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1	I N D E X
2	COMPETITION POLICY AND THE REAL ESTATE INDUSTRY
3	OCTOBER 25, 2005
4
5	PANEL/SPEAKER:
6	OPENING REMARKS
7	CHAIRMAN MAJORAS
8	MR. BARNETT
9	OVERVIEW OF THE REAL ESTATE TRANSACTION
10	MS. OHLHAUSEN
11	ISSUES AFFECTING COMPETITION AMONG
12	SELLERS' BROKERS
13	DR. COOPER
14	MR. FARMER
15	MR. KUNZ
16	MR. SAMBROTTO
17	DR. THORBURN
18	REMARKS
19	COMMISSIONER LEIBOWITZ
20	ISSUES AFFECTING COMPETITION AMONG
21	BUYERS' BROKERS
22	MS. QUINN

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1	MR. PERRIELLO
2	MR. HENDERSON
3	MS. WHATLEY
4	MR. EARLY
5	MR. LEWIS
6	MR. DelBIANCO
7	EMPIRICAL EVIDENCE ON COMPETITION IN THE
8	REAL ESTATE INDUSTRY
9	DR. SALINGER
10	DR. YUN
11	DR. HSIEH
12	CLOSING REMARKS
13	MS. CREIGHTON
14	MR. KRAMER
15
16
17
18
19
20
21
22

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1	DISCLAIMER
2
3	The views expressed in this conference are the
4	views of the participants alone and are not
5	necessarily the views of the Justice Department,
6	the Federal Trade Commission or any
7	Commissioner. Likewise, the selection of any
8	panelist or moderator does not necessarily
9	reflect the view of the Justice Department, the
10	Federal Trade Commission or any Commissioner
11	regarding the views or qualifications of any
12	panelist of moderator.
13
14
15
16
17
18
19
20
21
22

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1	COMPETITION POLICY
2	AND THE REAL ESTATE INDUSTRY
3
4
5
6	A PUBLIC WORKSHOP HOSTED BY THE
7	FEDERAL TRADE COMMISSION
8	AND THE
9	DEPARTMENT OF JUSTICE
10
11
12	TUESDAY, OCTOBER 25, 2005
13	9:00 A.M.
14
15
16	FEDERAL TRADE COMMISSION
17	601 NEW JERSEY AVENUE, N.W.
18	WASHINGTON, D.C.
19
20
21
22
23
24
25

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1	P R O C E E D I N G S
2	- - - - -
3	MS. OHLHAUSEN: Thank you very much for coming
4	on such a wet, windy day. I'm pleased to welcome you to
5	the FTC and DOJ's Conference on Competition Policy in
6	the Real Estate Industry. I'm Maureen Ohlhausen. I'm
7	the Director of the Office of Policy Planning at the
8	Federal Trade Commission. Before we get started this
9	morning, I wanted to go over a few details.
10	First, the matter of security. You're required
11	at all times by the Federal Protective Service to wear
12	your visitors' badges or these name tags. If for any
13	reason you leave the building, my script says to catch a
14	breath of fresh air because you're the really hearty
15	type to want to be out in the rain today to do that, but
16	in case you want to or when you leave for lunch, you
17	will need to go back through security when you come in.
18	And I'll give you more specifics about the process
19	before we leave for lunch.
20	In case of an emergency, there are two exits
21	that you should know about. One is the front door where
22	you came in, and there's another one behind you, there's
23	a corridor there next to where the coffee table is. If
24	for any reason there's an emergency and we need to stay
25	inside, the security personnel will advise us on what to

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1	do.
2	If you need to use the restrooms, they're very
3	close by. They are on the other side of the lobby.
4	Simply go through the lobby and follow the signs. And
5	you can always ask any of the staff members or security
6	for assistance.
7	As for cell phones, our audio/visual staff asked
8	me to remind you that our microphones are very
9	sensitive, so please turn them off, and if you are out
10	in the hallway, actually sometimes the conversations can
11	be picked up as well. So, for your own privacy, if you
12	are going to make a cell phone call, you may want to go
13	out to the main lobby out there.
14	During the panels, there will be time for
15	questions from the audience. What we are going to do is
16	have people write them on cards. They should be in your
17	packet. If you need additional question cards or pens,
18	our kind staff of paralegals will be walking around with
19	additional cards and pens, and if you have a question to
20	hand in, you know, hold it up, and they will bring it up
21	to the moderator. That way, time is tight, and we're
22	able to get through a lot more questions that way.
23	Also, if there are any additional comments you
24	need to make, the record for the workshop will be open
25	another month, until November 25th, and we definitely

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1	welcome comments from anyone and everyone. You should
2	file your comments with the Federal Trade Commission and
3	with the Department of Justice on our web sites. The
4	FTC web site is www.ftc.gov, and the DOJ web site is
5	www.usdoj.gov/apr/index.html.
6	Finally, I would like to emphasize that the
7	views expressed in this conference are the views of the
8	participants alone and are not necessarily the views of
9	the Department of Justice or the Federal Trade
10	Commission or any Commissioner. Likewise, the selection
11	of any panelist or moderator does not necessarily
12	reflect the views of the Justice Department, the Federal
13	Trade Commission or any Commissioner regarding the views
14	or qualifications of any moderator or panelist.
15	So, if everyone has turned off their cell phones
16	and pagers, to begin our proceedings today, I'm honored
17	to present the Chairman of the Federal Trade Commission,
18	Deborah Platt Majoras.
19	(Applause.)
20	CHAIRMAN MAJORAS: Thank you so much, Maureen.
21	Good morning, everyone, and welcome to our workshop.
22	The real estate industry is critical to our
23	citizens. For many, the purchase of a home represents
24	tangible fulfillment of the American Dream, the reward
25	for hard work and dedication, sometimes spanning

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1	decades. It may also be the most significant personal
2	investment that some make in their lifetimes.
3	Competition in the real estate industry, therefore, is
4	not merely of interest to those involved in the real
5	estate industry or to enforcers, but rather to anyone
6	who has ever bought or sold or is thinking about buying
7	or selling a house.
8	As housing prices across the country have
9	continued to rise at significant rates, the stakes have
10	been raised for home sellers and buyers, as well as for
11	those professionals working for sellers and buyers in
12	this market environment.
13	The vast majority of residential real estate
14	sales involve real estate brokers who may assist at
15	different times both home buyers and home sellers.
16	Traditionally, real estate brokers and their affiliated
17	agents have performed virtually all services relating to
18	the sale of a home, including listing the home in the
19	Multiple Listing Service or MLS, marketing the home,
20	negotiating with the potential buyers, and helping to
21	coordinate the closing of the transaction.
22	Several related developments are presenting
23	challenges to the traditional brokerage model. First,
24	in response to perceived consumer demand, some real
25	estate professionals are offering to provide services

