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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.

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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.

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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.

Intellectuals Insider

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Is now the right time to invest in gold as prices have cooled?

Now may be the time to buy gold following a recent lull in its price.

Getty Images/iStockphoto

The price of gold has climbed to record highs recently and has remained strong through much of April. And, that growth continued until the precious metal traded at around $2,390 per ounce on April 19, 2024. But since, growth in the price of the precious metal has cooled, with gold’s price now hovering around $2,300 per ounce.

This lull in gold’s price may represent an investment opportunity.

In general, investing is centered around buying assets when prices are low and selling them when prices are high – generating a profit on the difference between the two. So, considering the declines in gold’s price over the past few days, now may be the time to make your investment. But is buying gold during this lull in prices really a good idea?

Compare your gold investment options among leading brokers now.

Gold prices have cooled. Should you buy in now?

With gold’s price down from recent highs, you may be wondering if now is the right time to buy in. There are several reasons the dip in gold’s price may represent an opportunity to buy. Here are some of the biggest:

Prices may rise again

If looking at a gold price chart shows anything for certain, it shows that changes in the overall growth of the medal come in fits and spurts. Periods of price growth are typically followed by periods of declines and vice versa.

But with inflation rising in recent months – and with gold’s reputation as a safe-haven asset that can hedge against inflation – it only makes sense that the price of the precious metal will eventually start to head up again in the future. While attempting to time that directional change may be tricky, buying the precious metal while the price is down gives you the opportunity to take advantage of any upward movement that may be ahead.

Add gold to your portfolio now before prices have a chance to rise.

You may be able to make a quick profit

Gold isn’t known as an asset in which you can earn a quick return, but in today’s market, that may be the case. Don’t forget that in January, gold was trading at just $2,000 per ounce. And, by mid-April, the commodity’s price had climbed to around $2,400 per ounce. That’s about 20% growth in a matter of months, much of which happened since March 1 – an impressive climb for any investment asset.

Perhaps more importantly, gold’s price growth through the beginning of 2024 shows that the commodity doesn’t have to be a buy and hold style investment that you keep in a safety deposit box or precious metal depository for years to come. There’s also the possibility that the commodity’s price could climb further ahead, making it a compelling way to potentially generate a quick profit.

There are other benefits of investing in gold

There are other benefits of investing in gold that have little to do with the price growth seen thus far in 2024 – or the lull in prices seen over the past couple of days. Those benefits include:

Inflation protection: Gold has long been considered an inflation hedge, and for good reason. When inflation drives the prices of consumer goods and services up – and the value of the dollar down – gold’s price tends to rise. So, it could be used to maintain the value of your portfolio during inflationary economic conditions. That’s important in today’s economic environment as stubborn inflation continues to weigh on the value of the dollar.
Portfolio diversification: Gold’s price doesn’t always move in the same pattern that bonds or stocks do. So, mixing a reasonable amount of gold into your portfolio (up to 10% of your portfolio assets) as a diversifier could protect you from losses should one or more of your traditional portfolio assets fall in value. “If you have less than 5% – 10% of your net worth in commodities & FX (forex), you should absolutely consider adding exposure to gold and other precious metals,” says Vijay Marolia, money manager and managing partner at the wealth management firm, Regal Point Capital.

The bottom line

Gold’s price has fallen from recent highs – which may represent an opportunity to tap into growth ahead. However, gold isn’t simply a “buy while it’s low and sell while it’s a high” kind of investment opportunity. The commodity can also protect your portfolio from the stubborn inflation we’ve seen thus far in 2024 while acting as a diversification tool that could increase your risk-adjusted portfolio returns. So, consider adding gold to your portfolio today while it has the potential to grow in value.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, two dogs and two ducks.