ICYMI: The real estate problem the Justice Department is trying to fix
In a recent opinion editorial published by the Washington Examiner, Will Fried, a data scientist at REX, explains how Big Real Estate syphons off billions of dollars from U.S. real estate consumers
The Biden Justice Department took the unprecedented step this past summer of nixing a proposed settlement with the National Association of Realtors because the deal, agreed to in the waning days of the Trump administration, didn’t go far enough in cracking down on the association’s anti-competitive practices.
Now, the association is crying foul, arguing that the DOJ is barred from digging deeper. In pushing back, the NAR revealed that the DOJ recently served it with a civil subpoena. At the heart of the new investigation: the tens of billions of dollars that U.S. consumers pay to buy and sell homes.
Over the past decade, the median price of homes sold in the United States has jumped by nearly 40%. Yet despite skyrocketing home prices and the rise of consumer-enabling home shopping websites, buyer’s agent fees have remained stuck between 2.5% and 3% of the home price. What’s even more shocking and problematic for the NAR is that newly published data show there is very little price variation within the vast majority of markets across the country.
Data collected by my company REX shows that 90% of sellers in Austin, Texas, offer a buyer’s agent commission of 3%. In Atlanta, 79% of sellers offer 3%. In Chicago, the going rate is 2.5%, which is offered by 84% of sellers. And in Denver, 73% of sellers offer 2.8%.
This extreme clustering of buyer’s agent commissions is the result of the NAR’s policy that all sellers must offer a preset, nonnegotiable commission to the agent on the other side of the transaction. The policy works well for big brokers but leaves consumers with little choice but to pay exorbitant fees.
AUSTIN HAS HIGHEST BUYER AGENT REAL ESTATE COMMISSIONS IN U.S.
Real Estate Tech Leader REX Releases Data on Real Estate Commissions
REX released the following findings regarding the economic effects of the National Association of Realtors (NAR) rules regarding real estate commissions. These findings were first published in an opinion editorial in the Washington Examiner by REX data scientist Will Fried.
Over the past decade, the median price of homes sold in the U.S. jumped nearly 40%.
Buyer’s agent fees have remained unchanged at between 2.5 and 3 percent of the home price.
Newly published data shows little price variation within most markets across the country. This is problematic for NAR given increased pro-consumer government scrutiny. As an example of extreme clustering, 90 percent of home sellers in Austin, Texas, offered a buyer agent commission of 3%. Other markets also showed little price competition.
As a result of steering, only a tiny percentage of sellers offer a buyer’s agent commission of less than 2%, suggesting that a 2% buyer’s agent commission is effectively an industry-imposed price floor that sellers cannot drop below. Specifically, over 99% of buyer’s agent commissions are higher than 2% in major markets, including Atlanta (99.6%) and Austin (99.5%)
Extreme clustering of buyer’s agent commissions is the result of NAR’s policy that all sellers must offer a preset, non-negotiable commission to the agent on the other side of the transaction.
NAR’s commission policies force consumers to pay exorbitant fees. The situation for consumers is made worse by realtors who warn that offering a lower commission would encourage buyer’s agents to steer their clients away from their listings and towards higher-commission properties.
DOJ’s subpoena to NAR suggests that the party may finally be over for fixed commissions. Among other demands, the subpoena requests “all documents relating to brokers steering potential buyers toward or away from homes for sale based on the amount of cooperative compensation offered by a listing broker.”
DOJ is on the right track. Steering unfortunately happens all the time. Recordings which have been published in various news reports show that hundreds of buyer’s agents across the country have admitted to steering their clients away from REX listings because they didn’t want to negotiate their commission. Some agents have even revealed that their brokerages have enacted policies that prohibit them from showing homes that don’t offer the going rate in the given market.