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1	more on an a la carte basis rather than as an entire
2	package of services. In a so-called fee-for-service or
3	limited service brokerage model, a home seller might
4	choose, for example, to pay a broker only for the
5	service of listing the home in the local MLS and placing
6	advertisements and then choose to handle negotiations or
7	paperwork for him or herself.
8	Second, real estate professionals are
9	increasingly incorporating the internet into their
10	business models in a variety of ways, as many other
11	industries are as well. In general, these models use
12	the internet to allow someone else to perform a task
13	perhaps traditionally performed by the broker or agent.
14	Some brokers, for example, offer potential buyers the
15	option of viewing full, detailed listing information
16	online, allowing them perhaps to delay contacting a real
17	estate professional until they are ready to buy. Other
18	firms use web sites to gather lead information on
19	customers who seek real estate services and sell those
20	leads to real estate professionals, usually for a fee,
21	based on the commission that the professional earns in
22	the transaction. Still other business models exist that
23	use the internet to match home buyers and sellers.
24	Actions by individual firms of real estate
25	professionals, by groups of professionals acting through

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1	MLSs, by industry trade associations and by state
2	regulatory or legislative bodies have all spawned recent
3	controversies or even lawsuits. Some of the issues
4	concern how existing industry members and institutions
5	have responded to real estate professionals that offer
6	these new business models. Several states have
7	considered or passed laws or regulations that would
8	effectively curtail fee-for-service brokerage. Further,
9	some states have either passed new laws or regulations
10	or interpreted existing laws or regulations to prevent
11	brokers from passing a portion of their commissions
12	along to consumers.
13	As you may know, the FTC has a strong and
14	growing advocacy program. We not only bring cases to
15	challenge anti-competitive conduct or unfair
16	competition, we also advocate for competition in the
17	marketplace. The FTC, often in conjunction with our
18	colleagues at the Department of Justice Antitrust
19	Division, provides comments to legislators and other
20	policy makers on proposed legislation or actions that
21	may impact competition either adversely or sometimes
22	even favorably. It is important that competition have a
23	voice apart from individual interests, because
24	government-imposed barriers to or restrictions on
25	competition may have at least as adverse an effect on

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1	consumers as private restrictions, if not an even
2	greater effect.
3	Proponents of government-imposed restrictions
4	often tout the consumer benefits of their restrictions,
5	perhaps without focus on the potential harms that such
6	restrictions may impose on consumers. At the FTC, we
7	need to look at both. In our advocacy comments, we try
8	to identify the potential harms and suggest ways in
9	which decision-makers might accomplish their goals while
10	still minimizing restrictions on competition.
11	Recently, as you know, the FTC and the DOJ
12	together have advocated in a number of states against
13	the passage of laws and regulations that would impose
14	minimum service requirements on real estate brokers. In
15	general terms, under the proposed legislation, real
16	estate professionals who agree to list homeowners'
17	property for sale would be required to provide a
18	state-mandated minimum service package, effectively
19	impeding consumers' ability to purchase a more limited
20	and perhaps less expensive set of real estate services.
21	We have argued that the proposed legislation would
22	likely harm competition in two ways.
23	First, consumers who want to hire a broker to
24	list their property in the MLS will have to purchase
25	additional services that they may not want or need,

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1	which may cost them more. And second, without
2	competition from fee-for-service brokers, the prices for
3	traditional full-service options will likely be higher.
4	What we want for consumers is choice.
5	Admittedly, our efforts thus far in state
6	legislatures have not been terribly successful, as
7	several have imposed statutory minimum service
8	requirements on brokers that likely will limit the range
9	of services available to consumers. Nonetheless, we
10	have continued to advocate against such measures and, in
11	fact, have submitted an advocacy letter urging the
12	Michigan Legislature not to impose a minimum service
13	requirement on brokers in that state.
14	Critical to being a champion for competition is
15	careful study and analysis of the marketplace, as well
16	as then educating the public on its workings. The
17	Commission regularly holds public workshops on issues of
18	importance to consumers in an effort to further educate
19	ourselves and others. Given the substantial changes
20	occurring in the real estate brokerage marketplace,
21	given consumers' strong interest in a competitive real
22	estate brokerage industry, and given that industry
23	participants have told us that they think that our
24	advocacy in this industry thus far has been misplaced,
25	the FTC and DOJ are hosting today's workshop, to provide

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1	a public forum to discuss current issues affecting the
2	competitiveness of real estate brokerage.
3	This workshop will afford us the opportunity to
4	hear from all sides on the many issues facing the
5	industry, hopefully to increase everyone's understanding
6	and identify ways to preserve competition while
7	protecting consumers.
8	In our first panel this morning, we will lay the
9	groundwork for discussion of these issues by providing
10	an overview of the real estate transaction from both the
11	buyer's and seller's sides, defining key terms and
12	identifying the various relationships and business
13	models that currently exist in this industry. One of
14	the areas of focus will be how industry participants are
15	using the internet as an efficiency-enhancing tool.
16	The second morning panel will address issues
17	affecting competition among sellers' brokers, including
18	minimum service requirements, state licensing and other
19	requirements affecting for-sale-by-owner web sites,
20	local MLS rules, and other private actions that may
21	impact brokers with non-traditional models.
22	In the first afternoon panel following the lunch
23	break, we will turn to issues affecting competition
24	among buyers' brokers, including state anti-rebate
25	legislation, policies that limit the online display of

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1	real estate listings, and the effect of minimum service
2	requirements on buyers' brokers. With each of the
3	issues to be discussed today, we will explore how the
4	restrictions or actions impact consumers, either by
5	producing benefits or imposing higher costs on them.
6	In the final panel, we will address empirical
7	evidence on competition in this industry. The panelists
8	will examine the data available to test the various
9	hypotheses and look at recommended areas for future
10	empirical analysis. They will discuss what the data
11	show about competition in this industry, for example,
12	whether commission rates have been perennially fixed at
13	6 percent or have fluctuated over time in response to
14	market conditions.
15	In conclusion, I would like to thank our many
16	distinguished panelists for coming from all over the
17	country to share their insights and experiences. We are
18	very pleased to have a wide variety of viewpoints
19	represented at this workshop. Based on pre-registration
20	information, we have in attendance today representatives
21	from several real estate trade associations, including
22	the National Association of Realtors. In addition, our
23	attendees represent several different types of
24	brokerages, including traditional, discount and
25	fee-for-service. I am encouraged by the large number

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1	who are willing to participate in this workshop, which I
2	think demonstrates the importance of these issues.
3	I would also like to thank the staffs of the
4	Antitrust Division and the Federal Trade Commission for
5	their work in putting this program together. With that,
6	I am now pleased to turn the panel over to my good
7	friend and colleague, the Acting Assistant Attorney
8	General in charge of the Antitrust Division, Tom
9	Barnett.
10	Thank you.
11	(Applause.)
12	MR. BARNETT: Thank you, Debbie, and good
13	morning. I, too, want to welcome you to our workshop.
14	I'm delighted to be here.
15	These workshops I think are an excellent example
16	of the good and healthy working relationship that the
17	Federal Trade Commission and the Antitrust Division have
18	these days, and in particular these workshops I think
19	are extraordinarily helpful to us in educating ourselves
20	about the industries that we are monitoring and policing
21	and educating the public about many of the issues.
22	Indeed, as I was driving here this morning
23	sitting in traffic, much delayed by the rain, I was
24	thinking about what I was going to say today, and the
25	concept that came to mind, shockingly, was sunshine.

