New Study Shows Realtors Inflate Fees By $50b Each Year
Research describes how the Realtors deploy their monopolistic stranglehold over the market
Obstacles to Price Competition in the Residential Real Estate Brokerage Market
by Mark Nadel | UC Berkeley Business Law Journal
Austin, Texas, March 15, 2021 – New research, conducted by Mark Nadel and published in the UC Berkeley Business Law Journal, found traditional brokers have used anticompetitive practices to overcharge Americans by $50 billion annually. The paper describes how the cartel operated by the National Association of Realtors (NAR) and their members works to protect the traditional 6% commission fee against price competition and firms operating outside the MLS structure who deploy superior consumer-facing technology and customer service to dramatically lower cost.
Nadel’s research describes how the National Association of Realtors (NAR) and their members use their monopolistic stranglehold over the market, such as restrictive “all or nothing” membership rules and commission tying practices:
"So, why haven’t new entrants with lower and different pricing models undermined the current pricing structure of the approximately $90+ billion/year residential real estate brokerage market and led prices to spiral downward?
The problem for those entrants is that the residential real estate industry is structured to require peer cooperation to complete transactions. Thus, innovative entrants offering to compete on price have been stymied by traditional real estate brokers acting as an informal cartel." (Obstacles to Price Competition in the Residential Real Estate Brokerage Market, Nadel, Mark S., 2021)
In November 2020, the United States Department of Justice sued and settled with the National Association of Realtors over anticompetition in the market. At the same time, American consumers have filed several class action lawsuits over costs and a lack of transparency in the industry.
In addition to anticompetitive practices, Nadel’s study found brokers take advantage of the agent-facing MLS structure to continue forcing inflated commissions on Americans even as consumer-facing technology has eliminated the labor cost in real estate transactions.
Consumer-facing technology and solutions, such as those presented by REX, have shown fees can be reduced to as low as 2% when combining machine-learning technology, improved search capabilities, and end-to-end bundled services. REX has also shown consumers have greater freedom and better experience when listing, shopping, and transacting real estate outside of the outmoded MLS structure with the support of the company's salaried licensed agents.
REX CEO and Co-Founder Jack Ryan commented on the publication of the study in the UC Berkeley Law Business Journal:
"This important research shows that real estate fees should be tied to valuable service, yet according to the National Association of Realtors, most consumers already do the work themselves.
“We founded REX to give Americans greater access to homeownership and a better customer experience. In 2020, we reduced commission fees to just 2 to 2.5% by combining consumer-facing technology with salaried licensed real estate agents who are focused on giving consumers the best experience possible.
“This reduction in fees helps close the wealth gap in America, helps job mobility so that families can move to places where they can live their fullest lives, increases the jobs and wages for electricians, plumbers and carpenters, provides tax revenue for local and state governments, and allow Americans to spend money on healthcare, education and homes that can improve their quality of life.
“Technology has already created the opportunity. It is time to free Americans from inflated real estate fees."
Questions Worth Asking
With the steady drumbeat of technology in real estate, why have fees remained largely unchanged since the early 1900s? Why are consumers paying 6% on transactions when agent labor costs have been eliminated by superior consumer-facing technology? Why do Americans pay more on real estate commission fees than anywhere else in the developed world?
For Scheduling Purposes
On Wednesday, March 17, Jack Ryan will be the keynote speaker at a forum hosted by the American Antitrust Institute. The forum, entitled Competition in Real Estate – Taking Stock of the “American Dream,” is free for the media to register and attend virtually. The event kicks off at 12:00 pm ET with Ryan’s events scheduled for 12:10 pm ET.