Kickbacks, Specialization, Price Fixing, and Efficiency in Residential Real Estate Markets
![handle is hein.journals/stflr29 and id is 953 raw text is: Kickbacks, Specialization, Price
Fixing, and Efficiency in
Residential Real Estate
Markets
Bruce M. Owen*
Excessive fees for brokerage and other conveyancing services are a major
problem facing home buyers. 1 In 1972, a comprehensive study of residen-
tial real estate transactions, sponsored jointly by the Department of
Housing and Urban Development and the Veterans' Administration
(HUD/VA Report),2 reported evidence of excessive conveyancing fees in
many areas of the country. 3 Although the HUD /VA Report attributed these
high fees to a variety of causes, it emphasized three factors. First, the study
found that elaborate systems of rebates, kickbacks and referral fees4 in the
conveyancing industry5 significantly increased consumer costs. Excessive
specialization within the industry was identified as a second major factor.6
Finally, the HUDIVA Report cited excessive duplication and other
inefficiencies in land title record systems as a third important cause of high
prices for conveyancing services.7
* B.A. x965, Williams College; Ph.D. 1970, Stanford University. Joseph Grundfest, a
candidate for the J.D./Ph.D. degree in economics at Stanford University, and a member of the
staff of the Rand Corporation, is coauthor of this article. The authors are grateful to Dean Charles
Meyers and Professor Paul Goldstein of the Stanford Law School, and to Mr. Roger McNitt, Chief
Deputy Insurance Commissioner of the State of California, for helpful comments but absolve
them of any responsibility for views expressed herein.
i. See, e.g., Gresham, The Residential Real Estate Transfer Process: A Functional Critique, 23
EMORY L.J. 421 (1974); Payne, Ancillary Costs in the Purchase of Homes, 35 Mo. L. REV. 455
(970); Whitman, Home Transfer Costs: An Economic and Legal Analysis, 62 GEO. L.J. 1311 (1974)
[hereinafter cited as Home Transfer Costs]; Whitman, Optimizing Land Title Assurance Systems, 42
GEO. WASH. L. REV. 40 (1973) [hereinafter cited as Optimizing].
2. SENATE COMM. ON BANKING, HOUSING AND URBAN AFFAIRS, 92D CONG., 2D SESS.,
MORTGAGE SETTLEMENT COSTS: REPORT OF DEP'T OF HOUSING AND URBAN DEVELOPMENT
AND VETERANS' ADMINISTRATION (972) [hereinafter cited as HUD/VA REPORT].
3. Id. at 2-3.
4. Competitive forces in the conveyancing industry manifest themselves in an elaborate
system of referral fees, kickbacks, rebates, commissions and the like as inducements to those firms
and individuals who direct the placement of business. These practices are widely employed, rarely
inure to the benefit of the home buyer, and generally increase total settlement costs. Id. at 3.
5. Reference will be made to the conveyancing services industry to denote all of the ancillary
services involved in the transfer of a home.
6. The fragmentation of services among many specialists involved in the conveyancing
process adds significantly to the cost. HUD/VA REPORT, supra note 2, at 32.
7. High cost and other problems of settlement stem in no small part from basic inefficien-
cies in the multiple and complex systems of conveyancing, recording, and assuring validity of](ViewImageLocal?handle=hein.journals/stflr29&div=56&collection=journals&method=preview&ext=.png&size=3)
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Kickbacks, Specialization, Price Fixing, and Efficiency in Residential Real Estate Markets
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