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1	I'd like to have more sunshine today, and I'm glad that
2	you all are here to help us today to shed some light on
3	issues of great importance.
4	These workshops, while very valuable, do require
5	a lot of work, and I want to thank up front the staffs
6	of the Antitrust Division and the Federal Trade
7	Commission for all of the work that they have put into
8	organizing the workshop today and to thank you all in
9	advance for your help in carrying it forward. Because
10	they require a lot of work, we can't do them for every
11	industry for every issue, but I think the real estate
12	industry is clearly an industry that warrants much
13	scrutiny.
14	As Debbie indicated, owning a home is the
15	American Dream. In recent years, I think selling your
16	home has become the American Dream given the rapid
17	increase in prices, and in connection with that, it's
18	reported that in 2004, American consumers paid over $60
19	billion in commissions for basically real estate
20	brokerage services. That's an increase of $20 billion
21	or almost 50 percent from the commissions paid the year
22	before.
23	One question we might ask is, why are brokers
24	making so much money? Inquiring minds want to know.
25	And certainly the FTC and the Antitrust Division want to

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1	know. There could be a number of reasons for that.
2	There is great change in the industry going on. As
3	Debbie pointed out, the introduction or expansion of the
4	internet, our ability to collect and disseminate
5	information, have caused new business models to begin to
6	emerge.
7	I guess what I thought I would like to do is
8	just briefly talk about a couple of the areas which one
9	could possibly think about or factors that one could
10	point to as explaining that increase in the amount of
11	money that American consumers paid for real estate
12	brokerage services.
13	One is that the number of transactions could
14	well have gone up. I have no doubt that that's at least
15	part of the explanation. It could be that the value of
16	homes have gone up substantially and that brokers are
17	paid on a percentage basis, but that raises to my mind a
18	question, have the costs of providing these services
19	gone up that much as well?
20	In general, in a competitive market, it's not
21	the value of the services that leads to the price. The
22	economists tell us it's the cost of those services, and
23	many of the technological innovations that we see
24	suggest that the costs, if anything, are going down.
25	Our ability to collect and disseminate information at a

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1	low cost is far superior to what it was even five or ten
2	years ago, and as a result, that leads to a suggestion
3	of whether or not there are other factors that may be at
4	work here.
5	I emphasize I am raising these as questions. I
6	have -- and based on some of the public statements that
7	we have made and actions that we have taken, we
8	obviously have some views -- on some specific issues,
9	but our purpose here today is to raise questions and to
10	listen.
11	One area in particular that Debbie has already
12	alluded to is, when there is change, you would expect
13	many in the industry to react to that change. They can
14	react by bringing out new products, services, trying to
15	compete harder, or they may react by going to their
16	state real estate commission, their state legislature,
17	trying to obtain measures that will protect them from
18	the forces of those changes. It's not a new phenomenon.
19	I strongly suspect that the manufacturers of horses and
20	buggies were not big fans of Henry Clay Ford, and
21	similarly, it's probably true that the makers of the IBM
22	Selectric were not big fans of the Wang word processing
23	system, but from the consumer perspective, these types
24	of changes can be good.
25	Now, again, I want to emphasize here that I'm

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1	not suggesting that every time somebody goes to a real
2	estate commission or legislature that that's not good.
3	There are many laws, many regulations that are passed
4	that can be helpful to consumers. We certainly suspect
5	that there are some efforts that have been undertaken
6	recently that are not so helpful for consumers, and
7	Debbie alluded to a couple of those.
8	One of those -- and it's been going on for a
9	number of years -- has to do with the definition of the
10	practice of law. There are a number of states that
11	allow laypersons, non-lawyers, to provide certain
12	closing services relating to these transactions, and in
13	the states where that's allowed, people have done
14	studies, and they've found out that there doesn't appear
15	to be any greater incidence of consumer complaints of
16	consumer harm. The cost of those services provided by
17	laypersons is lower, and indeed, the cost of those same
18	services provided by attorneys is lower because they
19	face competition from the non-lawyers. That's an
20	example of when we believe something is good and
21	successful regulation or, shall we say, limited
22	regulation that advances the interests of consumer
23	welfare.
24	There have been a number of states who have
25	looked at expanding the definition of "practice of law"

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1	to prevent laypersons from providing those real estate
2	closing services. We have been asked in a number of
3	instances to provide our perspective, and we have done
4	so, and we have had a number of what we view as
5	successes in terms of encouraging people to keep the
6	definition relatively narrow.
7	More recently, Debbie again alluded to the what
8	I call minimum service legislation or regulations. On
9	the one hand, these can be presented as a consumer
10	protection measure designed to ensure that when I retain
11	a real estate broker, I am going to get the services
12	that I expect. There's another perspective out there
13	that suggests that it's no different than passing a
14	regulation that says, "When I walk into McDonald's and
15	order a hamburger, I'm told that I also have to buy some
16	french fries, because the state has decided that it
17	might be deceptive or misleading or bad if I only got
18	the hamburger, paid for it and didn't realize I wasn't
19	going to get the french fries." I may not want french
20	fries, and from that perspective, being able to choose
21	from amongst a menu of services to buy only the things
22	that you want to buy we generally view as a good and
23	positive thing.
24	What do we do about these situations? Our role
25	is threefold. First is to educate ourselves, and that's

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1	what we're here to do today. Second is to use the
2	benefit of our experience and the information that we
3	collect to educate others who have to make a decision,
4	and when, for example, a state legislature is
5	considering a proposed minimum service law, we have been
6	asked to and we try to respond to those requests to give
7	the benefit of our knowledge and information, and I'm
8	slightly more optimistic than Debbie on this one. I
9	think we have had some successes.
10	In a fairly public example, the State of
11	Oklahoma amended the legislation after looking at what
12	we and others had to say about it, to narrow the
13	restrictions, to provide and preserve more consumer
14	choice. There have been several other states where they
15	have reached out, asked us for input, and in response to
16	some of that input, they made changes. That, from our
17	perspective, is positive.
18	Our message to these lawmakers is before you
19	restrict consumer choice, before you require a purchase
20	of certain services, make sure there's a need to do so,
21	and if you decide that there's a need to do so, we
22	recommend doing it as narrowly and on limited a basis as
23	possible. Ultimately, with respect to the legislatures,
24	we understand and respect that it is their choice. Our
25	role is to help them make the most informed choices

