DOJ to NAR: $85B in Commissions is a Bit Rich

Last year, Real Estate agents earned $85B in Residential real estate commissions in the US. Our justice department believes that number is too high, especially given the recent double digit increase in home values / transactions. DOJ said these high fees “may harm home sellers and home buyers.”

The Federal Trade Commission plans to launch its own review. Per the WSJ: “The president said in a recent executive order targeting competition problems that the FTC should consider rules to curb “unfair tying practices or exclusionary practices in the brokerage or listing of real estate. The Justice Department investigation could lead to an antitrust suit and eventual sanctions on the industry. The prospect of FTC action is more distant, given the procedural hurdles that the agency faces in adopting new rules.”

But there is precedent, argues NAR. A 2008 settlement with the DOJ gave the government’s blessing to the commission structure thats used then and today.

Additionally, there are several class action lawsuits filed against the industry (NAR) by private law firms with similar goals of reducing compensation / price fixing.

A Growth Opportunity
Everybody was moving. Houses were flying off the MLS. Second home sales were very strong, and the news reported the sales figures boldly.

The lure of cashing in on the housing boom gold rush was similarly strong. 130,000 realtors joined the ranks from April 2020 to May 2021. HGTV shows continue to glamorize the profits of flipping and selling homes, painting the job as easy. As the pandemic raged and people lost their employment – it was “easy” for some to get into real estate.

Agent Overload

The same inventory problem facing buyers that’s driving up prices, is also faced by all these new agents. Housing supply is still setting records and is currently at an all time low. In June CNN reported that in Austin TX, agents outnumbered listings on the market 8 to 1. I spoke with my good friend and BHG Lifestyle Partner Broker Laurie Davis in Pinehurst NC to help clarify.

Laurie is also a past President of the Association and has served on NAR committees – so I asked, How are things in Pinehurst?

“There have been a lot of new agents during pandemic. Entering into an extremely tough market, most of those won’t make it. Probably a normal number of the rest will drop as well. So technically there could be a larger decrease (in the number of dues paying agents) than usual.”

NAR funds its fight vs the FTC and DOJ, with dues from membership and with donations from its members to RPAC (Realtors Political Action Committee) to keep the industry safe. Fewer members will equate to less revenue. But thats probably only a few less drops in the bucket.

With homes selling in days rather than months, with multiple offers and at inflated prices, many would call this a hot market. I was interested why Laurie called it “an extremely tough market”.

The Historic Pinehurst Golf Club

“There are more agents than listings. We have an average 150 houses on the market these days and over 1000 agents. The math doesn’t work well. There aren’t enough houses to sell to keep them all in business. And if you are new with no track record at all why would someone who thinks they can pretty much sell it themselves hire you.” Said Laurie. “You have to have some clear value that you can bring.”

This “value” also raises the question – why would sellers and buyers pay anyone a “high” price (in terms of commission)? It will be great to look at the last 18 months of data and compare discount brokers to traditional to ibuyer as the market shifts. And again, I think this is why NAR is in a bit of a pinch with the DOJ lawsuit.

In my opinion, change is inevitable. To what extent, I’m unsure, but the walls are closing in.

We in the industry desire more transactions. The long term solution for more transactions is more housing supply, and making transactions easier (and according to DOJ less expensive) so people are more able to move more often.

In the meantime – if you are looking for listings / sellers, and run a brand, brokerage, or team reach out for a demo to see how we use old school technique with todays AI technology to reveal likely movers within your database and beyond.