Net's real-estate benefits unrealized, panel says

WASHINGTON — State laws and real-estate agents' business practices are preventing consumers from getting the full benefit of the competition that the Internet was expected to bring to the real-estate industry, federal regulators said Tuesday.

In a new report from the Federal Trade Commission (FTC) and the Department of Justice (DOJ), regulators said discount brokers and other rivals to traditional agents have been constrained in their ability to use the Internet to reduce fees and improve service.

The Internet is now a more important tool than yard signs for advertising homes for sale, the report said. In 2006, 80 percent of home buyers used the Internet while looking for a house versus 63 percent who said they looked for yard signs, according to a study cited in the report.

Yet the report says the "sweeping benefits to consumers as cost savings and service enhancements that the Internet and other technology advances have brought to other industries" have not occurred in real estate. The report cited outdated state laws and business practices that hamper consumers from saving more money and time while looking for a home to buy.

A sharp increase in real-

estate agents' fees — brokers earned $60 billion in commissions in 2005 — reflect the run-up in residential property values and underscore the importance of competition, the report said.

The median real-estate agent's commission increased 25.5 percent to $11,549 between 1998 to 2005, the report said. The FTC and DOJ called for more study of commission rates and fees and how housing-market conditions and regulation affect them.

Technological innovations that would improve competition are available, the report concluded. For example, fee-for-service brokers offer specific services, such as listing a house on an online multiple-listing service, for a flat fee. Discount brokers provide start-to-finish services but offer rebates or price reductions on some services.

In Washington state, "the real-estate market is very competitive," said Stephen Klaniecki, spokesman for the Washington Realtors Association. "We have firms that offer rebates, flat-fee agencies, pay-for-service models, online real estate and more traditional full-service real-estate firms."

Yet some states still ban rebates in real estate. In addition, some real-estate groups discriminate against fee-for-service listings by keeping them off national Web sites.

"Between the real-estate company listings and megasites like realtor.com, virtually every listing on the market is on the Internet for customers to view," Klaniecki said.

Ten states still prohibit rebates, by law: Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, New Jersey, North Dakota, Oklahoma and Oregon. Eight states have laws requiring brokers to perform a minimum level of services: Alabama, Idaho, Illinois, Indiana, Iowa, Missouri, Texas and Utah.

The FTC and DOJ recommend that states repeal the laws and regulations that limit competition.

The Justice Department sued state real-estate commissions in Kentucky, South Dakota, West Virginia and Tennessee, charging that rebate bans limited competition. The states agreed to lift the bans.