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1	possible.
2	There are times, however, where we run across a
3	state-related restriction that we think allows us to
4	have a more active role. An example of that would be
5	the case that the Antitrust Division brought against the
6	Kentucky Real Estate Commission earlier this year. It
7	related to a rebate prohibition that prohibited brokers
8	from giving a rebate on their commission to their
9	clients. From what we could tell, there was no
10	pro-competitive justification for this rule. There was
11	certainly an obvious restriction on competition. When
12	we looked into it, we looked at some of the statements
13	from the brokers themselves who said -- in their words,
14	not mine -- that "this regulation was preventing the
15	outbreak of a bidding war. It was preventing consumers
16	from demanding things that would reduce broker profits,"
17	and from our perspective, that made the regulation a bad
18	thing, anti-consumer, and we challenged it. I'm pleased
19	to say that we have a proposed settlement pending with
20	the Court right now and that brokers in the State of
21	Kentucky are already beginning to offer rebates and
22	other inducements, which we view as a positive thing.
23	Stepping back a little bit, I note that, again,
24	coming back to what I said, what we are trying to do is
25	shed light on the facts, the issues or what is going on,

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1	so legislatures can make informed choices, real estate
2	commissions can make informed choices, and if necessary,
3	judges can make informed choices.
4	Finally, I will mention just briefly that one
5	other possible source of the rise in real estate
6	commissions and potentially profits is, of course,
7	private agreements beyond the scope of what I've just
8	been talking about, and I'll have no further comment on
9	that for now.
10	So, again, thank you very much for
11	participating. We do think that this is an
12	extraordinarily important issue, appreciate the effort
13	that the staff have put into this. We look forward to
14	hearing from you, to evaluating the results and seeing
15	what we can all do to improve the welfare of consumers
16	in this important industry.
17	Thank you.
18	(Applause.)
19	MS. OHLHAUSEN: Thank you very much, Tom and
20	Debbie, for your remarks.
21	At this point, we are going to start the first
22	panel. So, if you will just give us a moment's
23	indulgence, I ask Cathy Whatley and Robert Hahn to come
24	up, and we will get started.
25	(Pause in the proceedings.)

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1	MS. OHLHAUSEN: Well, this is the overview
2	panel, and the purpose of this panel is to, as Chairman
3	Majoras mentioned, give an overview of the transaction
4	and go through some of the relationships between buyers
5	and sellers and brokers and the MLS and different things
6	like that and also identify some of the areas that may
7	be raising competitive issues and competitive concerns.
8	To help educate us all and inform us, we have
9	Cathy Whatley, the 2003 President of the National
10	Association of Realtors. Cathy is a realtor from
11	Jacksonville, Florida, and I should mention that the NAR
12	is the largest professional association with over a
13	million members. She's been a realtor since 1969 and is
14	the broker/owner of Buck & Buck, a family firm
15	established by her grandfather in 1907.
16	Cathy has also been very active at the state
17	level, and she was the President of the Florida
18	Association of Realtors in 1996 and received the Realtor
19	of the Year Award in 1998. She currently serves as one
20	of the nine commissioners on the Florida Commission on
21	Ethics and also is a member of the State's Impact Fee
22	Task Force. She lives in Jacksonville with her husband,
23	and she has five children and seven grandchildren.
24	On my left, your right, is Robert Hahn.
25	It's all right if we call you Bob? Okay.

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1	He is the Co-Founder and Executive Director of
2	the American Enterprise Institute-Brookings Joint
3	Center, which focuses on regulation and antitrust.
4	Previously, Bob worked for the Council of Economic
5	Advisers. He has also served on the faculties of
6	Harvard University and Carnegie Mellon University, and
7	he frequently contributes to leading scholarly journals
8	and general-interest periodicals, including the American
9	Economic Review, Yale Law Journal, Science, and the New
10	York Times.
11	He is the author of "Reviving Regulatory Reform:
12	A Global Perspective," which is put out by
13	AEI-Brookings, and several other books. He is also
14	Co-Founder of the Community Prep School, an inner-city
15	middle school in Providence, Rhode Island that provides
16	opportunities for disadvantaged youth to achieve their
17	full potential.
18	I would like to just thank you both for coming
19	today.
20	This is just going to be basically -- we are not
21	going to do formal presentations. It's just a
22	discussion, so I'll be playing the Oprah character this
23	morning, I guess, posing some questions and just going
24	through some of these topics and getting the viewpoints
25	of these both very well-informed and experienced people.

Page 26

1	First of all, I guess, the first question is,
2	who are the relevant players in the real estate
3	brokerage industry and what roles do they play?
4	Maybe, Cathy, you can -- feel free to both jump
5	in, but maybe we will start with Cathy on that one.
6	MS. WHATLEY: Sure.
7	There are a number of relevant players in the
8	real estate transaction. You certainly start with the
9	buyer, the seller. You have the real estate
10	professional, and then you have a lot of additional
11	relevant players, such as the mortgage lender, the
12	insurance agent, the home inspector, the termite or WDO,
13	as we call it, wood-destroying organism inspector, the
14	surveyor, the appraiser, the closing attorney, the title
15	company, the escrow agent. There are a number of
16	relevant parts to the transaction that are essential to
17	get from the buyer and seller actually having a
18	discussion about the purchase and sale of that home to
19	actually getting the keys to the home when they get to
20	closing.
21	I think just to start the discussion, I'd like
22	to maybe paint a picture, and I think of it as somewhat
23	analogous to a play. You might be at a theater. If
24	you're in the audience, everything seems to go very
25	smoothly because everyone has a role. They know their

Page 27

1	part. They know their part in the script. In the event
2	that something were not to go well and someone either
3	enters at the wrong time, forgets their lines, it
4	becomes very disruptive to the process. The ultimate
5	end goal for both the buyer and the seller is to have a
6	successful closing. So, all parts of the transaction
7	are extremely relevant to make sure that it is a very
8	seamless and successful transaction for the buyer and
9	seller.
10	MS. OHLHAUSEN: Cathy, maybe you could follow up
11	on that and just say, what role does the real estate
12	agent play in -- like a number of the things you
13	mentioned involved the legal requirements for
14	transferring the property in a particular state and
15	certain financial requirements.
16	MS. WHATLEY: Well, in my role as a real estate
17	professional, depending upon whether I'm assisting the
18	buyer or the seller, I have different roles in that
19	transaction, but ultimately a real estate professional,
20	and if there are more than one in the transaction, will
21	work together to make sure that all parts of that
22	transaction are facilitated appropriately, not only in
23	terms of actually showing the property, marketing the
24	property, working through the transaction itself,
25	meeting the home inspector, helping the seller and/or

