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Real Estate Agents Experience Major Setback – Reported by The New York Times
The Realtors’ Big Defeat – The New York Times
Free-market economic theory suggests that the American real estate market should not have been able to exist as it has for decades. Americans have long paid unusually high commissions to real estate agents. The typical commission in the U.S. has been almost 6 percent, compared with 4.5 percent in Germany, 2.5 percent in Australia, and 1.3 percent in Britain. As a recent headline in The Wall Street Journal put it, “Almost no one pays a 6 percent real-estate commission — except Americans.”
If housing operated as an efficient economic market should, competition would have solved this problem. Some real estate brokers, recognizing the chance to win business by charging lower commissions, would have done so. Other brokers would have had to reduce their own commissions or lose customers. Eventually, commissions would have settled in a reasonable place, high enough for agents to make a profit but in line with the rest of the world.
That didn’t happen. Instead, an average home sale in the U.S. has cost between $5,000 and $15,000 more than it would have without the inflated commissions. This money has been akin to a tax, collected by real estate agents instead of the government.
The situation finally seems to be ending, though. On Friday, the National Association of Realtors, the industry group that has enforced the rules that led to the 6 percent commission, agreed to change its behavior as part of an agreement to settle several lawsuits.
The settlement is important in its own right. Americans now spend about $100 billion a year on commissions. That number will probably decline by between $20 billion and $50 billion, Steve Brobeck, the former head of the Consumer Federation of America, told my colleague Debra Kamin.
There is also a broader significance to the settlement. It’s a case study of a central flaw in free-market economic theory. That theory suggests that capitalist competition can almost always protect consumers from businesses that charge too much.
To be clear, competition is indeed a powerful force that frequently makes both consumers and businesses better off. That’s why capitalist economies have such a better record than communist or socialist economies. Just look at South Korea and North Korea. Or consider the recent economic struggles of Venezuela.
Market competition, however, isn’t the panacea that free-market advocates claim. Sometimes, businesses can amass enough economic power to squash competition — as real estate brokers did.
Decades ago, the National Association of Realtors set the standard commission at 6 percent, to be split between an agent representing the seller and an agent representing the buyer. If a home seller tried to negotiate, an agent would often issue a veiled threat: You won’t find a good seller’s agent to work with you, and buyers’ agents won’t show your house to clients.
Joanne Cleaver, for instance, tried to negotiate with agents when selling her house last year in Mint Hill, N.C., a suburb of Charlotte. “They laughed at me,” Cleaver told The Times.
The Realtors’ hardball tactics succeeded because they operate much of the network that’s crucial to the housing market, such as the database of listings. They could keep out agents who would have competed on price.
The solution to this concentration of economic power often requires political power — namely, antitrust enforcement by the government. After years of refusing to change their tactics, the Realtors’ agreed to a settlement now because they were vulnerable to government action.
A turning point was a federal trial last year in Kansas City. The jury found that the Realtors’ association and several large members had conspired to keep commissions high and ordered them to pay at least $1.8 billion to home sellers in the Midwest. The verdict quickly led to more than a dozen other lawsuits. The Justice Department has also been investigating the Realtors.
That investigation is part of Washington’s new focus on the problems with concentrated economic power.
Since the 1980s, antitrust enforcement has been unfashionable in the U.S. Free-market economic theory has been ascendant instead. But the results of this laissez-faire era have been disappointing for most Americans. Businesses have grown larger, and corporate profits have surged. Incomes and wealth for most Americans have grown only slowly.
In response, both liberals and conservatives have recently shown an interest in antitrust. The Biden administration has embarked on a competition agenda to reduce credit card fees, drug prices, and more. The administration has become more aggressive about challenging mergers, too. Some Republicans also worry that big business has become too powerful.
This new movement remains in its early stages, and it’s too soon to know how successful it will be. But the real estate settlement looks like the movement’s biggest victory yet.
News
Facing Criticism for Shooting Dog, South Dakota Governor Noem Discusses ‘Difficult Choices’
South Dakota Governor Kristi Noem found herself in hot water recently after admitting to shooting her “untrainable” hunting dog. The controversial incident sparked public outrage, but it did not stop her from attending a gathering of California Republicans, where she received a warm reception on Saturday.
Noem, known for her stance on gun rights and conservative leadership, addressed more than 200 people at the California Republican Party convention in Burlingame. She emphasized the importance of patriotism and preserving American values amidst challenging times.
Although she did not directly reference the dog-shooting incident in her speech, she alluded to the controversy surrounding her decision to euthanize her dog named Cricket due to its poor hunting skills and an unfortunate incident involving farm chickens.
Attendees at the luncheon received a copy of Noem’s book, “No Going Back: The Truth on What’s Wrong With Politics and How We Move America Forward,” which she promoted during her remarks. Despite the backlash, she remained firm in her convictions.
Noem’s focus shifted to her leadership in South Dakota, particularly her handling of the COVID-19 pandemic and her decision to deploy the state’s National Guard to the U.S.-Mexico border. She raised concerns about drug cartels exploiting Native American tribal lands in her state and criticized the federal government for its inaction.
Despite the controversy surrounding her, Noem commended former President Trump for his authenticity and unwavering commitment to his beliefs. She highlighted Trump’s unconventional approach to politics as a sign of his genuine character.
State Republican Party delegate Anna Bryson expressed admiration for Noem’s financial policies and tax reduction efforts. She acknowledged the dog-shooting incident but credited Noem for her commitment to sound fiscal management.
The convention, attended by over 800 delegates and guests, marked a significant gathering for California Republicans. Despite past protests during Trump’s appearance in Burlingame in 2016, the event with Noem proceeded smoothly with no major disruptions.
Noem’s resilience amidst adversity and her unwavering commitment to her principles garnered both admiration and scrutiny at the California Republican Party convention.
Times staff writer Anabel Sosa contributed to this report.
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