The National Association of Realtors and REX Real Estate each have very different views on the commission structure in the U.S. and, with federal regulators looking on, are attempting to make their case not just in the courts, but to consumers and agents at large.
On July 8, the Wall Street Journal published an op-ed by Michael Toth, general counsel of REX, titled “Warning to the Real-Estate Cartel.” On July 19, industry publication RISMedia published an opinion piece by NAR President Charlie Oppler titled, “Op-Ed: Misguided DOJ Efforts Could Derail What a Pro-Consumer Real Estate Market Bolsters.” That same day, REX hit back at attempts by NAR and Zillow to have its antitrust suit against the two real estate giants tossed, alleging that the two have formed a “group boycott” to enforce a controversial NAR commission rule.
The op-eds come at a time when federal regulators appear to be turning up the heat on the real estate industry. The Federal Trade Commission, along with the U.S. Department of Justice, is in charge of antitrust enforcement. On Tuesday, President Joe Biden nominated Jonathan Kanter as assistant attorney general for the DOJ’s antitrust division, following last month’s appointment of Lina Khan as chair of the FTC. Both are critics of big tech and proponents of increased antitrust enforcement, signaling that greater scrutiny of competition in the industry is at hand.
In a July 9 executive order on competition, the Biden administration encouraged the FTC to “exercise the FTC’s statutory rulemaking authority … in areas such as … unfair occupational licensing restrictions; unfair tying practices or exclusionary practices in the brokerage or listing of real estate; and any other unfair industry-specific practices that substantially inhibit competition.”
Oppler’s op-ed comes shortly after the DOJ pulled out of a proposed settlement with NAR in order to broaden its investigation into the trade group’s rules. Earlier this month, the Consumer Federation of America suggested that career DOJ officials may have been unhappy with the proposed settlement with NAR — a deal struck when Trump appointees were in charge — and that contributed to the DOJ’s withdrawal.
The DOJ did not say which rules were under scrutiny, but Oppler’s op-ed suggests where NAR leaders think the investigation is going. The op-ed focused on the traditional commission structure in the industry and the consequences of buyers paying their agents directly, neither of which were at issue in the lawsuit or settlement that the DOJ withdrew from, but are at issue in multiple antitrust lawsuits brought by buyers and sellers that NAR is currently fighting.
“[T]he traditional commission structure, where the listing broker offers to share his or her commission with the buyer broker, ensures the greatest possible equity for first-time to middle-income homebuyers from all walks of life who may otherwise not be able to afford a home and professional representation,” Oppler wrote.
“If buyers had no choice but to pay a commission directly to an agent on top of their closing costs, it would increase out-of-pocket expenses in a way that could freeze out many from an already competitive market.”
“In short, the American real estate system helps connect buyer’s agents with seller’s agents, creating the greatest number of housing options for buyers and offering sellers access to the largest possible pool of potential buyers,” he added.
“It’s a model that is both efficient and transparent and has worked remarkably well for decades. Employing the free market principles of private property rights, competition and open negotiation, our MLS system remains the envy of the free world.”
NAR declined to comment on whether NAR has received any communication from the DOJ to indicate that the agency is specifically investigating the traditional commission structure. The op-ed referred to “perils and unintended consequences of the actions by the Department of Justice against the current Multiple Listing Service (MLS) system,” but NAR declined to comment on which specific actions Oppler was referring to.
“The Administration has publicly signaled a lack of understanding about the MLS system and the associated commission structure,” Mantill Williams, NAR’s vice president of communications, told Inman via email.
“Between recent statements from the Administration and the DOJ’s ambiguous comments when it inexplicably withdrew from this legal agreement, Charlie wanted to be clear that everything about the MLS system is pro-consumer and pro-competitive. The current system creates greater equity in home ownership and greater opportunity for small businesses.”
Most of the 50 comments on Oppler’s op-ed backed his statements, including some noting that sellers benefited from not having to pay their agent’s commission when they were buyers. But others disagreed, noting that the incentives in the arrangement don’t make sense.
“The incentive-based commission makes perfect sense for the seller,” one commenter wrote. “Their representative is not paid unless they get to the closing table. And the representative is paid more if the seller gets more. You cannot simply reverse that and apply it to the buyer’s representative. The incentive is to get the buyer to the closing table and then get paid more if the buyer pays more? It is illegal to charge an appraisal client a percentage of the appraisal value and charge only if a transaction finalizes. It should be illegal to charge a buyer an incentive-based fee.”
