the services that best meet their needs."

Now we finally have an answer to the troubling question raised by Realty Times weeks ago. If the ABOR settled, and that included no admission of guilt, why did the FTC sue them?

It was to enable Ms. Ohlhousen to sit before the Subcommittee with a story. What she neglected to mention is that the Austin Board was merely following state law, but acquiesced to the FTC's demands in the naive belief that removing the requirement (that members use a certain listing agreement in order to post their homes on the Board's website) would make the FTC go away. Instead, they became poster children for how not to negotiate with the FTC.

The FTC also focused on price competition, that "commission rates do not appear to vary across several factors that would be expected to affect rates, such as geography, the price of the house for sale, the experience level of the real estate broker, and the quality of the service provided by the broker. As a result, more study is needed to determine the level of 'competitive' commission rates."

That's ridiculous; if you've never flipped a burger before does that mean you should earn less than the other minimum wage employee who's flipped 1000? And commission averages, according to Oxley himself are between 4 to 6 percent, which suggests a wide range of business and commission models are coexisting.

In the real estate industry's defense were the National Association of Realtors and RE/MAX International which defended the industry as competitive, healthy and robust with all types of business models.

Says one observer Pug Scoville, CEO of the Tennessee Association of Realtors, "I watched the entire webcast of it. It was heavily weighted against traditional real estate, as far as the panelists invited to testify before the Committee. And, predictably, Oxley took advantage of the opportunity to begin the hearing with a long and distorted diatribe against Realtors. Fortunately, most of the Committee members did not seem inclined to rock the boat or make any changes, and instead pressed those testifying for some clarity as to the changes they really wanted. It was apparent from remarks by the DOJ, the FTC, and the GAO folks that their actions and investigation were not prompted by any complaints by consumers, but were instead initiated at the request of some discount brokers, startups, and probably Lending Tree, who just don't like current MLS rules or state regulations."

He adds, "I thought the most interesting exchange occurred later in the hearing between the guy from Redfin (Glenn Kelman, CEO) and one of the panel members as to Redfin's frustration with the fact that MLS policies would not allow him to use MLS data in any way he chose on his public websites ... such as showing how many days a property may have already been on the market (which obviously a seller would not like). The Redfin guy seemed to feel that neither the listing broker nor the seller should have any rights as to how their listing was publicly displayed."

"And of course, Oxley brought up the idea of the MLS as a 'public utility,'" adds Scoville.

Yet, despite Oxley's intentions in calling for a congressional hearing to castigate the real estate industry, panel members didn't play along.

Maxine Waters, D-California, seemed to smell a rat and challenged the need for the Justice Department lawsuit against the National Association of Realtors, saying the DOJ appeared to be the only one unhappy. She also challenged Kelman's assertion that some MLS rules make it difficult for Redfin to do business. "People talk, they threaten. So what? They haven't stopped you," she said.

Another Democrat, Rep. Artur Davis, D-Alabama, said, "I don't see a strong case for Congress to intervene."

Oxley's battle to turn real estate over to banks and federal oversight isn't going well. Last week, the Senate Appropriations Committee approved legislation that would permanently ban U.S. banks from engaging in real estate activities. The matter will be legislated before the Senate, but it is unknown when that will be.

Still it doesn't look like things are going Oxley's way. Better luck next time.

Published: July 27, 2006

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