Real estate brokerage REX Real Estate launched in 2015, but largely flew under the radar until last year, when it became eminently clear the company was not kidding about playing hardball with the real estate industry.
On November 19, the U.S. Department of Justice (DOJ) filed an antitrust lawsuit against the National Association of Realtors alleging the 1.4 million-member trade group’s rules were illegal restraints on Realtor competition. The DOJ and NAR filed a proposed settlement at the same time that required NAR to repeal or change several rules the DOJ deemed anticompetitive, including a requirement that the amount of compensation offered to buyer brokers for each MLS listing be made publicly available.
That same day, Chris Christie, former governor of New Jersey, sent out a tweet announcing that he was an advisor for REX, “the company at the center of DOJ’s news that it’s taking on the real estate cartel.”
Happy to be an advisor at REX, the company at the center of DOJ’s news that it’s taking on the real estate cartel. REX is the consumer solution to buying & selling homes, to replace the practices that make it 3x more expensive to sell a home in the U.S. than anywhere in the world
— Governor Christie (@GovChristie) November 19, 2020
Jack Ryan, the CEO and co-founder of REX — which employs salaried agents, charges homesellers a 2-percent listing fee, and has a policy of never paying outside buyer’s brokers — told Inman at the time that the company had been working directly with the DOJ to share the “many ways that the NAR and the MLS set their practices to extract money from homebuyers and sellers.”
“As the tech company founded to upset the old real estate industry by offering much lower fees and better experiences for homeowners, REX and our customers have firsthand experience with the predatory real estate broker behavior that the DOJ’s action today addresses,” Ryan said.
“We applaud the DOJ for demanding that big real estate and their agents quit concealing $60 billion of excess annual fees that Americans pay,” Ryan added.
But the Austin, Texas-based company, which operates in 19 states, was nowhere near done attacking “the real estate cartel” — a phrase often used by REX and its supporters.
If REX helps a buyer purchase an MLS-listed home, it offers the buyer a 50 percent rebate on the commission offered to the buyer broker from the listing broker. In December, REX filed suit against the state of Oregon over its law prohibiting brokerages from offering consumers rebates — a lawsuit that earlier this month won the support of consumer groups that argued the law prevents discount brokers from offering consumers reduced real estate commissions from the typical 5-6 percent split between listing and buyer brokers.
REX told Axios earlier this year the company plans to replicate the suit in the 10 or so other states where brokers are not permitted to give fee rebates.
In January, REX revealed to the Houston Chronicle it had caught agents in Houston, Texas, on tape discussing steering buyers away from certain listings offering smaller commissions. Ryan said he believed the recordings obtained by REX significantly contributed to getting the DOJ lawsuit off the ground.
This month, REX decided to take on two real estate behemoths — NAR and Zillow — in a lawsuit alleging antitrust violations for NAR rules that require Zillow to segregate non-MLS listings from MLS listings on its website, including listings from REX, which eschews MLSs.
At the same time, the Berkeley Business Law Journal published a study commissioned by REX and authored by government attorney Mark Nadel which argued that real estate commissions are inflated by as much as $50 billion per year due to a lack of price competition.
Nadel said the lack of competition was created by having listing brokers set co-op fees for buyer brokers, which is the result of a NAR MLS rule that requires listing brokers to make a blanket, unilateral offer of compensation to buyer brokers that is either a percentage of the gross sale price of the home or a definite dollar figure when entering a home in a Realtor-affiliated MLS. That “Buyer Broker Commission Rule” is the subject of multiple antitrust lawsuits by several high-profile law firms against NAR, Realogy, Keller Williams, RE/MAX and HomeServices of America.
Ryan told Axios in February that NAR’s commission system suppresses U.S. homeownership rates and reduces overall household wealth. “This is a great David vs. Goliath story, both in terms of the odds but also in terms of the moral implications,” he said. He later told Axios that REX’s fight against NAR and its rules would be “an ongoing brawl over the next five or six years.”
REX told the news outlet it had “assembled a legal team which includes antitrust experts and former leaders who drove antitrust investigations of digital platforms that consumers engage with every day.”
