Entry by Lester Langdon

From the Dept of Justice - Competition and Real Estate


It is wonderful to have "The Real Estate Consulting Institute" as a platform which offers a variety of benefits. It lets us help our fellow ACREs.

Sometimes it helps to know more from the federal and state governments.

We need to know state laws concerning fiduciary duty, miminum service, commission rebates and required disclosures


From the Dept of Justice – Competition and Real Estate The Importance of Competition in Real Estate to Consumers

  Buying or selling a home is the largest financial transaction most Americans will ever undertake. The median priced home cost $184,334* in 2009, and the median commission paid to real estate brokers came to $9,733**. Overall, Americans paid nearly $60 billion for brokerage services.

* Inflation-Adjusted Median Home Sale Price based on data for the first half of 2009
**Inflation-adjusted median commission based on data from the first half of 2009.

More Competition Could Reduce Commissions

  New business models are emerging that allow consumers to save thousands of dollars when they buy or sell a home. Where these practices are allowed, some buyers’ brokers are offering refunds on commissions, and some sellers’ brokers are charging only for services actually used.

Barriers to a More Competitive Brokerage Market

  Ten states forbid buyers’ brokers from rebating a portion of the sales commission to the consumer. Eight states require consumers to buy more services from sellers’ brokers than they may want, with no option to waive the extra items. HUD recently clarified its rule that rebates are permissible under RESPA as long as they are reported on the HUD-1 form.

Other Problems Consumers Face

  Some states require real estate closings to be done by lawyers, reducing competition and raising costs. Competition also suffers when brokers exclude low-cost rivals from the multiple listing service (MLS), which limits price competition.

Additional Resources

Government hearings and reports on competition in the brokerage industry

Competition in real estate: Questions and answers

Department of Justice enforcement actions to protect competition

How to Contact the Antitrust Division

If you have questions or comments about competition in the real estate industry or if you have information concerning anticompetitive conduct, e-mail the Antitrust Division.

Here is a link to see which states have minimum service laws, which can limit consumer choice and effect a broker's menu of compensation fees.


Check with your specific state for more recent updates.

As an example, Texas requires minimum service, therefore I am required as a fiduciary to perform more tasks and a higher level of consumer help. This changes the menu of fee options and choices which I offer to consumers.

Texas law requires real estate brokers to accept and present offers and counteroffers and answer their clients' questions in every real estate transaction, even if consumers do not wish to buy these services.

When I sign my name to authorize a “Buyers Representation Agreement” or a listing agreement to market a property, I must perform more tasks and am held to a higher standard of service and help. Therefore I have a higher minimum fee whenever I sign my name.

This makes consumers accept and pay for services which they may not want.

For basic consulting and advice, I have hourly or monthly fees which may not require fiduciary obligations of a “Buyer Rep Agreement” or “Listing (marketing) Agreement”

One result of minimum service laws, is that discount brokers working on contingency must work harder and perform more tasks to meet their fiduciary obligation.  I suspect that those discount brokers are not meeting all their obligations and may be at risk legally. They may not be able to stay in business with that business model. 

Possibly when they take a $495 fee to list a property on the MLS, they may perform all their duties, and use it as a loss leader.  Then the seller needs to buy a property and the broker then works on contingency to help them find another property to buy and makes a premium high commission.

One of the reasons I became an ACRE, is because I do not like working on contingency. Last year, I had $12 million of listings that expired and the sellers went to other brokers to reduce their price (maybe they did not reduce the price).

After 17 years at Coldwell Banker, and after becoming an ACRE, I spoke with the VP of sales in my office, to asking if I could make changes to my business model and he did not receive it well nor positively.  After 3 weeks we spoke again and he said that he went online to review state law of the Texas Real Estate Commission and that it revealed that commission rebates were illegal. Hmmm.  I know different and sent him an email with evidence that rebates are legal.

Upon sitting with him to disclose that I was leaving the brokerage firm, he said that I was a discount broker and would likely have difficulty staying in the business.

Either I did not explain my business model or he does not understand the difference between contingency and NON-contingency. Hmmm.

Before leaving the brokerage firm, I had lunch with a very nice older gentleman, who has been a real estate consultant for 15 years. His only means of compensation is an hourly fee which which started at $100 per hour in 1986 and is now $250 per hour. He is a successful commercial property consultant. WOW. He was way ahead of the curve.

During lunch, he generously talked about his business and answered my questions.  He was surprised when I said that my due diligence discovered that commission rebates are legal in Texas and he thought that rebates were not legal. He suggested that I consult an attorney, which I did.

Read your state laws carefully.

In Texas, on every advertisement discussing commission rebates, I must disclose “Subject to consent by represented parties”.

When I mention commission rebate, that disclosure must be on business cards, emails, every webpage, etc. So I am very careful to fully disclose everywhere.

The Dept of Justice is encouraging more competition however each state has different laws concerning ficuciary obligations, customer service and rules about rebate of commissions.

Do you homework and due diligence.


Lester, thanks for sharing your thoughts. Most of what you say I agree with, but some of it I'm uncomfortable with.

I believe that fiduciary services are front and center of what consulting is all about. We know from experience that when consumers scrimp on fiduciary counsel, is where they often get burned. When agents offer functionary type services not coupled with fiduciary counsel, representation and advocacy, consumers usually lose far more than they save.

I believe that whether you work contingently or non-contingently, minimum service SHOULD include full fiduciary representation. Perhaps I misread your thoughts - communication electronically rather than verbally can often miss inflections that inhibit what one is trying to say.

I believe that the ability to offer non-contingent compensation and unbundle services so that functionary services can be elective whereas fiduciary counsel and representation should be required when a transaction is taking place is the way to go. Is that what you're saying?

Thanks for your input Lester.

I agree with you.  Point was that we need to know the state laws. Our menu of compensation fees may be effected by state law and by consumer needs and wants. As you mention in an ACRE video, some consumers just want an hour or two of advice. Last year I had an owner of 5 bundled properties worth approx $1 million, who already had a prospective buyer. He only wanted me to be a messenger without fiduciary obligation. He did not want to talk to the buyer which might have triggered an emotional conversation. Instead of him hiring an attorney, he just wanted me to be a mediator to carry messages for negotiation of sales price and terms. I offered to charge him $1,500 per month with two month minimum just to be a phone and email message carrier. No need to sign my name and consumer did not want to give fiduciary responsibility

However, in Texas and other states, if agent signs Buyer Rep Agreement or listing (marketing agreement) we have fiduciary responsbility, even if consumer does not need all agent/consultant to perform all those tasks. Thus the consumer pays for tasks which he may not want or need.

A FSBO may want to use a discount broker to reduce commissions, even though the FSBO has skills and time to do most of the tasks. However in Texas, the discount broker has fiduciary duties, tasks and obligations yet charges $495 front end fee.  How can that continue to be?

You and I are basically in agreement, however the challenge is working within the state laws which vary from state to state. (at a profit).

There is, in some states, "Implied Agency" whereas if one performs tasks that would be performed in an agency agreement, then an implied agency is automatically formed. Therefore, it may be advisable to have a real estate attorney draft an agreement that specifically somehow states that you are Not acting as an agent.

This page contains a single entry by Lester Langdon published on September 17, 2011 10:49 AM.

ACRE® Approved for CE Credits in TN! was the previous entry in this blog.

ACREs need local support groups! is the next entry in this blog.

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