Page 28

1	the buyer understand what the results of that inspection
2	were, overseeing repairs, making sure that things that
3	are necessarily time-sensitive get responded to in a
4	time-sensitive manner.
5	I think that the transaction itself, if you talk
6	about what has technology done to the transaction, it's
7	not just the internet that has driven things.
8	Technology has shortened the entire process time for the
9	buyer and seller to be able to transact this sale, and
10	so when you talk about the internet, the internet is
11	just one part of technology that has driven a shortened
12	time frame, which really makes it more critical than
13	ever to have someone who understands the script, to be
14	able to make every stage of that process work, to come
15	to a successful closing.
16	DR. HAHN: Can I just comment?
17	MS. OHLHAUSEN: Yes, sure, Bob.
18	DR. HAHN: I agree with most of what Cathy says,
19	but what strikes me -- my mom was a real estate agent
20	and my dad was a real estate broker but dealing with
21	commercial, and my mom dealt with residential.
22	UNIDENTIFIED SPEAKER: We can't hear you.
23	DR. HAHN: I can swallow the mic if you like.
24	I was saying that my mom was a real estate agent
25	in the residential market, and my dad dealt with

Page 29

1	commercial and real estate management, but what's
2	striking, even though Cathy is talking about changes in
3	technology, is when I look at the kind of transaction
4	that my mom engaged in, if I'm allowed to say it, 30
5	years ago or 40 years ago since she's not here, it's
6	virtually the same as the transaction that most of you
7	engage in today when you buy or sell a house.
8	I don't see a whole lot of new technology
9	entering into this transaction or the kinds of gains
10	that we've seen in other industries and the internet
11	resulting, at least in the residential market, in
12	benefits for consumers. So, in that sense, while I
13	think we're beginning to see some new models emerge, I
14	think public policy -- and I think Mr. Barnett alluded
15	to this in his remarks -- public policy could have an
16	impact on the pace at which they emerge and the likely
17	benefits that could accrue to consumers.
18	MS. OHLHAUSEN: So, Bob, just to make sure that
19	I understand what you're saying, you're saying there is
20	technology out there, and there is a role for it, but
21	it's not being adopted as quickly into the process as
22	one might expect?
23	DR. HAHN: Certainly based on other industries.
24	If you were to look at airlines, for example, you would
25	probably go and bring up your favorite web site -- I am

Page 30

1	not going to give an advertisement for one of them --
2	and go get an airline ticket. You don't have that kind
3	of menu of choices, at least the way I and my
4	colleagues, Bob Litan and Jesse Gurman, who wrote a
5	paper on this recently for the real estate industry.
6	MS. OHLHAUSEN: Actually, that brings me to my
7	next question, which is the menu of services, because I
8	also wanted to talk a little bit about the MLS and the
9	part of the transaction, the service that the real
10	estate agent provides in listing a seller's property in
11	the MLS or showing MLS data to a buyer.
12	Maybe, Cathy, you could expand on that a little
13	bit.
14	MS. WHATLEY: Sure. The Multiple Listing
15	Service -- let me start with the understanding that the
16	MLS is a broker-to-broker information exchange that
17	provides the opportunity for cooperation and
18	compensation. It establishes rules by which we all
19	understand are discussion points. It tells me if I put
20	the property in as a listing agent, I'm then allowing
21	those who are cooperating in the marketplace, in my
22	marketplace, to have access to that information, and it
23	tells them at what fee that I am willing to cooperate
24	with them. So, that's all disclosed up front, and
25	that's a very important part, because if you talk about

Page 31

1	what brings an efficient marketplace, the ability to
2	have aggregated information for me, as a practitioner,
3	to be able to go and have information that other brokers
4	in my marketplace are willing to share with me, to allow
5	me to have the information that I can assist my customer
6	and client with.
7	It also spells out what the cooperation is that
8	that listing agent is willing to pay me if I'm going to
9	show the property, and that is highly competitive. I
10	can tell you that that is extremely competitive in the
11	marketplace. A lot of things are driven by supply and
12	demand, and we have been through a period of increasing
13	demand for real estate and limited supply. So, if there
14	is anything that really can motivate competition, it is
15	limited supply and strong demand and vice versa. So,
16	you know, it is important.
17	The MLS is strategically one of the most
18	valuable things to me, and that's done because the
19	brokers in my marketplace are all willing to cooperate
20	and provide that information in a competitive
21	environment but still working in the best interests of
22	their customers or clients.
23	MS. OHLHAUSEN: Let me just follow up, Cathy --
24	DR. HAHN: Can I --
25	MS. OHLHAUSEN: Okay, Bob, and then --

Page 32

1	DR. HAHN: This is absolutely crucial and an
2	area where weary economists like myself might differ
3	from the average person on the street, but I want to
4	talk about the MLS for a minute and try to quote what
5	Cathy just said.
6	The MLS provides for cooperation among
7	competitors, I think that's what she said, and I think I
8	would also agree -- before I explain where I might
9	disagree with Cathy -- that sometimes cooperation among
10	competitors can be a really good thing, but by the same
11	token, what we as economists know is when we allow
12	competitors to cooperate, we want to look very closely
13	at the rules that they might have about who can
14	cooperate with each other and the conditions under which
15	they can cooperate with each other.
16	The MLS is essentially a club, and its members
17	decide who gets to be in this club, who gets to share
18	the listings, and the conditions under which they get to
19	share the listings. From an economist's perspective,
20	the more different types of folks who might get to share
21	those listings, the more likely it is that the consumers
22	are likely to be presented with a wide array of choices.
23	So, I think this is a point that will come up later
24	today, but it's important to note that when Cathy talks
25	about competition, yes, it's absolutely true that my mom

Page 33

1	would compete vigorously for listings, just as people do
2	today, but that's very different from competition about
3	who gets in the club, because the club decides the rules
4	on who gets to be a member.
5	So, for example, in the extreme, if a club
6	decided only two people could be members and 17 people
7	had a legitimate reason or a legitimate business model,
8	albeit slightly different from those in the club, you
9	might not think that that's an arrangement that the
10	Department of Justice or the FTC would necessarily think
11	was a good thing or was necessarily a good thing for
12	consumers. So, I think that in a way we might be
13	talking past each other, but economists see the problem
14	a little bit differently.
15	MS. OHLHAUSEN: Actually, that feeds into what
16	my question was going to be for you, Cathy, is who runs
17	the MLSs and the kinds of rules that they promulgate?
18	What do you see as sort of the most important rules that
19	an MLS may promulgate for its members?
20	MS. WHATLEY: Well, most of the MLSs do have
21	boards. They are made up of realtor members. That
22	varies from MLS to MLS, because the MLS is unique to
23	each individual market. The National Association of
24	Realtors does not have, you know, guidelines that
25	everyone must establish, they are unique to the