So, it’s clear that REX has set its sights on upending the current real estate industry. But it’s also a brokerage that aims to grow its business. What are the challenges REX faces in accomplishing its goals? Here are a few.
Funding and going public
Ryan, like Compass founder and CEO Robert Reffkin, is a former investment banker at Goldman Sachs. In 2000, Ryan made tens of millions when Goldman went public and he then retired from the company to teach at an inner-city parochial school in Chicago.
His political connections may stem in part from his bid to challenge Barack Obama’s U.S. Senate seat in 2004, which ended in controversy, after allegations surfaced that he had visited sex clubs with his ex-wife and pressured her to perform sexual acts in public. He founded 22nd Century Media, a hyperlocal news company, in 2005 and left the company in 2015 to launch REX.
The company has friends in high places. According to Axios, REX’s backers include Jeb Bush and Chris Christie. The company’s individual investors also include Scott G. McNealy, co-founder of Sun Microsystems; Best Buy founder Dick Schulze; Gordon Segal, founder of Crate and Barrel; ex-McDonald’s CEO Jack Greenberg; previous senior vice president of search at Google Amit Singhal; Chicago-based billionaire Ken Griffin, who runs a hedge fund called Citadel; Jim Perry, co-founder of Madison Dearborn Partners; Diana Nelson, chair of global travel company Carlson; and Muneer Satter, vice chairman of the Goldman Sachs Foundation and founder of private investment firm Satter Investment Management.
Venture capital firm Beresford Ventures and private equity firm Lion Capital have also invested tens of millions in the company. Ryan has said he is one of the largest shareholders of REX.
A spokesperson for REX declined to comment for this story, but confirmed the company is in search of more funding, stating its “leadership team is busy with fundraising meetings at the moment.” According to PitchBook Data, REX had 300 employees as of Feb. 4 and had raised a total of $141 million as of its last funding round in May 2020.
Will REX go public like many of its larger counterparts, such as Redfin and Compass? That’s the plan. Ryan told the Austin Business Journal in November 2019 that REX’s aim is to go public and that its fundraising strategy will depend on whether its venture backing and fast-growing revenue can support REX’s expansion goals until the company is ready for an initial public offering.
Growing market share while not using the MLS
REX has said it is proudly not a member of the National Association of Realtors and was founded on the premise that it could save buyers and sellers thousands of dollars by not using multiple listing services.
It doesn’t make sense that MLSs require sellers, when they hire someone to sell a home, to also hire someone to help the eventual buyer buy the home, Ryan said on the Industry Relations podcast in December.
“Can a plaintiff’s attorney pay the defendant attorney?” Ryan said. “All the inherent conflict of interests are so intense … If you want to design a full employment act for lawyers, you would say, ‘Hey, every time you hire a plaintiff’s lawyer, you must also agree to pay for a defendant’s lawyer on the other side.’ Of course it’s preposterous. Of course, that makes no sense.
“There’s tons of [MLS] rules like that, that prevent you from doing things that you have to do if you do want to create a better experience at a lower cost with a better outcome.”
The company says it can successfully circumvent the MLS by using artificial intelligence and big data to price homes and identify and target potential buyers with web-based ads. It advertises its listings through the portals that most agents use to market their listings such as Zillow and Trulia. But it also targets buyers through Facebook, Google and other channels — sometimes also true of traditional agents, but not always.
This, unlike listing a home on the MLS, is an approach consumers are likely to be unfamiliar with.
“If you wanted to sell my house and said you weren’t putting it there [in the MLS], it wouldn’t make sense to me,” Denee Evans, CEO of the Council of MLSs (CMLS), told Inman in a phone interview.
“I think it would be much more challenging to get your market value because you’re not exposed to the market,” she added.
Whether REX will succeed in convincing enough consumers to try the non-MLS route and in pleasing them enough to turn them into evangelists for REX to gain significant market share is an open question. The company has a 4-star average on review site Birdeye from consumers touting their experience and the money they saved. Complaints tend to mention confusion around REX’s homeselling process, few home showings and lowballing a home’s market value for seller clients.
