End the Real Estate Racket
A Commentary by Stephen Moore
The housing market is hot, hot, hot right now, and home prices continue to soar in many markets to their highest prices ever. Since it doesn't cost a real estate agent ten times as much to sell a million dollar home than a $100,000 home, one would expect that the percentage fees for real estate agents would be falling.
They aren't. Why?
I started investigating the fees charged by the real estate industry some 15 years ago when I was an economics writer for the Wall Street Journal. What I discovered is that the real estate agents had created a de facto legal cartel that often rips off buyers and sellers of homes. The excess cost to home buyers and sellers from this industry cartel is typically more than $10,000 for homes with a price above $500,000.
A Brookings Institution study found that, "across the country, national average commission fees over the past couple of decades have doubled and outpaced inflation in most years." The researchers found that the increase in real estate commissions are "invariant to factors that affect the cost of housing transactions," and that we would expect these fees to be falling due to "significant technological changes in the meantime."
For the economy as a whole, the real estate agent rules may cost home buyers and sellers up to $75 billion dollars -- A YEAR.
Don't get me wrong. A great real estate agent can be a godsend for anyone buying or selling a home. The industry adds value for sure when the agent can find just the right dream home for a family or a buyer willing to pay top price. If a home buyer or seller wants the best in the business and is willing to pay a 6% transaction fee to their agent, that's great.
But too often the fees are fixed by the industry with little or no flexibility in negotiating fees of 6% typically split between the agents for the buyers and the sellers. In other countries, like Britain and Australia, the fees are typically closer to 3%, half as high as in America.
In this digital age -- with online transactions becoming the norm -- the fees and commissions in most consumer industries like stock trading, travel agents and used car brokers have fallen due to online competition from the likes of eBay, E*TRADE, Etsy, Netflix, Uber and Airbnb. At-home shopping is practically costless. Yet the real estate price gouging has managed to stay mostly immune from these "disintermediation" forces.
High-priced commissions persist today because of government fiat. State laws often make it all but illegal for nonregistered agents to come in with lower commissions through "anti-rebate" laws. Even in normally pro-competition states such as Florida and Texas, the politicians continue to protect the agents' higher commissions -- often adding tens of thousands of price to the homes.
Today, 40 states have laws that protect the industry by restricting full and fair price competition. Ten states still prohibit agents to compete by offering consumers rebates. Believe it or not, the penalty for real estate agents providing rebates and charging LESS is losing your license.
Realtors prevail because they are good at flexing their political muscle. Every congressional district has hundreds of agents, and they are active in politics. Last year, national and state associations of Realtors topped the rankings of campaign contributors in both parties in order to maintain high commission by protectionist rules.
There are some hopeful signs of chinks in the real estate agent cartel's armor. Technology upstarts like REX are trying to squeeze out unreasonable fees by suing states to end government-created rebate bans. If they succeed, agent fees would be slashed, and home shoppers of all income ranges would save thousands of dollars by negotiating better deals with the agents.
I rarely agree with President Joe Biden on the economy, but he declared in a recent executive order that "competition is the core ingredient for capitalism." He has called for a federal investigation into price fixing among competitors and occupational licensing rules. Perhaps, after all these years, he will be the president who ends the real estate racket.
Stephen Moore is a senior fellow at FreedomWorks. He is the co-founder of the Committee to Unleash Prosperity and is a contributor to the Washington Examiner.
COPYRIGHT 2021 CREATORS.COM
See Other Political Commentaries.
See Other Commentaries by Stephen Moore.
Views expressed in this column are those of the author, not those of Rasmussen Reports. Comments about this content should be directed to the author or syndicate.
Rasmussen Reports is a media company specializing in the collection, publication and distribution of public opinion information.
We conduct public opinion polls on a variety of topics to inform our audience on events in the news and other topics of interest. To ensure editorial control and independence, we pay for the polls ourselves and generate revenue through the sale of subscriptions, sponsorships, and advertising. Nightly polling on politics, business and lifestyle topics provides the content to update the Rasmussen Reports web site many times each day. If it's in the news, it's in our polls. Additionally, the data drives a daily update newsletter and various media outlets across the country.
Some information, including the Rasmussen Reports daily Presidential Tracking Poll and commentaries are available for free to the general public. Subscriptions are available for $4.95 a month or 34.95 a year that provide subscribers with exclusive access to more than 20 stories per week on upcoming elections, consumer confidence, and issues that affect us all. For those who are really into the numbers, Platinum Members can review demographic crosstabs and a full history of our data.
To learn more about our methodology, click here.