Real estate brokerages see Internet competition.

A study by the General Accountability Office (GAO) found that the Internet has increased consumers' access to information and fostered the creation of Internet-oriented real estate firms and that competition in the industry is based more on non-price factors such as quality, level of service and reputation.

The study, released recently by the Rep. Michael Oxley (R-Ohio), chairman of the House Financial Services Committee, and Rep. Barney Frank (D-Mass.), ranking minority member, also found that the effect of state-chartered banks offering competitive brokerage services in the 30 states where they are allowed to do so by law is "minimal" due to the limited number of banks that have entered the business.

"We find areas of agreement and disagreement with the GAO study, but generally it paints a picture of a real estate industry that has no significant barriers to entry with many small firms competing vigorously in most local markets," said David Lereah, NAR's chief economist and senior vice president of research.

Lereah also noted that the study's analysis of price competition within the real estate industry is not based on comprehensive data on brokerage fees, which are lacking. "The study acknowledges that the narrow range of diversity in commission rates within some local markets does not necessarily indicate a lack of price competition," he said.

When asked to look into the competitive effect of state-chartered banks, the GAO found that their impact on the marketplace has been negligible, Lereah said. "We agree that banks will not make real estate brokerage more competitive."

A more comprehensive study on competition in 12 residential real estate markets of differing sizes by researchers at Pennsylvania State University found that despite substantial growth in the real estate business, competition for customers among real estate brokerage firms in local markets across the nation is fierce and intense.

Though patterns of competitive activity vary from market to market, competition is strikingly high in all of the markets included in the survey. In most markets, the market share held by top firms is shrinking. In seven of the 12 markets, and four of the six largest, franchised firms have a larger percentage share of the market than do the other locally owned firms. All markets are growing, but growth is greater and competition is more intense in larger markets. No single firm dominates any of the 12 markets; there are changes in relative market share of the top firms in each of the 12 markets, market entry of new firms, and market exit of existing firms.

"What we find is that selling real estate is intensely competitive. Consumers have more information, they demand more services, and they have more agents and business models to choose from than ever before. Consumers are demanding more services and agents are responding by providing an ever-widening range of services," said Professor Steve Sawyer of Penn State's School of Information Sciences & Technology, author of the study released September 12 and funded by a grant from the National Center for Real Estate Research of the National Association of Realtors.

Information for this article was provided by the National Association of Realtors, "The Voice for Real Estate," America's largest trade association, representing more than 1 million members involved in all aspects of the residential and commercial real estate industries. Information about NAR is available at http://www.realtor.org. This and other news releases are posted in the Web site's "News Media" section in the NAR Media Center.