Real estate industry poised for change

May 10, 2005

Perspective: Behind the charges of real estate antitrust

By Jessica Swesey
Inman News

Editor's note: The U.S. Justice Department is clearly determined to take on the Realtor community, stepping up its activity relating to alleged antitrust practices within the real estate industry. The DOJ is preparing to sue the National Association of Realtors over policies the federal agency believes will illegally restrict competition and harm online competitors, the Wall Street Journal reported today, citing lawyers close to the case. And the DOJ has been warning states not to pass policies that would curb limited-service or discount brokerage. In this special three-part report, we analyze what's happening beneath the antitrust debates. (See Antitrust victims: consumers, innovators, old industry suffer and Trustbusters surround industry.)

For decades, the real estate industry has plodded along unscathed by change. While the airline and travel industries saw their foothold collapse from new Internet-based competitors, traditional real estate companies for the most part today still have the upper hand over newer online competition.

But now some of that competition is starting to muscle up, backed by deep-pocketed investors, Wall Street and consumers eager for change. The Internet has made consumers more aware of the home-buying process and the costs associated with a real estate deal.

Discount brokers have stepped in, with some slashing prices for full service, and others unbundling brokerage services to allow consumers to choose and pay only for what they want. And pure, no-commission models offer for-sale-by-owner sellers wider exposure online than they previously had pre-Internet.

Some traditional real estate brokers are embracing the change, creating innovative new processes and business channels to hold onto their market share. And some have stuck their heads in the sand, ignoring the warning signs, and praying these new changes will pass them by.

Another group has resisted, and turned to state legislators to protect them from new threats. Realtor associations in several states, including Texas and Oklahoma, have backed minimum-service legislation the Justice Department says would stifle competition. And the DOJ has warned them that their actions stink of antitrust.

The real estate industry has been hit hard with allegations of anticompetitive behavior. At the center of a recent flurry of antitrust claims is the natural resistance to change.

Those for legislative efforts hide their true intentions under the guise of consumer protection, saying these rules are necessary to shield consumers from situations in which they are not adequately represented by a real estate professional. But it sounds like a backdoor approach to eliminating discounted brokerage services, which some consider a major threat to the old industry. It's a way to resist change brought on by new competition and the Internet.

While no one in Oklahoma or Texas is forthright in saying that they hope to eliminate discount services, their push for minimum-service rules would do the dirty work for them. Discount services would still be around, but these brokers, if forced to provide certain services, presumably would have to charge consumers for more representation in a real estate deal. And where's the consumer choice in that? Even if it's for their own protection, consumers shouldn't have to buy services they don't want.

Change is inevitable, and the Internet so far has changed everything it has touched. Even the MLS, once locked up in spiral-bound books in real estate offices, has wised up to change. Consumers also have changed, with the Web offering them one-click access to everything from breaking headlines to their bank account information to real-time stock quotes.

Amidst the attention created by the Justice Department, the traditional full-service industry seems to be missing the main point, which is that no one wants full-service real estate brokerage to go away. They just want traditional brokerages to adapt to new ways of doing things, or at least to step aside and allow new entrants to create new business models, enabling more choice for consumers in the marketplace.

While the full-service industry is organizing efforts to block competition through legislation -- a notoriously time-consuming process – razor sharp Internet guys like the original founders of Expedia are studying the market, looking for areas of opportunity and deciding where they will build their next empire.

Copyright 2005 Inman News

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