Page 34

1	marketplace, but they are highly competitive as well.
2	I want to state, too, that understand that the
3	Multiple Listing Service has been validated by the
4	courts. So, don't miss the point that it is an
5	allowable opportunity to have this information provided
6	to us as a benefit of our membership in the realtor
7	organization, and the fact is that it is
8	broker-to-broker cooperation. It's not trying to limit
9	the club. It's trying to make sure that there are
10	cooperation and compensation guidelines which everyone
11	knows, because that's in the best interests of the
12	consumer.
13	Actually, again, the fact that you've got a
14	distinguishable database of aggregated information helps
15	the consumer because it allows us and now the consumer
16	in those marketplaces where it's highly visible, such as
17	REALTOR.com, to be able to see information and to have
18	that efficient marketplace roll smoothly.
19	DR. HAHN: I want to respond to that, if I
20	might.
21	Cathy said the MLS has been validated by the
22	club, but it's also --
23	MS. WHATLEY: By the courts.
24	DR. HAHN: Or by the courts, excuse me, but it's
25	also true that at one point commissions were totally

Page 35

1	non-negotiable, which economists would call price fixing
2	of a sort, and the courts struck that down. So, it's
3	not as if this club has engaged only in activity that I
4	would view as pro-consumer or pro-competitive. I would
5	say that there have been major benefits from the setting
6	up of a platform however many years ago that was called
7	the MLS, but I also think it's time to take a serious
8	look at what the institution can and cannot do and
9	whether that's good for consumers, which is what I care
10	about.
11	MS. OHLHAUSEN: Actually, sticking with the MLS,
12	I understand that not all listings go in in the same
13	form, and I was hoping, Cathy, you could explain to us
14	the differences between an exclusive right to sell, an
15	exclusive agency, and something that's sometimes called
16	an open listing contract.
17	MS. WHATLEY: Sure. An exclusive right to sell
18	agreement is one where the seller lists their property
19	with a real estate firm, and there is a fee, either a
20	percentage or a flat fee, that is agreed to, and that
21	fee is paid regardless of who finds the purchaser for
22	the property. So, even if the seller has someone to
23	approach him in the store and they say, you know, "I've
24	got my house up for sale." The seller then says,
25	"Contact my real estate professional." The lead may

Page 36

1	have come from the seller, and that comes to me, but
2	there is still an agreed-upon commission structure.
3	Most oftentimes, it is cooperation between real estate
4	companies, an exclusive right to sell.
5	An exclusive agency agreement, if that same
6	seller lists with me, if any other real estate
7	professional brings the buyer to the transaction, there
8	is still a fee paid; however, if the seller has someone
9	that they may have a pre-arrangement with, that they've
10	said, you know, four people have contacted me and said
11	I'm really interested, if you ever sell your house,
12	please let me know, and they were exclusions and/or the
13	seller retained the right to sell to someone that they
14	found individually, that would be an exclusive agency
15	relationship.
16	The third is an open listing, and an open
17	listing is where the seller could tell each one of us as
18	licensees, "If you bring me a customer, I will pay you a
19	fee," but there is nothing exclusive about it. It is
20	independent, each one operating in that own environment.
21	And I just can't leave the last comment without
22	saying to Bob, I think we all serve consumers. The real
23	estate professional's major responsibility is to work
24	for their customer and client. We are in the business
25	to serve the consumer. So, in that regard, we are both

Page 37

1	on the same level.
2	DR. HAHN: I don't dispute that. The airline
3	industry, when essentially fares had to be filed with
4	the Civil Aeronautics Board, also could make a strong
5	argument that they served consumers in the sense that
6	when people purchased a ticket, we knew that it was at
7	least worth the value of that ticket to take the ride
8	from San Francisco to New York.
9	The question from an economic perspective is is
10	this industrial structure that we call the residential
11	real estate market the best way to serve consumers? I'm
12	not suggesting that any individual agent would not work
13	to promote the interests of necessarily the buyer or the
14	seller, because that's what they're supposed to do.
15	MS. WHATLEY: But a real estate transaction is
16	unique in that there are multiple consumers who have to
17	be served. When you're talking about the airlines, when
18	you're talking about other industries such as that, you
19	have one consumer who is able to interact with the
20	business environment. It's different in the real estate
21	transaction where you have two consumers who both need
22	to be served, and the public interest, you know, that is
23	a very strong component, which I think makes it distinct
24	and different from some of the other areas that may be
25	discussed.

Page 38

1	MS. OHLHAUSEN: Actually, Cathy --
2	DR. HAHN: There are a number of markets in
3	which you have buyers and sellers and platforms,
4	including your cousin, commercial real estate. So, I
5	don't see that there's anything particularly unique
6	about it. But you're right that you need to cater to
7	buyers and sellers to get people to yes.
8	MS. OHLHAUSEN: Actually, this might be a good
9	point, Cathy, to go into the issue of the relationship
10	between the agent who brings the buyer in and the duties
11	that that agent may owe to the buyer and to the seller
12	and the interaction between the listing agent and the
13	agent who brings in the buyer.
14	MS. WHATLEY: Understand that the state -- and
15	it was mentioned earlier -- that the licensing is
16	regulated at the state level. So, you have 50 states
17	who have 50 state legislatures who enact laws and 50
18	state real estate commissions who implement those laws.
19	It varies in terms of what the real estate
20	professional's duties and responsibilities are based
21	upon what the state may have determined are those duties
22	and responsibilities.
23	By and large, most states work in an agency
24	environment, meaning that there's common law areas,
25	common law of agency, which talks about fiduciary duties

Page 39

1	of obedience, loyalty, confidentiality, disclosure.
2	There are some states who have established a little bit
3	different type of fiduciary responsibilities and the
4	real estate professional may be working in a transaction
5	or a facilitator capacity, and so there are different
6	defined fiduciary duties in those circumstances.
7	There are times when a real estate professional
8	may be working with a buyer who is actually their
9	customer as opposed to their client. So, there are
10	various levels at which the responsibility of the real
11	estate professional may be in terms of fiduciary duties
12	to their buyer, customer or client.
13	MS. OHLHAUSEN: And in that also, could you
14	explain how the splitting of the commission works
15	between the listing and the cooperating brokers?
16	Typically. I understand it varies.
17	MS. WHATLEY: Sure. When I go out and I list a
18	property, at the time that I list that and put it into
19	the Multiple Listing Service, I make a definitive
20	determination of what my real estate company will pay to
21	a cooperating real estate firm and that broker. That is
22	disclosed in the Multiple Listing Service where anyone
23	who is going to show that property knows what I'm
24	willing to pay.
25	If they have any question about that payment,

Page 40

1	they have to address that with me and either renegotiate
2	it up front if they're unhappy with it, because once
3	they've shown the property, then I have presumed that
4	they have understood that is my compensation and that's
5	what they will receive if they bring a customer and a
6	buyer and we ultimately negotiate the contract.
7	Everyone is considered a cooperating broker.
8	You may have a cooperating broker who is a buyer's
9	agent, who is working exclusively for the buyer, has
10	exclusive fiduciary duties to that buyer. You may have
11	a cooperating broker who is a subagent, actually is
12	working on behalf of the seller. You may have a
13	cooperating broker who is a transaction broker who has
14	limited fiduciary duties, but their role is to make sure
15	that the transaction works smoothly.
16	But the compensation part is actually
17	established, and that's why it's so important that it is
18	known up front, because it would be extremely disruptive
19	in the marketplace if I didn't know that, if I couldn't
20	go into the MLS and it tell me what it was that the
21	other broker was willing to pay me in the event I had a
22	customer who was willing to buy that.
23	DR. HAHN: Let's explore that for a minute.
24	First of all, I just want to make a comment about these
25	split arrangements. Sometimes they have been required

