End the real estate racketeering
The housing market is hot, hot, hot right now as house prices continue to soar in many markets to their highest prices ever. Since it doesn’t cost a real estate agent 10 times more to sell a $ 1 million house than a $ 100,000 house, one would expect the percentage fees for realtors to go down. They are not. Why?
I started investigating fees charged by the real estate industry about 15 years ago when I was an economics editor for the Wall Street Journal. I discovered that real estate agents have created a de facto legal cartel that often scams home buyers and sellers. The additional cost to buyers and sellers of homes in this industry cartel is typically several tens of thousands of dollars for homes priced over $ 500,000. For the economy as a whole, real estate agent rules cost the economy over $ 100 billion a year, and the scam continues to this day.
Do not mistake yourself. A good real estate agent can be a boon to anyone buying or selling a home. The industry adds value when the agent can find the perfect home for a family or a buyer willing to pay full price. My wife was a real estate agent. If a home buyer or seller wants the best in the business and is willing to pay agents a 6% transaction fee, great.
Too often, however, fees are set by the industry with little or no flexibility in negotiating the 6% for buying and selling agents. In other countries, such as Great Britain and Australia, the fees are usually half or a third higher than in the United States.
Even in usually pro-competitive states like Florida and Texas, politicians continue to protect the higher commissions of realtors, often adding tens of thousands to home prices.
With online transactions becoming the norm in the digital age, fees and commissions in most consumer sectors, such as stock transactions, travel and used cars, have plummeted due to online competition. ‘eBay, E-Trade, Etsy, Netflix, Uber, Airbnb, etc. Home shopping is virtually free apart from the purchase itself. Yet soaring house prices have managed to remain mostly immune to these “disintermediation” forces.
The truth is that costly commissions persist today because of the government decree. State laws often make anything but illegal for unregistered agents to enter with lower commissions through “anti-discount” laws. It is the furthest thing from a free market.
The market is so closed to competition that the Kentucky Real Estate Commission admitted its policy “inhibits free trade” and that anti-rebate laws kept prices high several years ago. Yet 40 states still have laws prohibiting full and fair price competition, and 10 states still prohibit agents from competing with each other by offering discounts to consumers. Believe it or not, the penalty for realtors offering discounts and charging less is losing their license.
Real estate agents win because they are good at flexing their political muscles. Each congressional district has hundreds of real estate agents and they are active in politics. Last year, national and state estate agent associations dominated the rankings of contributors to the campaign in both sides to maintain high commissions through protectionist rules.
There are encouraging signs of cracks in the armor of the estate agent cartel. Consumer-focused tech companies like REX have taken legal action to end government-created rebate bans. REX seeks to reduce agent fees and wants home buyers to save thousands of dollars by negotiating with their agents without government intervention.
I rarely agree with Joe Biden on the economy, but he said in a recent executive order that “competition is the central ingredient of capitalism.” He called for a federal inquiry into inter-competitor pricing and professional licensing rules. Maybe after all these years he’ll be the president who puts an end to the real estate racketeering.
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Original author: Stephen moore
Original location: End the real estate racketeering