At the end of 2019, REX said it had represented more than $2 billion in sales. In May, the company said its listings in 2019 had grown by about 160 percent from the year before and its revenue had grown 180 percent, also from 2018. In the first four months of 2020, REX helped consumers get three times more homes into escrow than in the same period in 2019, according to the company. But REX did not provide actual numbers for its listings or revenue.
At the same time, it appears that REX is using MLSs to some extent. Some agents report that REX hires other discount brokerages in their markets to list homes on the MLS. Others say REX is a member of their MLS, but offers $1 as a buyer broker commission.
In its lawsuit against NAR and Zillow, the company revealed that since Zillow changed its website to comply with NAR rules in January, REX “has been forced to co-list clients with MLS members” at the request of its seller clients “to increase [properties’] online profile.” This is despite REX’s longtime claim that “REX homes are not on the MLS and never will be.”
Increasing consumer appetite for discounters
REX faces a hurdle that every discounter faces: gaining traction. By not using MLSs, REX may have an advantage over other brokerages, discounters or not, that typically grow MLS market area by MLS market area. And in a blazing hot seller’s market, where real estate companies, from traditional brokers to iBuyers, are scrambling to get to sellers first, REX may benefit from more sellers wondering why they should pay the typical commission.
But historically, discount brokerages have, more often than not, either fizzled out or stayed at a tiny market share. Redfin, the most high-profile of discount brokerages, has a 1.04 percent market share nationwide. By contrast, Keller Williams‘ market share was 10.4 percent as of Oct. 30.
Part of REX’s goal in attempting to upend the current industry is tied to its business aims. If NAR’s policy changes in the wake of the DOJ settlement allow for a more level playing field among different types of brokerages and agents alike, Ryan anticipates discount brokerages like REX may see more business, and homeowners may be more willing to move more often, he told the Houston Chronicle in January.
As a result, Ryan said the agent workforce within the industry would likely decrease, but an increased flow of transactions would provide steady business for the remaining agents.
The Consumer Federation of America has said the NAR-DOJ rule changes will fail to significantly increase price competition between brokers, but will at least “discourage blatant discrimination against discount brokers and the steering of buyers to high-commission properties.”
But whether the upcoming rule changes — now delayed by months — actually attract more consumers to discounters like REX is far from certain.
Steve Murray of RTC Consulting, formerly president of Real Trends, told Inman that he didn’t think the rule changes would have much impact, if any, on discounters in general.
“Discount brokerages have been around since HelpUSell in 1977 followed by Assist2Sell, followed by ZipRealty, followed by Redfin, and combined they have never exceeded 2 percent of the national market,” Murray said via email.
“So why would the changes proposed affect this at all. And if what I am hearing out of Puget Sound is correct, where they instituted many of these changes 18-24 months ago, there will be little change. Last, there is some evidence that discounters gain some share in hot markets but not life-threatening market-share shifts to incumbents.”
Stefan Swanepoel, chairman and CEO of T3 Sixty, a real estate consulting and publishing firm, told Inman that most, if not all, brokerages will likely benefit from a hot market where homes sell with very little marketing, but said that sellers may gravitate toward brokerages they feel can handle a complex deal.
“Sellers may in hot markets want a strong agent who can handle complex multiple offer situations and knows how to position their home to begin with to achieve a strong financial result,” Swanepoel told Inman via email. “Those agents that have built that image and perception in their local market, irrespective of the brokerage or brand they are with, will benefit the most.”
If there is commission pressure from consumers due to the rule changes, Swanepoel expects it to fall largely on individual agents, rather than brokerages.
“If brokers and agents split the overall commission earned,” which is the most common, traditional model, “agents are impacted more because most agents usually receive a higher percentage of the earned commission, and therefore the decline will impact them more,” he said.
“If agents are employees, then the broker will carry the brunt of a decline in commission, because the broker receives the earned commission, and the agent is on a fixed comp.”
An industry veteran who asked not to be named suggested that discounters seem to be offering a solution in search of a problem.
“All the disrupters keep thinking that consumers are unhappy about using agents and paying commissions while every piece of evidence says otherwise,” the veteran said via email. “What consumers don’t like is the ‘process.’ They actually mostly think their agents are doing a good job for them.”
