For decades, the National Association of Realtors has maintained monopolistic control of the real estate market. This has benefited the NAR’s members but imposed significant costs on consumers. Stuck with few options but to use NAR-approved brokers, Americans pay some of the highest commission fees in the developed world.
However, things might be changing.
Late last year, the Department of Justice’s antitrust division secured a settlement from the NAR. The NAR reluctantly agreed to change some of its anti-consumer and anti-competitive practices. After monthslong delays, the DOJ recently announced it was withdrawing the settlement altogether, “to permit a broader investigation of the NAR’s rules and conduct to proceed without restriction.” This suggests that the NAR’s questionable tactics run deeper than previously thought. And it’s a welcome sign, no matter one’s political stripes. Even the most zealous free-market advocates (usually) agree regulation can play a role in ensuring that market participants don’t collude to keep prices high and competition low.
The DOJ’s promise to expand its inquiry is a welcome step for an industry held captive to the NAR.
As the real estate market reaches a frenzy unseen since the subprime mortgage crisis, more buyers are looking for sellers online, without intermediaries. As many as 95% of homebuyers log on as part of their search. But NAR-affiliated firms still control access to local multiple listing services, tightly held books of area listings that make it hard for sellers to find buyers on their own. Locked out of these listing services, most buyers and sellers gravitate to the NAR-approved process. That normally entails an expensive broker on each side.
The latest issue of the Cato Institute’s Regulation magazine outlines several of the NAR’s worst practices. The authors conclude that buyer brokers’ “steering” clients to more expensive homes and anti-rebate laws — 10 states don’t allow brokers to rebate customers a portion of the sticker rate — among many other fixes, cost consumers “billions of dollars every year.” Put simply, the NAR’s misbehavior is a drain on the nation’s economy and social integration.
That should concern not just the pro-regulation crowd but even libertarians, who, for good reason, are skeptical of the whole antitrust concept. Such laws can be hijacked to achieve policy goals outside their legislative mandate. But while the NAR is a private organization with limited assistance from a handful of states, their worst practices produce costs that are comparable to those that the largest cities’ zoning boards place on housing markets. In this sense, DOJ’s focus on the NAR is a textbook example, however rare, of the legitimate use of antitrust laws to keep markets open to competition instead of closing them off.
The federal government isn’t the only adversary that the NAR has accumulated in recent years, but it is the most powerful. Lawsuits against the NAR include one brought by REX Homes, a groundbreaking digital brokerage that has long fought the group’s tactics. REX claims that the NAR and Zillow have violated the Sherman Antitrust Act, colluding to sequester REX listings in a less-trafficked “other listings” tab. In February, REX submitted its public comment on the DOJ-NAR settlement, urging the DOJ to launch a larger-scale investigation. REX has also sued Oregon, seeking to invalidate the state’s anti-rebate law. Meanwhile, home buyers in Illinois and Missouri have brought class-action lawsuits alleging that the NAR’s closed system inflates home prices above fair-market values. These lawsuits evidence the lengths the NAR has gone to maintain its national monopoly.
These litigants cannot go it alone. They need help from the federal government to follow through on one of the few things it is designed to do to facilitate free markets. The DOJ’s settlement was a good start. Its withdrawal and plan to expand the investigation of the NAR’s anti-consumer and anti-competitive practices could lead to an even better ending.
Sam Spiegelman is a legal associate at the Cato Institute’s Robert A. Levy Center for Constitutional Studies.