Page 41

1	by the MLS bylaws, these traditional split arrangements,
2	and from an economics point of view, that isn't
3	necessarily a good thing.
4	But when you tune in to -- if you're thinking
5	about taking a flight, say, from Washington, D.C. to
6	Providence or Boston, you don't necessarily have your
7	fees or your splits set up front. You go look at the
8	computer screen, and you say, "Today it's going to cost
9	me $100 on Airline X and 50 bucks on Airline Y," and you
10	decide whether the time's convenient or not and you
11	choose.
12	So, it's not necessarily clear to me that having
13	the consumer know everything with certainty up front as
14	a particular fixed price is a good thing. I mean, we
15	may want to see more competition over price and
16	certainly the menu of services that's offered. So, I
17	think that's an open question, and that's why economists
18	like the idea of different business models out there so
19	we can see which ones actually will win in the
20	marketplace.
21	MS. WHATLEY: As a practitioner, though, if I
22	did not have that information and I am working in an
23	exclusive buyer agency relationship and I don't know
24	that and my customer has a commitment to a certain level
25	of compensation to me, in the event that that is not

Page 42

1	achieved and I can't tell my customer that up front, I
2	haven't served my consumer customer. So, it's very
3	important that the entire process is known.
4	For instance -- and it is highly competitive --
5	in my marketplace, I can look on my MLS, and it will
6	vary from listing to listing as to whatever the
7	cooperating compensation is to me. Some it might be X
8	percent, some it might be $1, because it can be a flat
9	fee, and it can be as low as $1.
10	Now, if it is a $1 cooperating compensation and
11	I have a buyer broker agreement and the buyer is
12	committed that I am going to receive at least a minimum
13	compensation of X and I can't tell my buyer that before
14	we even start in to go look at this property, I don't
15	think I'm serving my buyer well. So, I think that the
16	fact that the information is disclosed is very
17	competitive, and the marketplace itself has driven very
18	competitive pricing in terms of, you know, what the
19	cooperating commission is.
20	DR. HAHN: I'd like to take a poll here, see a
21	show of hands of those people who own houses and have
22	actually sold them, how many people sold them and had to
23	pay a commission of 5 and a half to 6 percent?
24	That doesn't suggest that there's necessarily
25	collusion, but it does raise a flag that you want to be

Page 43

1	thinking about, that this price-setting arrangement may
2	not necessarily be the best way of serving consumers
3	generally.
4	MS. OHLHAUSEN: Actually, that also brings up
5	another question I think that Tom Barnett had brought up
6	in the Kentucky case, on the buyer side, the rebates
7	that occasionally are paid to the buyers, and I just
8	wanted to get your impression, Cathy, of whether that's
9	common. Does that raise issues that you think can
10	affect the effectiveness of the MLS, or do you see any
11	issues or concerns with that?
12	MS. WHATLEY: Well, I'm not sure how it would
13	play in your question as to the MLS. You know, are
14	there opportunities for people to be able to work with
15	their buyers and sellers? Yes, there are. In Florida,
16	am I allowed to compensate the buyer or seller back for
17	my commission? Yes, I am, and that may come in some
18	type of negotiated arrangement. In.
19	The event that we get into discussions with the
20	seller, if I'm working with the buyer, if we get into
21	discussions with the seller and I find that what it's
22	going to take to actually put this transaction together
23	is eliminating a part of my fee or something, I mean,
24	there are ways that compensation is rebated. Sometimes
25	it's direct. I'm limited to directing it only to the

Page 44

1	buyer, to the parties in the transaction, in my state,
2	but state by state makes those determinations.
3	That's why you have state legislatures, and
4	that's why you have regulatory bodies who implement the
5	state legislation. They adopt what they believe is best
6	for the consumers who have elected them.
7	DR. HAHN: I don't get involved too much in
8	state legislation, but from what I read in the papers
9	and the academic literature, it's not unusual for the
10	National Association of Realtors to come out on the side
11	that price competition, which is essentially allowing
12	rebates, is not a good thing and also supporting what
13	Mr. Barnett alluded to, minimum quality standards
14	related to real estate transactions, which is a flag
15	also for economists, keeping certain competitors out who
16	may only want to offer one part of the menu and not the
17	total menu.
18	So, I'm delighted to hear that Cathy is
19	suggesting that this price competition is out there
20	among realtors, and I would just urge the NAR and other
21	groups at the state level to vote against legislation
22	that puts restrictions on price competition.
23	MS. WHATLEY: Well, I don't think minimum
24	standards actually place restrictions on competition.
25	In fact, I think minimum standards -- and I'm not

Page 45

1	speaking for the National Association of Realtors,
2	because NAR is very neutral on this position -- but as a
3	practitioner, what I believe is important is that both
4	parties are able to actually get to the closing, and you
5	cannot make unilateral decisions oftentimes as one party
6	that don't ultimately have an impact on the other party
7	in the transaction.
8	If the consumer is making the selective decision
9	that they're going to try to work through this process
10	on their own, there's no issue to that as long as they
11	understand all of the things that are responsible in
12	that entire transaction, where they understand the level
13	of service that is necessary, that they are having to
14	bring to the transaction. There are financial
15	consequences to buyers and sellers when the transaction
16	does not close.
17	Buyers have paid for appraisals. They've paid
18	for credit reports. Often their lenders have charged
19	them up-front processing or application fees. They are
20	time-restricted to be able to close the transaction.
21	They have lock-ins on their loans, and if they do not
22	close within 30 days, their interest rate is at risk,
23	and those costs are at risk for them. In addition, the
24	buyer is out there. They've actually given notice to
25	their apartment or wherever it is they're living. So,

Page 46

1	there are real time constraints in which the process has
2	to work.
3	And you're talking from one side of the seller's
4	capability to be able to do all of it on his or her own,
5	and that's fine as long as they understand. Oftentimes,
6	though, the negotiation part requires somebody to help
7	them understand exactly what it is that they're
8	obligating themselves to, and in some contracts, the
9	seller is obligated for those financial consequences if
10	they are not able to bring the closing to the
11	transaction.
12	So, you know, if the seller is not told, "If you
13	don't get to closing by 30 days, then you can't do
14	this," then you have got all these buyer costs, and
15	although the buyer said they were going to pay them in
16	the contract, they are yours to pay now, Mr. Seller.
17	It's just the understanding of the entire
18	process, and the minimum level is either just making the
19	seller aware that there are things that they need to
20	know or minimal steps to be able to assure that both
21	parties in that transaction can actually get to the
22	point where the seller is handing the buyer the keys to
23	the house.
24	DR. HAHN: I agree with that. I also think
25	that's one area where the different kinds of internet

