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Opinion: All the ways the class-action commission lawsuits are misguided

Industry expert Steve Murray highlights why the current class-action commission lawsuits are not serving consumers

I am repeating myself but bear with me. No seller must use a real estate agent to sell a home — ever.  In fact, considering inter-family and estate transfers as well as for-sale-by-owners, as many as 20% of all transactions may not include the use of an agent. Consumers are free to sell or buy a home without an agent — and consumers know this.

No buyer must use a real estate agent — ever. They may buy directly from a seller, whether that seller is represented by an agent or not. A meaningful percentage of buyers did not hire a real estate agent when they bought their last home. Consumers face no regulatory barriers to purchasing without an agent.

Commissions have always been negotiable, and consumers know this. 

RealTrends + Harris Insights‘ studies from 2002, 2005, 2006, 2011, 2014, and 2019 all show that consumers know that commissions are negotiable. Certainly, there are some that don’t.  Whether this is because they have not researched this capability or that they choose not to negotiate is unknown. 

Another known fact is that at least one firm, Redfin, which gets over 50 million unique visitors on its website each month and offers discounted listing and lower-cost buy-side commissions, is available in most of the metropolitan markets in the United States. Despite that, it has less than 1% market share of all transactions. 

Preceding Redfin over the last 50 years have been consumer discount firms Help-U-Sell, Assist2Sell, and ZipRealty, among others. At one time, the former two had over 1,500 retail locations in the United States combined. ZipRealty closed nearly 30,000 transactions at its peak. Consumers have had lots of choices in brokerage services, including those with lower costs, but they have chosen not to use them in any meaningful way. 

Why aren’t consumers using discount firms?

While we don’t know for sure why discount brokerage firms aren’t gaining traction, perhaps it is because consumers enjoy the benefits of using their own agent, one that they know and trust, and where the cost is a secondary consideration.

Consumers who didn’t know they could get discounts were either living in a cave or were lazy or afraid to ask for a lower commission. The ability to lower one’s commission costs, including to zero, was abundantly available information to a huge portion of consumers. HousingWire’s own data shows that commission rates have been falling consistently over the past 30 years, primarily due to consumers negotiating for a lower rate or a rebate.

What about the MLSs?

Some say the MLS enables U.S. real estate agents to have higher commission rates than in other countries. There is some truth to this position. What it leaves out is the value that MLSs bring to the participants in the market, both real estate professionals and consumers. Those who point to this conclusion fail to mention the role the MLS plays in the U.S. (and Canadian market) in assuring a high level of accuracy in data about the homes that are for sale, the sales prices of homes that are sold, and the comparable data for price comparisons. Among other benefits are regulations and processes to make the market efficient and fair that are promulgated and enforced by the MLS.

Take the MLS out of the picture and you have the portals, none of which are geared to police the accuracy of the data provided by sellers. None of which are geared to police agent conduct in the market. Without the MLS, real estate professionals and consumers would be at the mercy of three to four large, national portals whose business models aren’t geared to do any of the messy oversight of the market — nor would they want the liability to do so. Just look at CoStar’s dominance over the commercial brokerage market. Now, picture them together with Zillow and Realtor.com. It’s not a pretty sight. 

Lower commissions don’t account for the real value of the MLSs

Those who say that other countries who lack MLSs have lower commissions fail to account for the real value provided by MLS. Those who point to these other countries also don’t point out that the lack of cooperation between agents and brokerages means that, apart from the real estate portals in these countries, consumers are left to their own devices to find out what the available choices may be in homes for sale. They may be forced to deal with multiple agents/brokerage firms to find the right home or to determine the right price for the sale of their own home. The argument about other countries’ commission rates aren’t as high as in the U.S. fails to take any of this into account.

My experiences as an expert witness

Having been an industry expert witness in several restraint of trade or price-fixing cases, I can say that between the U.S. Department of Justice, the U.S. Federal Trade Commission, and a multitude of private litigants, there is a total lack of knowledge of how the market works, the freedom of consumers to choose to use an agent or not or what to pay them and the value of the Realtor marketplace.

The plaintiffs I have dealt with, their economics experts, and the Federal agencies, just see the commission rate and can’t believe that consumers would choose to use such a system absent some coercion from the industry. 

Trust me when I say they have all been frustrated, thus far, in their ability to enforce a new regime on the industry that will somehow lower commission costs and not negatively impact the services provided or the functioning of the market. The repeated challenges from all three forms of litigants show that what they seek, they will not get. Even the settlements now being proposed by the current litigants won’t accomplish this.

Even with all the technology and the huge increase in information about the U.S. housing market that has become available in the last 25 years, the use of agents by consumers has risen, not decreased. 

Even with technology that allows consumers to transact far easier than ever before with online forms and digital signatures, the use of agents has risen to its highest level in history.  Do these litigants think all consumers are dumb?

What do the litigants really want?

In my opinion, the current litigants don’t care about how the outcome of their case may impact the market. They don’t seem to care if their actions cause a huge increase in unrepresented first-time homebuyers. I will leave it to the reader as to what they think these litigants care to get out of their actions. Just look at the proposed settlements to get a clearer picture.

The report by Keefe, Bruyette & Woods, “Commission Impossible: Will Litigation Reshape the Housing Market?” will turn out to be wildly inaccurate when the dust settles. And the Editorial Board of The Wall Street Journal, who I personally hold in high esteem, failed miserably in their review and comment on this litigation.

It has been my own observation that whenever the Federal government seeks to control an industry through litigation or regulation, it only exacerbates consolidation, complexity, and costs. Whether this current wave of litigants, supported by the Federal agencies in spirit if not in fact, will prevail we will wait to see.

Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at [email protected]

To contact the editor responsible for this story:
Tracey Velt at [email protected]

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