Another offered a “simple fix” to the problem of adding more costs for the homebuyer if he or she were to pay for the buyer agent directly: “[I]nclude the buyer’s brokerage fee in the mortgage, just like the closing costs and seller’s brokerage fees are in there now,” the commenter said. “No difference to the buyer except they control the fee they pay or maybe don’t pay. This solution allows for potentially lower costs for acquiring a home, negating your rather thin argument.”
NAR declined to respond to these comments.
After reading Oppler’s piece, REX’s Toth called out NAR for not recognizing that buyers should get a chance to negotiate what they pay their agent and for having to be told by the DOJ in the proposed settlement not to allow their members to filter listings in the MLS by the commission offered to the buyer agent.
“Homebuyers are the only people who show up with a check at closing,” Toth told Inman via email. “Even though it’s their money, the price of their agent is set before they get a chance to negotiate. If that isn’t ridiculous enough, the NAR was called out recently for allowing boycott buttons and other obviously anti-consumer practices. You shouldn’t need the federal government to tell you not to boycott buyers. That’s not the free market — it’s the opposite.”
Toth’s own op-ed also tackled the commission structure, but focused on its costs for buyers and sellers.
“The signal from Washington is that antitrust enforcers are prepared to dismantle the collusive practices that burden U.S. homeowners with brokerage costs two to three times as high as in the rest of the developed world,” Toth wrote.
“As authorities prepare a fresh inquiry, they should give close scrutiny to the bizarre way Americans pay real-estate agents. Unlike any other business, when a homeowner decides to sell, he must agree to pay two agents — his and the buyer’s.”
“Increasingly, home buyers are finding their next home first, and then contacting an agent second,” he added. “But buyer agent fees can still be as high as $15,000 on the purchase of a $500,000 home because the buyer doesn’t set the price of his agent. The seller does, and he’s pressured to pay to the hilt.”
And on the buyer side, Toth scoffed at the notion that having sellers pay buyer agents means that buyers don’t pay.
“When a home is sold, it’s the buyer who pays,” Toth wrote. “What industry defenders are really saying is that buyers have the privilege of borrowing more money to pay for homes because the inflated cost of agent services are baked into the sale price.”
In an interview, Toth told Inman he wrote the op-ed because “it was a story that needed to be told” and because REX had submitted a comment letter on the proposed settlement to the DOJ in February calling for the agency to end the NAR rule requiring the sharing of commissions between buyer and listing brokers.
“This is something that consumers who are interested in the economy are going to want to read about,” Toth said. “There’s something here that’s noteworthy that should be presented and should be explained clearly as to what happens and … where we stand. Hopefully it’ll lead to further dialogue and further conversations about some practical solutions to the situation we have.”
In response to Toth’s op-ed, NAR’s Williams reiterated that REX was trying to benefit from the MLS system “without contributing to it and making unfounded claims to try to advance their business. It has been long recognized that the MLS system provides considerable pro-consumer, pro-competition value. Other countries look to us as the example to follow.”
He stressed that the U.S. system is viewed as the best by consumers worldwide and said comparing commissions between countries was “grossly misleading given there are fees and taxes in other countries that add up to the equivalent or greater of costs associated with the U.S. yet only providing a fraction of the services consumers receive here.”
For instance, he said, a home auctioneer in Ireland will charge a 1.5 percent fee to the seller and a lawyer requires a 1 percent fee to handle the transaction and then there’s a 1 percent to 3 percent transfer tax and buyers pay a 1 percent fee to a lawyer to purchase.
“Consumers also have to pay for brokerage signage, newspaper advertising, online ads and the brochures for potential buyers,” Williams said. “Plus, given simultaneous closings are not practiced there, you have to rent maybe four to six months between a sale and purchase, adding thousands of more dollars to your cost.”
The U.S. system is also much more focused on equitable opportunities for homeownership, according to Williams.
“The real estate commission structure ensures greater access for first-time, low-income and many other homebuyers who otherwise couldn’t afford a home purchase and professional representation,” he said.
“And given the internet only does so much, being able to work with a real estate agent is critical for those very same buyers as they try to traverse complicated, data-heavy and voluminous information, details and decisions.”