This is Part 1 of a two-part interview with REX Real Estate General Counsel Michael Toth. Click here to read Part 1.
Discount brokerage REX Real Estate has had a contentious relationship with the industry at large since its beginnings, but more so since the company revealed it was working with the U.S. Department of Justice in an investigation of the National Association of Realtors and had prominent political backers on its side.
REX operates in 41 markets in 20 states. Its market share at this point is tiny. The brokerage counts market share as the fraction of closings in a market that are on REX homes, not including transactions where REX is the buyer broker. By that measure, REX’s overall market share in the second quarter of2021 was 0.05 percent, the company told Inman. REX’s market share is highest in Jacksonville, Florida (0.16 percent) and Los Angeles (0.15 percent).
As of Aug. 23, REX had 145 real estate licensees, who are salaried, and 402 employees total, including client support staff and data scientists. The brokerage had 235 active listings. Counting those that had signed a listing but had not gone live yet and those that were in escrow, REX had 548 committed listings, the company told Inman.
Regardless of its market share, REX is punching above its weight in terms of impact on the industry. In Part 2 of a two-part series, Inman interviewed Michael Toth, REX’s general counsel, and dove into REX’s evidence of agent steering, its work with the DOJ and some of its high-profile investors.
This interview has been edited for length and clarity.
Inman: I was thinking about the recordings you guys posted, which were pretty shocking. How many of those recordings do you have?
Michael Toth: Hundreds, we have hundreds like that. We sent them to the Department of Justice in response to subpoenas during the investigation that led to the proposed settlement.
There is a training script, which is in our Zillow case, from Keller Williams. There’s another one from Coldwell Banker that I just found. This is hidden in plain sight. This is out there in terms of the standard operating procedures. So, I don’t understand why it was a surprise [when we posted the recordings]. They’re individual instantiations of the training manual.
I think what was shocking is the part where they said, “I’m not going to show it at all or let my buyer know that it exists at all.” I don’t think that’s in a training manual.
That’s a good point. There’s two sides to steering. The first side of steering is the selling agent is convincing the seller to offer a supra competitive rate for the buyer agent.
The selling agent — per Keller Williams, per the Coldwell Banker, per the real estate coaches — is basically saying, “Look, if you don’t offer the going rate, no one is going to show the house.” That’s the pressure on the sell side.
On the buy side, it’s what we captured on those on those tapes, which is the buyer agent is doing exactly what the Keller Williams manual is telling the seller is going to happen. The buyer agent is following the Keller Williams script. The buyer agent is doing exactly what the selling agent is telling the seller they’re going to do.
It’s just the buy side of this dynamic which is set up by these completely outmoded rules where the buyer and the seller, particularly the buyer, is totally kept in the dark as to how the process is working.
It’s a huge loss to society. It’s obviously a loss to that consumer if they are not able to see the full range of properties. What that ultimately is is a denial of access. That buyer is denied access. They’re denied the ability to even conceive of something that they could get access to. It never surfaces to them, this option that there’s this other house out there.
It’s outrageous to hear people in an industry say I’m not going to show something when they’re acting as an agent for a principal who has expressed to them a desire to see it.
It’s outrageous to read training manuals that are coaching people to offer 3 percent of the value of the home that they worked hard to purchase and hard to pay the mortgage on because that’s the going rate and otherwise people are going to shun your home.
These things should shock the conscience of any consumer, of anyone who’s interested in equity in real estate.
Has REX filed complaints against these agents, either with the local Realtor association or with the state regulatory body?
We have. We’ve done a variety of things and we continue to do a variety of different things. Earlier on we did file a number of complaints. We’ve raised these issues with licensing agencies. We did not get any serious headway. But we’ve continued to surface issues.
I’ll give you an example of something we did in June. We’re having an issue in the state of Arizona where a number of brokers said to us, “You’ve got to put the offer on official Arizona Association of Realtors MLS paperwork.”
This would be like a lawyer saying, “Hey, you’ve got to format the contract and put it on this particular law firm’s letterhead.” At the end of the day, the terms of the contract are what is important to the parties that are in the transaction.
There are some states — California is a great example — where you can go to the California Association of Realtors, get the forms and just engage in a contractual negotiation. You pay for it and you can get something that’s valuable for your brokers and your agents.
In Arizona, the only way to do that is to join the Arizona Association of Realtors — go in for the pound not just the penny. Totally different from any other consumer transaction.
It’s like you have to purchase a membership to the car dealership; you can’t just purchase a car. It asks something of consumers that are not normally asked. We brought that issue to the regulators in Arizona just recently.
One thing I was thinking about while listening to the recordings was, “Is this an exception or is this the majority of agents dealing with REX?” Are most agents saying, “No, I’m not working with you” or do most agents actually play ball?
It’s a complicated empirical question. There’s a large number of these kinds of calls that we have. On the other hand, we do do a large number of real estate transactions, so I don’t want to paint with too broad of a brush here.
First of all, one of those calls is one too many. And we’ve got many, many, many, more than one. It’s a systemic problem. We’ve built an industry around commissions.
The Bret Weinstein piece speaks for a lot of people in the industry that just says it’s stepped off on the wrong foot and continued on that path around commissions and commissions drive everything as opposed to consumer experience.
Does REX tell sellers that sometimes agents will refuse to see their listing if REX doesn’t offer a buyer broker commission?
The latter part isn’t necessarily the case, that we refuse to offer a buyer broker commission. What we tell our consumers is they’re going to be in charge and we’re going to bring them any offer that a consumer has.
