STEVE'S BLOG

Is this End of Real Estate Commissions?

The Department of Justice (DOJ) and the National Association of Realtors (NAR) has locked their horns in a legal battle this past year.  In the complaint filed by the DOJ, $85 billion were paid in real estate commissions through certain practices that illegally restrained competition.  It is felt that the real estate industry has gone on for a long time without regulation any regulation on their commission rates.  The NAR disagrees.

In November 2020, the NAR and DOJ came to an agreement to encourage greater competition in residential real estate services by amending certain rules and policies.  In this settlement, the DOJ agreed to not pursue any other violations of the Sherman Act related to NAR rules.  Specifically, the civil suit took aim on certain competitive practices that that allowed buyers and agents to filter the MLS listings based on commissions and withholding broker fees.  This settlement sought to encourage greater competition between Realtors, while keeping the DOJ at bay from seeking further litigation on antitrust claims to NARs rules.

The filed complaint has similarities to a so-called study by Mark Nadel, attorney and policy advisor for the Federal Communications Commission (FCC). Nadel has written similar articles claiming that the industry’s commission structure was inflated by over $50 billion.  His claim is that fees for the buyer broker is the reason that the commission rates are excessive nationwide.  As in most studies, the reader should be aware of who is funding the research and, most importantly, why?

Discount Brokerage

REX started in California and is now headquartered in Austin, Texas by Peter Rex.  Essentially, their website discourages compensation from the listing broker to a buyer broker; therefore, the prospective homeowner is purposely left unrepresented.  It does not state how a buyer’s agent would receive any compensation—if any—for finding a home for their customer.  It appears the customer would be left to fend for themselves during a real estate transaction.  In most cases, the buyer is moving to an entirely new location where all they know is how much house they can afford.  An average buyer’s agent could steer you in the general direction to purchase a home, whereas an excellent agent could lay the path towards the home of your dreams.

REX has sued Zillow, Trulia and the NAR for rules regarding the MLS listings.  Their claim is that it is unfair to a segregate a non-MLS listing from MLS listings on its website.  In other words, REX believes that those who do not contribute to the upkeep of the MLS should be able to list on their website.  Whereas, many agents and brokerages pay into that system that was created to give every agent/broker a fair chance at any listing.  REX does not see it that way.

REX believes that a buyer’s agent is overpaid for their services.  In fact, REX believes that two agents involved in a transaction will create a self-serving interest that leaves both the seller and buyer neglected. 

It appears REX is just trying to manipulate the industry with half-truths and self-serving ideology.  By removing the buyer’s agent from the commission equation, the customer must rely on information from the seller.  An average buyer’s agent can write a contract, negotiate a price, find an inspector, conduct a search for mortgage and title company.  An   excellent agent will know firsthand about the area regarding crime rates, schools and—most importantly—what is the general economic status.  For example, I had a buyer who wanted to purchase a home that I knew the road was going from a two lane to a five lane.  Clearly, this is not what they wanted.

Death of Expertise?

Everyone is an expert on EVERYTHING.  Or it appears so.  If you spend a moment on social media, you can find this seemingly true.  It is not.  Instead, everyone has an opinion where they can express themselves on an open forum.  This concept has not changed since communities have been gathering information about anything.  It is up to the those that filter their information in terms of topical validity and reasonableness.  The buying and selling of a home can be intellectually complicated and emotionally draining. As a real estate investor who is also an agent, I have similar experiences.   

When I purchase a house, as an investor, I envision a family moving in to start a journey of lifelong memories.  The burden of creating a safe home for a future family is something I take very seriously.  As an agent, I want to ensure that all the obstacles are cleared so the transaction is completed in the best interest of my clients.  So, when a discount brokerage, such as REX, creates unnecessary litigation to serve their best interest, at the expense of the taxpayer, it is the unrepresented that get screwed.  In America, we can buy and sell most anything by any means that we so desire.  I can purchase items on the web from whomever with the notion of “buyer beware”.  Or I can go to a store, pay more, where I get personal service that may include expert advice and, possibly, a warranty.  That is my choice.  If you are unfamiliar with homebuying process, I would get good advice.  For most people, real estate will be the most burdensome, financially and emotionally, they may ever experience in their lifetime.  Conversely, homeownership will likely be the most rewarding, financially and emotionally, you will ever experience in your lifetime.  It is best to have an experienced guide on your journey.

Steve Unruh

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