NAR: Local Markets Drive Real Estate Competition On a national basis, average commissions have significantly declined since 1991
RISMEDIA, July 27, 2006—Real estate markets are essentially local and competition within local markets is fierce, including competition among agents associated with the same firm, Pat Vredevoogd Combs, National Association of Realtors(R) president-elect, testified before the House Financial Services Subcommittee on Housing and Community Opportunity at yesterday’s hearing.
Agents openly compete for local listings from potential sellers and for potential buyers on the basis of reputation, level of service and price. On a national basis, average commissions have significantly declined since 1991, said Vredevoogd Combs.
"Commissions or the price for real estate services are independently established by each firm or broker, as are the commission splits with the affiliated agents. Many agents are permitted to set their own commission rates and have the ability to negotiate what services to provide to their clients within prescribed limits set by their broker," said Vredevoogd Combs, broker-owner of AJS Realty, in the highly competitive market of Grand Rapids, Mich.
There are approximately 2.6 million real estate licensees in the United States. Nearly 1.3 million of these are Realtors(R). All Realtors(R) are members of NAR and subscribe to a strict code of ethics. There are a large number of firms competing in every market, and a growing number of largely independent contractor agents ensuring that the real estate industry remains fiercely competitive. "Firms and agents compete at the neighborhood level with each other for listings and sales. I would say this is a model of competition and a competitive industry," she said following her testimony.
"Those who have criticized the real estate industry as anti-competitive are oversimplifying the issue by looking at real estate as one national market, which is not the case. Real estate is local and competition should be measured at a local level," said Vredevoogd Combs. She cited a recent report published by professor Steven Sawyer of Pennsylvania State University who addresses an important implication that industry critics have ignored. Specifically, Sawyer found, "The evidence suggests that it is inappropriate to consider the U.S. real estate industry as a common or singular market. The local variations in firm, franchise level competition varies to a point that there are few, not many commonalities."
NAR reports that today consumers have access to a vast amount of information about the home buying and selling process. Even so, home buyers and sellers still depend on real estate professionals for their information, experience and expertise to assist them with the complex task of completing a real estate transaction. In the most recent NAR survey of homebuyers, 77 percent reported that they used the Internet to search for homes. The report also found that of those homebuyers who use the Internet to search for a home, 93 percent of them still use a real estate agent.
As technology continues to evolve, so too will the real estate professional's use of the Web. Some of the areas where real estate professionals are focusing their technology interests in the use of the Web include increased reach to a wider audience of potential buyers and sellers, innovative visualization technology, seamless transaction technology, and real-time delivery of listing information. "Before the local Multiple Listing Service was widely available, the only source for a buyer to get information was directly from a broker. Having a shared computerized database expands the search and access to available inventory. The MLS is a powerful force for competition," said Vredevoogd Combs.
The benefit of the MLS system has been widely recognized, including by the Government Accountability Office which has stated, "The MLSs provide important benefits to consumers by aggregating data on homes for sale and facilitating brokers' efforts to bring buyers and sellers together." The MLS enhances competition by exposing sellers to the largest number of homebuyers. Competition would be significantly reduced without the use of MLSs because it would be extremely difficult for small or new and independent brokers to succeed if they lost access to the large inventory of listings currently available through the MLS.
"Working for America's property owners, NAR provides a forum for professional development, research, and the exchange of information among its members and to the public and government for the purposes of preserving the free enterprise system and the right to own real property," said Vredevoogd Combs.
NAR's testimony maintains, "Recent claims that NAR is limiting competition, protecting high commissions and limiting access to the listing information on the Internet are simply not true. A close look at the real estate industry shows that it is more competitive than ever, and access to information is at an all-time high. Realtors(R) add value to the transaction - not because we have any unfair advantages - but simply because our members share an unparalleled dedication and love for what they do." |
