Home Buyers Get a Break

Competition and free trade are the hallmarks of capitalism.  While that may be the case, when it comes to the world of residential real estate, U.S. Department of Justice does not see eye to eye.

As reported this week in The Wall Street Journal, the National Association of Realtors (NAR) – the real estate industry’s largest trade group[1] – agreed to make the cost of brokers’ commissions more transparent as part of a settlement of a Justice Department lawsuit.  Reportedly, the current system extracted billions in excess fees that made U.S. home buying more expensive than anywhere else in the developed world.

The antitrust complaint accused the group of maintaining anticompetitive rules, alleging those rules created an environment in which there was little visibility for home buyers regarding the buyer’s agent’s commission.

The U.S. Department of Justice alleged NAR’s regulations prohibited multiple-listing services from disclosing commissions for buyers’ agents to prospective buyers. The suit also alleged that NAR’s rules allowed brokers to misrepresent that a buyer broker’s services are free, while also enabling brokers to filter out home listings that offer lower brokers’ commissions.

In addition, association rules meant that brokers who weren’t members didn’t have access to lockboxes at homes for sale, thereby favoring member brokers.

As quoted in The Wall Street Journal, “(t)oday’s settlement prevents traditional brokers from impeding competition—including by internet-based methods of home buying and selling—by providing greater transparency to consumers about broker fees,” said Assistant Attorney General Makan Delrahim, the Justice Department’s antitrust chief. “This will increase price competition among brokers and lead to better quality of services for American home buyers and sellers.”

Without admitting any wrongdoing, the NAR agreed to settle the complaint.


[1] The NAR has roughly 1.4 million members who make up the majority of real-estate agents in the country.

Glenn Kelman, chief executive of Seattle-based brokerage Redfin Corp. , a discount internet based brokerage company, said in the article that it has been a struggle to get home buyers to understand the fees because they are secret, effectively coming out of the sale price of the house.  “If you ask most buyers how much are you paying your real-estate agent, the buyer would say that agent is free. But really the agent is being paid, usually 2 to 3% of the home’s value,” he said.