In a new, get-tough campaign, the U.S. Department of Justice and the Federal Trade Commission have warned, or sued, real estate regulators in three states to avoid adopting anti-competitive rules that discriminate against non-traditional real estate brokers who offer either commission rebates or limited service, discount-priced services to consumers.

The latest move came last Thursday, when the Justice department and the FTC sent a joint warning letter to the Texas Real Estate Commission urging it to reject a pending rule change on the commission's docket for action today, April 25. The proposed rule change would redefine the minimal, core services a Texas-licensed broker must offer a home seller including assistance in negotiating or evaluating buyers' offers on the property.

Adopting such a rule, according to Justice and the FTC, would "harm Texas consumers by reducing their choices (in brokerage representation) and likely raising prices without any countervailing benefits."

"Limited service brokers are growing rapidly in Texas, and around the country, because they provide greater choices and can save consumers thousands of dollars on a single home sale," said R. Hewitt Pate, U.S. Assistant Attorney General in charge of anti-trust litigation.

Texas Real Estate Commission administrator, Wayne Thorburn said the purpose of the proposed rule is to prevent situations where a seller using a limited-service broker might be left with no effective representation at crucial stages during a sale transaction. The rule would, for example, eliminate the possibility that a broker might charge a seller a flat $500 fee and say, "I'll list your property, put you on the MLS, I'll give you a sign for the front yard, and then you're on your own, good luck."

Though the Justice department and the FTC didn't threaten any specific legal action against the Texas realty commission, there may not have been a need to: Justice sued the Kentucky Real Estate Commission March 31, for allegedly limiting free competition in the marketplace by prohibiting commission rebates by brokers.

In its suit, the Justice department said the Kentucky commission's ban "is a violation of the anti-trust laws that inflicts higher prices on Kentucky consumers." Federal anti-trust laws "protect consumers against restrictions on competition," said Pate, "even when they are adopted by state-created entities like the Kentucky Real Estate Commission."

The third state to come under federal fire recently was Oklahoma, where the legislature was on the verge of considering a new statutory definition of minimal core service standards for brokers, similar to the draft regulations pending in Texas. In a virtually unprecedented step, the Justice department intervened to warn the legislature not to restrict consumers' choices by eliminating competition by discount-cost, limited service brokers.

In an interview, assistant attorney general Pate confirmed that the recent, rapid-fire moves against the states is part of an "advocacy" campaign by the Bush administration to promote free competition in the booming real estate market. Pate would not comment on strategy beyond the moves already made, but said the department is concerned by reports from other states about allegedly anti-competetive moves by realty regulators. For example, between 11 and 16 states currently prohibit or limit commission rebates by realty brokers. Pate would also not comment about his division's investigation of the NAR's "VOW" policies affecting online access to MLS data, other than to say the probe is "intensive" and ongoing.

Published: April 25, 2005

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.