Commentary: The Problem With The Wall Street Journal Op-Ed by REX

Commentary: The Problem With The Wall Street Journal Op-Ed by REX Executives

An Op-Ed with Unsupported Assertions

In a perceived attempt to smear the Realtor organization and its MLS services and excuse the failure of venture-funded entities to provide consumers with a better market opportunity to buy and sell homes, executives from a low-cost, tech-driven realty firm wrote an editorial filled with numerous unsupported assertions in The Wall Street Journal on March 3. The National Association of Realtors penned a response that was confined to the Letters page.

Expertise

First, a disclosure. I have been retained by and qualified as an industry expert by the U.S. Federal Trade Commission (FTC) in matters pertaining to MLS and its relationship to brokerage and housing consumers. I testified as an expert in a major case brought by the FTC against an MLS that was found to be practicing anti-competitive ways. Further, I was employed by the Canadian Competition Bureau in an investigation into the likely impact of certain minimum service requirements in Canada on low-cost brokerage firms. Plus, I was employed as an industry expert witness by the National Association of Realtors® in the actions of the U.S Department of Justice Antitrust Division. Most of these cases were over 10 years ago. I also provided expert reports on behalf of Zillow in its acquisition of Trulia and, just last year, provided an expert report to the FTC’s panel looking into a review of the industry upon the termination of the consent decree of more than 10 years ago.

Assertions by the writers about the realty industry:

  1. “Sites like Zillow and Homes.com are commonplace, but they could not have thrived without the department’s intervention.”The authors may not have known that Microsoft HomeAdvisor, Realtor.com, Homes.com and others were, in fact, thriving before the DOJ’s actions.
  2. “They’ve shielded themselves with a skein of anti-competitive practices, such as restrictive all-or-nothing membership rules and commission tying practices. These have kept the high fees they charge unchanged since 1991.”Without commenting on how Realtor membership rules have any effect on commission levels, they are absolutely wrong about commission levels. As the Department of Finance/FTC’s own economic reports show, through the end of 2006, the inflation-adjusted cost of commissions had gone up less than 1.5 percent per year for the previous 10+ years. Further, our own authoritative research on commission rates show that the rate has dropped from 6.1 percent on average to slightly less than 5 percent in the past 25 years.
  3. “The Realtors’ anticompetitive practices have had a greater negative impact on the American economy than anything Canadian dairy companies or European car makers could to their counterparts in the United States.”What facts do the authors have to back up that claim? More to the point, what economics courses have they taken, or studies have they read to get anywhere close to a truthful assertion?
  4. “Homeowners are required to hire a buying agent if they employ a selling agent through a multiple listing service—a potentially illegal tying arrangement under the Sherman Antitrust Act that keeps buying agents paid though they offer almost no useful service.”I have news for the writers: No homeowner is required to use an agent at any time. In the U.S., no seller or buyer is required by law to use an agent. No seller is required to pay any stated commission, as commission rates are all negotiable. Our own studies with Harris Insights (REAL Trends 2019 Consumer Study) show that consumers know this. Further, even when a seller employs a listing agent, the homeowner can dictate whatever amount they decide to offer the agent working with buyers. If agents offer no useful service, then why do the authors employ their own agents to help buyers and sellers?

In our REAL Trends 2019 Consumer Study by Harris Insights on recent buyers and sellers in July 2018, over 90 percent of all buyers and sellers used an agent, up from 85 percent in a similar study in 2014 and up from 81 percent in 2001. In fact, Millennials (you know the ones who didn’t want to own homes or who would use smartphones to buy homes instead of agents?) used an agent 92 percent of the time to buy or sell their homes.

The REX authors say, “Agents offer no useful service.” Again, our independent Harris Insights research said that the highest value consumers received was “helping me negotiate the price and terms of a purchase or sale.” I assume their own company does the same thing. But, what really jumps out is that buyers and sellers said they found that their agent helped them “by providing me with homes that match my home when I am selling (Comparative Market Analysis) and those I am looking for.” They said this when housing consumers can find virtually every home online; yet, consumers still find their agents helping them find homes!

There are many things wrong with our industry and those of us who have called it home for 30 to 40 years know what those things are. The MLS can be made more effective. Clearly consumers know something that these executives don’t know:

  • Buyers and sellers like using a real estate agent.
  • Buyers and sellers know that they can dictate the cost of their own transaction, including not using a real estate professional at all.
  • Buyers and sellers find their agents services actually quite useful.

Wall Street and Silicon Valley have been trying for 25 years to blow up our industry and do away with agents, and, in some cases, brokerage firms. They haven’t succeeded yet. Even the best of the real estate tech firms, Zillow and Realtor.com, have found that using agents in their service delivery is critical to their business success.

Whether REX succeeds or not, the execs who spent their time writing these unfounded and unsupportable claims should spend more of their time focusing on how they can offer something compelling as a way to win the hearts and minds of consumers. Otherwise, they’re just wasting their investor’s money.

REAL Trending Special Episode: Wall Street Journal Rex

REAL Trending Special Episode: Wall Street Journal Rex

Steve Murray

Hi, this is Steven Murray, president of REAL Trends. In a series of new podcasts, I want to try and tackle what I consider to be the biggest issues facing men and women who own, operate, lead brokerage companies today. So on March 3rd, the Wall Street Journal in the editorial pages printed a letter from senior executives from a tech real estate firm called Rex, which has been in the Denver market for a couple of years now without gaining much traction whatsoever. In this editorial, which did not belong on the editorial page whatsoever by the way, Rex’s executives smeared the Realtor organization and its MLS services incredibly.