Page 47

1	models can play an incredibly important role simply
2	because all you have to do is have one web site, and you
3	know, if you're trying to build a new business model,
4	and you can decide whether you want to target sellers
5	and educate them and maybe get some fee for that or do
6	the opposite for buyers. So, I agree with you that the
7	transaction is complicated, but I also think there are
8	other ways of skinning the cat and other models that
9	should be allowed to emerge.
10	MS. OHLHAUSEN: Cathy, actually, I wanted to
11	follow up. In our competition advocacy filings, we've
12	certainly brought out the issue that consumers, to the
13	extent they're not understanding an issue, what they're
14	giving up, you know, the unbundled services that maybe a
15	disclaimer or waiver or something might work, but also,
16	the other issue that we've heard is concerns from agents
17	that they might be put in an undisclosed dual agency
18	situation, and maybe if you could expand a little bit on
19	that, what that entails.
20	MS. WHATLEY: I would say if either party in the
21	transaction has questions, what tends to happen is that
22	they will ask whoever is there in front of them. So, if
23	I'm representing the buyer and the obligation for me,
24	based upon the relationship that the listing agent has
25	with the seller, is that I'm to fax the contract to the

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1	seller, I'm to present the contract to the seller, and
2	that's not customary in my marketplace. In my
3	marketplace, the listing agent presents all offers.
4	That's not necessarily the case across the country, but
5	that's what it is in my marketplace.
6	I have a fiduciary duty to my buyer, but the
7	seller who is sitting there is going to very naturally
8	ask me questions about the contract. I mean, that's
9	just typical. As they ask me those questions, I'm put
10	in the position of either trying to say to the seller,
11	"You know, I really can't answer that for you," which
12	tends to not put my buyer in the best position, because
13	the seller's automatically thinking I'm not trying to
14	help them out. So, there are situations where it's a
15	darned if you do and darned if you don't.
16	If you try to answer those questions, you may be
17	putting yourself in a position that you are not allowed
18	to do based upon your fiduciary buyer duties with your
19	client, and you are darned if you don't because the
20	seller takes offense and they don't want to sell to your
21	buyer.
22	DR. HAHN: I think it's a difficult area. As
23	Cathy points out, there can be conflicts of interest,
24	and even if you sell your house and you have an agent,
25	there are issues about how much effort that agent will

Page 49

1	put into selling your house. Steve Levitt, the
2	author -- I guess the now famous author of Freakonomics,
3	did this amazing little study where he looked at sellers
4	selling their own houses versus sellers selling other
5	people's houses and the prices that were fetched for
6	comparable houses, and needless to say, when the agent
7	sold her own house, the price fetched was considerably
8	higher. They put a little bit more effort in, because
9	at the margin, it was worth it to them, they were
10	getting the pull pay-off, versus if they got an extra
11	$20,000 for a seller, they are going to get, say, 1 and
12	a half percent of that. So, there are incentive issues
13	all over the place in the real estate market.
14	It's a complicated market. I'm not saying
15	there's anything wrong with putting more effort into
16	selling your own house if you're an agent than if you're
17	selling somebody else's house, but we need to look at
18	those, and that's all the more reason -- I realize I'm
19	becoming a broken record on this -- but that's all the
20	more reason to have different competitive models out
21	there and different kinds of services being offered to
22	the consumer.
23	MS. OHLHAUSEN: Cathy, I wanted to give you the
24	opportunity if you wanted to say anything on that.
25	MS. WHATLEY: Sure. You know, sellers make

Page 50

1	decisions for a lot of different reasons. They may
2	elect to take a negotiated price because, in fact, if
3	they figured that they had to pay another mortgage
4	payment or two, it would be the same dollars to them.
5	Maybe based upon the time sensitivity of the market,
6	when you're in a hot seller's market -- in fact, our
7	market is still an extremely strong seller's market.
8	There isn't any seller who is going to take a property
9	contingent upon the sale of their home.
10	So, the time sensitivity of being able to get a
11	contract, know that they can then go out into the
12	marketplace and buy a home and not be at the price point
13	of what it is today versus what it might be six months
14	from now, it's all relative. Those are all things that
15	the buyers and sellers take into consideration as
16	they're considering offers.
17	I won't speak to whether or not, you know, an
18	agent may or may not make additional money. There may
19	be an investment property versus something where the
20	home seller is needing to get out. So, there are
21	different stages of things, but I think it's very
22	important to know that when I'm meeting with sellers
23	every day, they make their selling decisions based upon
24	a number of factors that influence what their housing
25	decisions are going to be.

Page 51

1	Homestead Exemption, you know, are they going to
2	be able to get in and be able to qualify for Homestead
3	Exemption for that next year? In Florida, we have a 3
4	percent cap on properties. So, it's very important that
5	once you can get to that stage, then the property taxes
6	are not going to increase by more than 3 percent. So,
7	establishing that value as early on as possible is very
8	important for people in my marketplace.
9	So, there are a lot of things that weigh into
10	the fact of why sellers make decisions based upon what
11	they think is a reasonable price at which they're
12	willing to sell.
13	DR. HAHN: I agree.
14	MS. OHLHAUSEN: Bob, you had mentioned how many
15	people had sold homes and paid the 6 or 7 percent
16	commission. Based on some of the research that you've
17	reviewed, does it suggest that there is some sort of
18	optional rate out there, commission rate?
19	DR. HAHN: There may be, but I have no idea what
20	it is, and I don't think anybody else does either. I
21	think the more interesting question that came up a
22	little earlier is are these rates going down and what do
23	we know about them? That's why I kind of did this
24	little poll. The sad truth is that we know very little
25	about them.

Page 52

1	When I issued or we issued an initial draft of
2	our paper, we had hoped that we were going to get
3	detailed microdata, not Mrs. Smith's, you know, we don't
4	get to know who that is, but we wanted to see whether
5	most folks were still paying 5, 6, whatever it is, and
6	how that had changed over time.
7	Steve Murray, who very graciously agreed to
8	share with us some of his aggregate data along with the
9	Wall Street Journal and everyone else, I mean, he has
10	this generalized data, but I don't think it tells us
11	very much about the structure of this market. So, one
12	of the things that I would hope the FTC or Justice
13	Department or Congress would do would be to figure out a
14	way to get better data, but that's what economists like
15	anyway, so we can publish papers.
16	MS. OHLHAUSEN: That's what I've heard from our
17	economists all the time, better data.
18	Well, turning away from price competition, the
19	recent GAO study suggested that brokers are competing
20	more on non-price variables such as quality and
21	reputation and level of service, and Cathy, I was
22	wondering, do you think this is happening and sort of
23	how does that play out in the market?
24	MS. WHATLEY: Well, I can say I would disagree
25	with the GAO in that there is price competition. I'm