The Department of Justice has posted a new rant against REALTORS. I used to practice law and had many cases with the SEC and a few with the DOJ. More often than not, my experience found the government lawyers were seeking truth; prosecutorial ethics demand no less. After all, the job here is law enforcement, not just winning cases. There’s a big difference between the two and it appears to me the DOJ is devolving to nothing more than an advocate.
For example, there is little objective or informing about their latest rant. The first link, Home Prices and Commissions Over Time, makes Mark Twain’s point about “lies and damn lies” resound strongly. The DOJ didn’t even attempt to determine what the commissions actually were over the time period, rather they’re just assuming the commissions are equal to a median commission rate from one study and applying it to the median home sale prices from another study. This approach buries more facts than it uncovers. What’s really happening on more expensive homes, for example, in terms of commissions? What’s really happening in different parts of the country? Burying these kinds of questions behind a fortiori statistics isn’t seeking the truth, but rather is nothing short of propaganda.
Deeper in the site, the DOJ goes into much more detail and acknowledges that: “Rather than using REAL Trends aggregated data, some researchers have analyzed commission rates on a transaction-by-transaction basis to determine the extent to which commission rates vary in relation to a variety of market factors. The studies have focused on, among other things, the distribution of commission rates within certain geographic areas and the relationship between commission rates and various property characteristics (such as the age of the home or the list price), market conditions, and the amount of time that the home spends on the market.” The studies then explored are from 1979, 1982 and even 1997, but nothing from 2007. Hmmmm.
On the other hand, I want to learn more about the “tragedy of the commission” argument from economist Chang-Tai Hsieh, which is at the heart of the DOJ’s argument. From what I understand so far, the theory is that the high commission rates attract many agents into the market (what Hsieh calls “excess entry”) but then the agents compete on issues other than price/commission, creating a great deal of inefficiency. I suspect there are many top producing brokers and agents who would agree with this basic conclusion.
What seems to be fueling the fire of the DOJ is the industry’s misguided attempts to steer competition by lobbying for and getting limited service and anti-rebate legislation and the ill-fated attempts by some MLSs to keep exclusive agency contracts out of the MLS data feeds. These lobbying and policy efforts are futile attempts to control competition and the industry doesn’t do itself any favors in seeking them. Rather, let the market work. The best brokers and agents I know will have no problem competing and profiting in an open market.
Some of those best are also commenting on this issue: