The Biden Justice Department took the unprecedented step this past summer of nixing a proposed settlement with the National Association of Realtors because the deal, agreed to in the waning days of the Trump administration, didn’t go far enough in cracking down on the association’s anti-competitive practices.
Now, the association is crying foul, arguing that the DOJ is barred from digging deeper. In pushing back, the NAR revealed that the DOJ recently served it with a civil subpoena. At the heart of the new investigation: the tens of billions of dollars that U.S. consumers pay to buy and sell homes.
Over the past decade, the median price of homes sold in the United States has jumped by nearly 40%. Yet despite skyrocketing home prices and the rise of consumer-enabling home shopping websites, buyer’s agent fees have remained stuck between 2.5% and 3% of the home price. What’s even more shocking and problematic for the NAR is that newly published data show there is very little price variation within the vast majority of markets across the country.
Data collected by my company REX shows that 90% of sellers in Austin, Texas, offer a buyer’s agent commission of 3%. In Atlanta, 79% of sellers offer 3%. In Chicago, the going rate is 2.5%, which is offered by 84% of sellers. And in Denver, 73% of sellers offer 2.8%.
This extreme clustering of buyer’s agent commissions is the result of the NAR’s policy that all sellers must offer a preset, nonnegotiable commission to the agent on the other side of the transaction. The policy works well for big brokers but leaves consumers with little choice but to pay exorbitant fees.
Among other tactics, agents representing sellers warn that offering a lower commission would encourage buyer’s agents to steer their clients away from their listings and toward higher-commission properties. As a result, most sellers give in and offer whatever the “going rate” happens to be in their given market.
The DOJ’s subpoena to the NAR suggests that the party may finally be over for fixed commissions. Among other demands, the subpoena requests “all documents relating to brokers steering potential buyers toward or away from homes for sale based on the amount of cooperative compensation offered by a listing broker.”
The DOJ is on the right track. The reality is that steering happens all the time.
Over the past several years, hundreds of buyer’s agents across the country have admitted to steering their clients away from REX listings because they didn’t want to negotiate for their commission, as they would have to do in any other industry. Some agents have even revealed that their brokerages have enacted policies that prohibit them from showing homes that don’t offer the going rate in the given market.
The ubiquity of steering is evidenced by the commission data, which show that only a tiny percentage of sellers offer a buyer’s agent commission of less than 2%. This suggests that a 2% buyer’s agent commission is effectively an industry-imposed price floor that sellers cannot drop below if they’re to have any real hope of selling their homes. If this weren’t the case, we’d expect to see many sellers offering a buyer’s agent commission of less than 2%.
Put another way, the reason why sellers offer a nonnegligible buyer’s agent commission is to incentivize buyer’s agents to show their homes. If it weren’t for the threat of steering, sellers would offer an arbitrarily low buyer’s agent commission. After all, why would sellers voluntarily compensate agents who represent the other party in the transaction?
Fortunately, with the DOJ pulling out of the settlement and launching a new investigation that gets at the heart of the NAR’s anti-competitive rules, the days of this price-fixing scheme may be numbered.
Will Fried is a data scientist at REX.