But you don’t offer it upfront. In the MLS it’s right there. But you don’t offer it upfront and that’s why you’re concerned about steering and all these agents that hear that there’s no offer upfront and they say, “OK, I’m not going to show it.” Do REX’s seller clients know that that’s a possibility?
Just to be clear here, the offer upfront is a negotiated commission, so there is an offer upfront, which is for the buyer and the buyer agent to start a conversation with the seller around what the buyer is willing to pay the buyer agent. The starting point is not that no matter what our sellers won’t pay anything and you guys just deal with this yourselves. That’s never the case.
What we explain to our folks is that what we’re going to try to do is to find what we call a direct buyer, which is somebody who is surfing the web, who’s finding homes a way that consumers are increasingly finding them, and come to us having found the home.
That’s where we start the conversation. We’re honest, we’re upfront with our consumers all the way through the transaction.
Beyond the steering in the recordings, has anyone ever threatened REX? I keep remembering Trelora was saying things about people throwing eggs. Has anyone ever threatened something like that or done something like that or anything more serious because of REX’s business model?
I can’t speak of personal experience around threats, but early on in the company I think we did get some calls that crossed a line from just, “I’m going to prevent a transaction” to, “Y’all ought not be in this industry.”
Things that are kind of more of this sort of egg-throwing variety. This hasn’t come up recently. I haven’t had any kind of law enforcement-type situations during my tenure.
How big is your legal team?
I’m the only practicing lawyer at the company. But we’ve got a REX legal team that involves a chief compliance officer and we also have a senior director of procurement and privacy.
We work across the entire business to make sure that we’re meeting the business needs of REX mortgage, REX brokerage and our insurance business. We do that as a team of three.
I read a bunch of articles about REX before I wrote a profile on REX in March and it mentioned something about a team of antitrust advisors. Can you tell me about that?
On our Zillow case and other cases, we really tried to build up a virtual firm. I’m an army of one on the in-house side, but I try to find the best folks to work with who really have great subject matter experience and put together a team of folks.
When I talk to outside lawyers or outside experts who are interested in working with REX, I always tell them the same thing, which is it’s gonna be a team effort.
I’m not just going to go to one law firm and park the case over there. I’m going to try to find for my client what’s the best collection of services.
When the DOJ filed its lawsuit and settlement in November, Chris Christie tweeted about it, of all people, and said he was an advisor and I think Jeb Bush is also an advisor, so how did how did that happen? I assume it’s because REX founder Jack Ryan was involved in politics.
Governor Christie and Governor Bush are investors and advisors in the company. We’ve got a whole range of investors and advisors from across the investing, business and political worlds.
We work closely with Ben Harris who had been the chief economist for Vice President Biden. He and Roger Alford, with whom we’ve previously worked — he’s a Notre Dame Law professor now and was in the Trump Justice Department — just came out with a piece in Regulation magazine calling for pro-competitive changes in the brokerage industry.
It’s really elegant bipartisanship to have a previous Obama and a current Biden official and a previous Trump DOJ official come together and write a piece on a real issue where there’s hundreds of billions of dollars at stake.
Can you tell me about how REX has been working with the DOJ? You mentioned a subpoena when they were investigating NAR previously. Why would they subpoena you? How did they know about you?
Antitrust authorities issue subpoenas in order to find out what the facts on the ground are, in order to support a case that they may or may not bring.
Us as a real estate participant, we have information about transactions. We were very focused, as a company, to bring some of what we were experiencing as real problems for our consumers to the attention of authorities, including authorities in Washington.
As our co-founder and CEO Jack Ryan has pointed out, this is bigger than Standard Oil. If you look at the sheer amount of dollars that are involved — $2 trillion real estate market, $100 billion brokerage commission market — this is an enormous issue. This is a long overdue problem that needs to be fixed.
This is a kind of thing that federal and state antitrust laws were created to address: outmoded industry rules, which are not based on law. They’re private industry rules that are serving the participants and not serving the consumers.
We surfaced these issues and we struck a vein among those that are in positions that can play a role here.
You said the DOJ subpoenaed REX. Did they ask for something specific when they did that?
The Justice Department asked for information relevant to real estate transactions that we were a part of. Obviously, we were responsive to the subpoenas. We shared information with the DOJ that was responsive to what they were looking for.
If I’m not mistaken, I think we’ve received more than one subpoena, so they had an ongoing investigation. And obviously we want to support, want to be a resource to the extent we have information.
I think the DOJ subpoenaed more than just our company. They’re out there doing an investigation trying to figure out what’s going on in this super large market. We were a part of that investigation and we shared what we have that was relevant to their inquiries into real estate brokerage. It led ultimately to the proposed settlement.
Our view on the proposed settlement [was] it showed the way, but it left meaningful change kind of off the table. I think we’re probably the only real estate company which stood up and said, “You know what? More should be done.”
We put together a very detailed comment letter and we were very excited to see the recent announcement from DOJ and felt like it was exactly the right outcome. It was an outcome that we had pushed for.
Have you heard from the DOJ since the proposed settlement was announced in November?
We continue to be in touch with the DOJ to present information that is helpful to them and on what we’re seeing in the real estate market. Not just with DOJ, but with other antitrust enforcers, with other policymakers who [deal with] competition, with state officials, with local officials, with private entrepreneurs and innovators, and obviously with our customers.
We take a very proactive, comprehensive approach to surfacing ideas, and also to thought leaders, too. Jack Ryan, our co-founder and CEO, did a presentation with the American Antitrust Institute. They do very rigorous work about retail consumer issues and competition.