The following excerpt was featured in The Economist on August 29th, 2019. To read the full article, click here.
THE PAST decade has not been great for middlemen, who match buyers and sellers for a slice of the transaction value. Travel agents have had their margins crushed by flight-search and hotel-booking websites. Stockbrokers have been squeezed out by whizzy algorithms that carry out transactions for a fraction of the cost. Taxi dispatchers have been replaced by Uber and Lyft.
There is an exception, however. Even though there are plenty of sites, like Zillow and Redfin, which offer home-buyers in America the chance to search for properties, commission rates for real-estate brokers (estate agents in Britain) have not fallen much, staying close to 6% (3% for the buyer’s agent, 3% for the seller’s). Americans pay twice as much as people in most other developed markets, where similar sites have done much to depress residential-property transaction fees (see chart).
This irks many. “Why is it that residential real-estate brokers’ fees are two to three times higher in the US than in any other developed country in the world?” asks Jack Ryan, who founded REX Homes, a property brokerage that offers to sell homes for just 2% commission. He believes the problem lies in the anti-competitive practices of the Multiple Listing Service (MLS), through which nearly every broker in America lists and searches for homes, and the National Association of Realtors (NAR), a trade association with 1.3m broker members in America, which regulates it.