“Two-thirds or thereabouts of all buyers and sellers use an agent because they know one or are referred to them by a trusted business or personal friend,” the veteran added. “That has not changed in over 30 years. The great majority of housing consumers don’t make a choice [based] on price. [L]ike attorneys, accountants and doctors, who goes shopping for the cheapest doc?”
Ryan has made clear that REX is not just a crusader, but also a business.
“We would like to make money because we have shareholders,” he said on the Industry Relations podcast. “We’d like to make, you know, a fair amount of money.”
Like many other brokerages have for decades, REX sells itself as a “one stop shop” for ancillary services related to the real estate transaction, such as mortgage, title and escrow, but also offers moving services, home improvement and repairs, home and vehicle insurance and service connections in a way that’s convenient and app-based, similar to the pitch some iBuyers make.
Taking the friction out of trading an asset makes the underlying value of the asset go up, according to Ryan.
“Where they’re all separately siloed activities, of course makes it frictionful, but if you did it off your phone with a push notification saying, ‘Hey, you’ve been in escrow for three days; we don’t see that your insurance has arrived. Can we help you with that? Or ‘Push this button if you’d like us to reach out to the firm that you used in a prior transaction,'” he said in the podcast.
In a document sharing REX’s “vision of the future” on its website, REX paints a picture in which the brokerage not only assists buyers and sellers with a transaction, but provides a platform to help them with the maintenance of their home beyond the transaction.
“Instead of having to rummage for a folder crammed in a desk drawer, you will be able to look to the REX dashboard to inform you when the roof needs replacing, HVAC filters must be changed and the tradeoffs between depending entirely on your local utility or investing in solar panels,” the document says. “With REX you will be able to manage your home — likely your most valuable asset — the same way you manage your financial portfolio or bank account.”
REX falls under the type of brokerage that Clelia Peters, venture partner at Bain Capital Ventures, calls “neo-brokers.” Peters is also president of Warburg Realty and editor at large of Inman.
Neo-brokers are companies with an integrated service model that are agent-based but those agents are often employees and are highly trained to provide a consistent customer experience, Peters said at a CMLS conference in September.
Neo-brokers are “going to play an increasingly significant role in the market in the coming five to 10 years,” Peters said.
Such firms have a 50 to 80 percent attachment rate for secondary services, compared to 20 percent or less for traditional brokerages, according to Peters. Redfin, Orchard, flyhomes, Homie and Reali are also examples of neo-brokers. They also see buyers and sellers, not agents, as their core customer.
“One of the reasons I believe historically we’ve struggled in the brokerage industry to sell secondary services … is that our independent contractor model prevents us from doing really deep training of our agents or creating [sales] quotas,” Peters said.
Nearly all neo-brokers use a discounted commission model because that high attachment rate means it’s not as important for them to make money on that upfront transaction, according to Peters.
“They can extract value from the customer at every point along the value chain since they own the entire experience that the customer has,” she said.
Neo-brokers are highly reliant on secondary services, so REX’s ability to boost its revenue will depend on its attachment rate for such services, which is currently unknown.
But Ryan has also considered an alternative source of revenue: selling or licensing its artificial intelligence platform for predicting when consumers will become buyers and sellers to agents and brokers. In the Industry Relations podcast, Ryan said, “I think we’re going to do it soon” and noted that its AI platform “gets better every single day.”
Litigation as business strategy
Lastly, while REX has made a name for itself by poking the bear that is organized real estate, its litigious efforts are nonetheless a gamble — one that is expensive and will likely take years to play out.
In a recent column, Inman contributor Bob Mathew, the principal broker with MXW Real Estate, criticized brokerages, including REX, for using antitrust litigation as a business strategy.
“Antitrust laws exist to protect competition, not competitors,” he wrote. “Alleging consumer harm, vaguely and abstractly, because an industry rule or a business practice hurts one’s ability to compete with others is not a showing of antitrust violations.
“Indeed, the very logic of these lawsuits and the lack of evidence of harm lay bare the fact that these threats and lawsuits were thinly disguised attempts by brokerages and agent groups to protect themselves.”
“Perhaps it’s time for our industry to take a collective step back and focus its energies on sellers and buyers, instead of competitors,” he added.