REX Data Scientist: Realtors must embrace fair rules of competition

Will Fried’s opinion editorial highlighting the NAR’s anticompetitive rules was recently published in The Boston Herald

AUSTIN, TX – The Boston Herald has published an opinion editorial from REX Homes Data Scientist Will Fried, a Harvard graduate, in response to NAR President Charlie Oppler who took to the opinion pages of the Boston Herald this month to disagree with the editorial board’s take that “Realtors must embrace fair rules of competition.”

Like REX, The Boston Herald editorial board called on the National Association of Realtors to reform a set of  anticompetitive rules and policies which keeps real estate commissions artificially high. 

Unfortunately, Oppler and the Realtors do not want to embrace fair rules of competition. This is at the heart of an antitrust lawsuit filed by REX and an ongoing antitrust investigation into the National Association of Realtors by the United States Department of Justice.

Fried stated, “When analyzing real estate commissions, it’s critical to recognize that the total real estate commission is made up of two components: the listing agent commission and the buyer’s agent commission. Because listing agents directly negotiate their commissions with the sellers, there are no anticompetitive concerns with this component of the total commission. This isn’t the case, however, with the buyer’s agent commission because buyer’s agents do not directly negotiate their commissions with their buyers.”

Fried’s data analysis tells this story.

According to industry news site RealTrends, the average national commission rate has dropped from 5.40% in 2012 to between 4.90% and 4.94% in 2020. (For simplicity, let’s assume it’s 4.90%.)

Meanwhile, according to a Redfin study, the average buyer’s agent commission dropped only slightly from 2.8% in 2012 to 2.7% in 2020. We can therefore deduce that the average listing agent commission dropped from 2.6% to 2.2% over this eight-year period – four times as large as the drop in the average buyer’s agent commission. 

Fried surmised listing agent commissions dropped significantly over this time frame for the following reasons:

  1. The number of active Realtors grew by 46% between 2012 and 2020 from nearly one million to nearly 1.5 million.

  2. The median home sales price increased by 23% over this eight-year period (adjusted for inflation).

  3. Technological tools such as e-signature software have helped streamline the process.  

Fried would have expected these trends to result in a similar decline in buyer’s agent commissions, especially since buyers themselves are increasingly finding their new homes on real estate websites such as Zillow and realtor.com.

Fried concluded, “Therefore, the fact that average buyer’s agent commission has barely changed since 2012 supports the argument that the buyer’s agent commission is dictated by an arbitrary going rate rather than free market forces.”