Real Estate

‘Big Win For Discount Brokers’: How Low-Fee Firms Benefit From DOJ Suit

Discount and low-fee brokerages that seek to compete on price — in addition to value proposition — could be the big beneficiaries of changes that are coming as a result of the Department of Justice’s suit against the National Association of Realtors, several brokerage CEO’s told Inman on Friday.

Jack Ryan | Photo credit: REX

As part of the settlement, the “amount of compensation offered to buyers’ agents for each MLS listing will be made publicly available,” National Association of Realtors Vice President of Communications Mantill Williams said in a statement Thursday.

In the lawsuit, the Justice Department specifically took issue with a practice that allows buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and, “exclude homes with lower commissions from consideration by potential homebuyers.”

Jack Ryan, the CEO and co-founder of REX, a full-service discount brokerage, praised the decision and blasted the real estate industry in the same statement. REX has a policy of never paying outside buyer’s brokers. 

Ryan said his company has been working directly with the DOJ to share the “many ways that the NAR and the MLS set their practices to extract money from home buyers 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, and the brazenly anti-competitive practices that make it two to three times more expensive to sell a home in the U.S. than anywhere else in the developed world,” Ryan added.

A 2016 report in the Wall Street Journal that compiled real estate commissions around the world, with the help of discount brokerage Surefield, mostly supported Ryan’s claim.

Tyler Forte | Photo credit:
Felix Homes

The report found that the average commission in the U.S. was 5.5 percent, while the U.K., Australia and Scandinavian countries all had commission fees no higher than 2 percent. Most of Western Europe, however, was in the 4 percent to 5 percent range. Only Japan and Mexico had higher commissions than the U.S., of the 32 countries analyzed.

Tyler Forte, the CEO of discount brokerage Felix Homes, called the decision, a “big win for discount brokers.”

“For years, we’ve been advocating for increased competition, not just regarding the level of service but also the price charged for that service,” Forte said. “Competing on service and price is not a novel concept but rather the common practice in nearly every industry.”

Not only will it allow discount brokers to compete more on price, but it will also get the consumer talking about commissions, which is another win for low commission brokers, according to Forte.

“For too long, real estate has been a black box which enabled anti-competitive price collusion and misinformation such as the notion that using a buyer’s agent is free,” Forte said.

Glenn Kelman | Photo credit: Redfin

Redfin CEO Glenn Kelman, in a statement, called the increased transparency around buyer’s broker fees great news. It’s hard, Kelman explained, for an agent to save homebuyers money when the fees paid to that agent are a secret.

“When websites can tell the world how much money is being paid to an agent on every home her client sees, it’ll start a competitive free-for-all,” Kelman said. “Some agents will compete on price.”

“Hopefully, everyone will do what we all should’ve done in the first place: explain to our customers how we get paid, and ask for more or less money depending on what the market will bear.”

Chris Nielson | Photo credit: Redfin

Redfin is arguably the most successful brokerage that charges a lower commission for its listing services, going as low as 1 percent in some places. Chris Nielsen, Redfin’s chief financial officer, was asked about the DOJ lawsuit Thursday during the virtual Stephens Investment Conference.

While he admitted he hadn’t yet seen the lawsuit so he couldn’t comment on specifics, he did note, in general, Redfin is in favor of commission transparency.

“We want customers to know what they’re paying for,” Nielsen said. “And we think we can charge less and the customers will benefit from that.”

“And so that’s why we built the business,” Nielsen added. “It’s how we built the business. And so just in general very much in favor of making sure that everybody knows what they’re paying all the way along.

Trelora CEO Brady Miller

Brady Miller | Photo credit: Trelora

Brady Miller, the CEO of Trelora, told Inman that commissions are artificially inflated and hidden from consumers, which prevents a substantial obstacle to homeownership and affordability. He doesn’t, however, believe that communicating those commissions as a first step will change the competitive landscape.

Miller — who told Inman in an email that Trelora doesn’t consider itself a discount brokerage but rather a “modern” brokerage — said all commissions should be negotiable based on experience, skill and market dynamics.

“We discuss our compensation with our customers because we believe that is the way business should be conducted,” Miller said. “Creating an environment where all consumers have insight into their agents’ compensation will hopefully create a competitive landscape that elevates the level of professionalism throughout the industry.”

Email Patrick Kearns

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