Real estate cartel warning

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Last week, the Justice Department dropped a proposed settlement with the National Association of Realtors to take a fresh look at the notoriously high fees consumers pay to real estate agents. The move sent shockwaves through the housing industry. The government sometimes initiates an antitrust case and then decides to reject it. But the federal antitrust authorities never agreed to the proposed settlement, only to back down after receiving public comment.

The real estate lobby called the move “an unprecedented violation.” But older brokers worry about much more than the novelty of the reversal. The signal from Washington is that antitrust authorities are ready to dismantle the collusion that has left homeowners in the US saddled with brokerage costs two to three times higher than in the rest of the developed world.

While the authorities prepare a new investigation, they must carefully examine the bizarre ways in which Americans pay real estate agents. Unlike any other business, when a homeowner decides to sell, he must agree to pay two agents – his own and the buyer. This is a one-of-a-kind arrangement. The buyer’s agent supposedly represents the buyer, but the seller is compensated. In other agency companies, each client pays their agent. If you would like to be represented by a white-shoe law firm, you can pay for it. But a local practitioner can do the same, and clients also have the option. The result is real price competition.

Real estate, by contrast, has a third-party payment system that produces predictably inflated prices. Many home buyers will pay much less than 2.5–3% of the value of a home, which is the standard rate for purchasing agents. Last year, 97% of homebuyers started searching online without the help of an agent.

Increasingly, home buyers first find their next home and then contact an agent. But buying agent fees can still go as high as $ 15,000 when buying a home for $ 500,000, because the buyer does not set the price of their agent. The seller pays and is forced to pay in full.

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