First to disclosure. I’ve been retained by and qualified as an industry expert by the U.S. Federal Trade Commission, the FTC, in matters pertaining to MLS and relationship to brokerage and housing consumers. I testified also as an expert in a major case brought by the FTC against an MLS that was found to be practicing any competitive tools. Further, I was employed by the Canadian Competition Bureau in an investigation into the likely impact of certain minimum service requirements in Canada on low-cost brokerage firms. Lastly, I was employed as an industry expert witness by the National Association of Realtors in actions of the U.S. Department of Justice Anti-Trust Division in a case over 10 years ago. As a sideline, I was also provided expert reports on behalf of Zillow when their acquisition of Trulia and an expert report to the Federal Trade Commission Panel investigating practices in the industry.

This editorial by the Wall Street Journal in short was inexcusable. Let me give you a few quotes. The authors say, “Sites like Zillow and homes.com are commonplace now but they could not have thrived without the Department’s intervention.” Since these authors weren’t around back then they would not have known that Microsoft Home Advisor, realtor.com, homes.com and many others were in fact thriving before the DOJ’s actions. Next they said, “The industry has shielded themselves with a skein of anti-competitive practices such as restrictive all-or-nothing membership rules and commission tying practices. These have kept the high fees they charge unchanged since 1991.” Wrong. Without commenting on how Realtor membership rules have any effect on commission level, they’re absolutely wrong about commission levels themselves.

As the Department of Justice FTC’s own economic reports published through the end of 2006, the inflation-adjusted cost to commissions had gone up less than 1.5% per year for the prior 15 years. Further, our own authoritative annual research on commission rates have shown that the rate has dropped from 6.1% to slightly less than 5% in the last 25 years. Next they say, “The realtors anti-competitive practices have had greater negative impact on the American economy than anything that Canadian dairy companies or European car makers could do to their counterparts in the U.S.” I don’t even want to comment on that, to be polite. I would say “what facts do you have that back that claim up?” More to the point, “what economics courses have you taken or studies to get anywhere close to that assertion?”

Next they say, “Home owners are required to hire a buying agent if they employ a selling agent through a multiple listing service. A potentially illegal tying arrangement under the Sherman Anti-Trust Act that keeps buying agents paid though they offer almost no useful service.” First, I have news for the writers. No home owner is required to use an agent at any time. In the U.S., no seller or buyer is required by law or regulation to use a real estate agent. No seller is required to pay any stated commission as commission rates are all negotiable and our studies with Harris Insights have shown that consumers know this. Further, even where a seller employs a listing agent, the home owner can dictate whatever amount they decide to offer the agent working with buyers. And lastly, if agents offer no useful service then why do the authors employ their own employee agents to help buyers and sellers?

In our Harris Insights Research Report on recent buyers and sellers, in July 2018 over 90% of all buyers and sellers used an agent, up from 85% in a summer study down in 2014 and up 81% in 2001. In fact, millennials, you know the ones who didn’t want to own their own homes and would use smartphone to buy homes instead of agents, used agents 92% of the time to buy or sell their homes. And here’s a laugher, they say agents offer no useful service. Again, our independent Harris Insights research said that the highest value consumers receive from agents was helping me negotiate the price and terms of a purchase or sales. I assume their own company, Rex, does the same thing but what really jumps out is that buyers and sellers said that they found that their agent helped them, “by providing me with homes that match my home when I am selling my house and when I’m buying homes that match what I’m looking for.”

This in an age where it is all online, housing consumers can find virtually every home online, consumers still find their agents helping them find homes. Wow, imagine that. There are many things wrong with our industry and those of us who’ve called it home for 30 to 40 years know what they are. Yes, the MLS can be made more effective and the market more effective but clearly consumers know something these executives don’t know. They like using agents. They know they can dictate the cost of their own transaction including not using an agent at all. And buyers and sellers find their agents services actually quite useful. A last comment. Wall Street and Silicon Valley have been trying to 25 years to blow our industry and do away with agents and in some cases brokerage firms. They haven’t succeeded yet.

Even the best of the real estate tech firms like Zillow and realtor.com have found that using agents in their service delivery is critical to their business success. Whether Rex succeeds or not and that issue remains in doubt, the execs who spent their time writing these unfounded and unsupportable claims should spend more of their time focusing on how they can offer something more compelling as a way to win the hearts and minds of consumers. Otherwise, they are just wasting their investors’ money. As a footnote, the plaintiff from Minneapolis-St. Paul supported by over half a dozen major law firms have filed a class-action lawsuit in U.S. District Court for the Northern District of Illinois claiming that defendants NAR, Realogy, RE/MAX, Keller Williams and Home Services of America have conspired together around NAR’s adoption and implementation of a rule that requires all brokers to make a blanket, non-negotiable offer of buyer-broker compensation when listing a property on an MLS.

While this practice has been litigated and settled many times in the past in favor of the Realtor organization, once more some parties backed by the plaintiff bar attorney funding have decided to challenge the practice where listing brokers agree to publish what they will pay to another broker working with a purchaser for bringing that purchasers to buy the home. And our last note, it seems ironic in a funny way that the Rex authors cite this same problem in their editorial in the Wall Street Journal at almost the exact time that these law firms have filed this class-action lawsuit.

The Conference for Residential Real Estate Leaders

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