COVID-19 Effects on Broker Collusion in Real Estate

COVID-19 Effects on Broker Collusion in Real Estate

A copy of the request filed with the US DOJ and the US FTC asking to review the use of blanket referral fee agreements between real estate brokers during the COVID-19 epidemic.

A copy of the author’s request that officially asks the United States Federal Trade Commission (US-FTC) and the United States Department of Justice (US-DOJ) to investigate anticompetitive practices of Zillow Flex program, Realtor-dot-com Opcity, Redfin Partner Agent program, Opendoor Partner Agent program, Rocket Homes, mellohome, HomeLight, Open Listings, UpNest, Clever Real Estate, Sold-dot-com, Landed, LemonBrew, Radius Agent, ReferralExchange, and similarly situated Referral Fee Networks on the grounds of an alleged violation of the Federal Trade Commission Act of 1914, an alleged violation of the Sherman Antitrust Act of 1890, an alleged violation of RESPA (12 U.S.C. 2607) Section 8, as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with possible market allocation, consumer allocation, and price-fixing practices.

Attn: Antitrust Division Office of Operations
Department of Justice
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530
Attn: Office of Policy and Coordination
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave., NW Room CC-5422
Washington, DC 20580

What companies or organizations are engaging in conduct you believe violates the antitrust laws?

Zillow Flex program (DBA Zillow Group, Inc.)
1301 2nd Avenue, Floor 31
Seattle, WA 98101
Phone: (206) 470-7000
California DRE License: 01980367
Realtor-dot-com Opcity (DBA Opcity, Inc.)
6800 Burleson Road, Bldg. 312, Suite 125 Austin, TX 78744
Phone: (833) 507-7101
Texas TREC License 9005100
Redfin Partner Agent program (DBA Redfin Corporation)
1099 Stewart Street, Suite 600
Seattle, WA 98101
Phone: (877) 973-3346
Washington DOL License 9081
Opendoor Partner Agent program (DBA Opendoor Brokerage LLC)
5307 E Mockingbird Lane, Suite 220
Dallas, TX 75206
Phone: (214) 378-3667
Texas TREC License 9008105
Rocket Homes (DBA Rocket Homes Real Estate LLC)
701 Griswold Street
Detroit, MI 48226
Phone: (833) 297-9378
Michigan LARA License 6505346028
mellohome (DBA mello Home Services, LLC)
5465 Legacy Drive, Suite 450
Plano, TX 75024
Phone: (888) 946-3556
Texas TREC License 9006745
HomeLight (DBA HomeLight, Inc.)
100 1st Street, Suite 2600
San Francisco, CA 94105
Phone: (855) 999-7971
California DRE License 01900940
Open Listings (DBA Open Listings Co.)
2000 Hyperion Avenue
Los Angeles, CA 90027
Phone: (800) 501-2077
California DRE License 01966242
UpNest (DBA UpNest, Inc.)
856 Mitten Road, Suite 106
Burlingame, CA 94010
Phone: (800) 692-5010
California DRE License 01928572
Clever Real Estate (DBA Clever Real Estate Inc.)
6358 Delmar Blvd, Suite 300
University City, MO 63130
Phone: (833) 225-3837
Missouri MDPR License 2017042277
Sold-dot-com (DBA Ten-X Finance, Inc.)
7700 Irvine Center Drive, Suite 760
Irvine, CA 92618 US
Phone: (844) 355-7653
California DRE License 01937601
Landed (DBA Landed, Inc.)
148 Townsend Street
San Francisco, CA 94107
Phone: (415) 200-0050
California DRE License 01988003
LemonBrew (DBA LemonBrew Realty NJ LLC)
720 Monroe Street, Suite C502
Hoboken, NJ 07030
Phone: (833) 536-6627
New Jersey REC License 1863793
Radius Agent (DBA Agentdesks Incorporated)
315 Montgomery Street, 8th Floor
San Francisco, CA 94104
Phone: (415) 829-4200
California DRE License 02051216
ReferralExchange (DBA ReferralExchange, Inc.)
588 Sutter Street, #350
San Francisco, CA 94102
Phone: (415) 653-5590
California DRE License 01426453

Why do you believe this conduct may have harmed competition in violation of the antitrust laws?

The unprecedented effects of the COVID-19 epidemic now pose greater risks to consumers from collusion, market allocation, and price-fixing in most industries. Collusion is a much cheaper action to generate revenue with than genuine free-market competition, and a lot of businesses are tempted to take advantage of any opportunity due to high levels of economic uncertainty.

Industries that are already prone to antitrust violations are at the most risk because market participants are able to grow the existing channels of collusion in an effort to sustain revenue during the worldwide economic collapse. The Federal Trade Commission and the Department of Justice cannot let this happen. The year 2020 is the most critical time to enforce antitrust regulations in some of the most vulnerable industries, including housing.

The housing industry in the United States is especially prone to collision due to the fact that purchase and sale of homes is an extremely rare transaction, a high-value transaction, and risk-averse experience for consumers. There is no better breeding ground for collusion than real estate because the upside yields unprecedented profits to those involved.

Over the last two years, the broker-to-broker online allocation schemes have flourished drastically with heavy use of powerful advertising channels such as Google and Facebook. There have never been more damaging collusion schemes in residential real estate industries than there is today, simply due to the power of the network effects offered by the Big Tech advertisement channels.

All real estate brokers in the United States must compete with one another, there are no exception. In 2019, consumers have spent between $72 Billion and $100 Billion in real estate broker commissions, when buying and selling about between 5 and 6 million homes in the United States. An estimated $15 Billion in these fees are lost as unearned kickbacks due to an explosive use of blanket broker-to-broker referral fee agreements.

Real estate brokers are used to the idea of referring their clients to other brokers in exchange for value to be paid and received – a referral fee. RESPA (12 U.S.C. 2607) Section 8 and the U.S. Code of Federal Regulations 12 CFR Part 1024.14(g)(v) narrowly allows payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions when all parties are acting in a real estate brokerage capacity.

Title 15 of the U.S. Code, Section 1 states: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Sherman Antitrust Act effectively prohibits all agreements that restraint of trade, period. There is no defense to these agreements, and defendants may not justify their behavior by arguing that the agreements are reasonable to consumers, are necessary to avoid cut-throat competition, or that defendants’ action to collude stimulates competition.

The Sherman Act requires all brokers to compete for consumers. If referral fee agreements between brokers exist, such agreements must be always negotiable and must be negotiated with respect to an individual transaction. It is a per se violation of the Sherman Act for real estate brokers to agree on a “standard” and a pre-arranged “blanket” referral fee that will be paid for producing a client. All “standard” referral agreements between brokers always restrict free trade.

Instead of competing with other brokers, an online referral fee broker establishes a wide net of agreements with many brokers, and never acts in a brokerage capacity, instead, it simply uses real estate license to collect referral fees. Brokers that orchestrate and execute blanket referral agreements with the use of Internet technology are impossible to reconcile with antitrust regulations.

The COVID-19 epidemic places greater pressure on all brokers in the United States to “get leads” in an uncertain economic environment. Real estate brokers who refrained from these schemes in the past, now find themselves in an environment where a “no upfront costs” propositions from referral fee networks are very powerful alternatives to competing for consumers' business directly.

In the few weeks following the epidemic, referral fee networks have been actively recruiting new brokers to join their schemes. While most legitimate brokers have been finding ways to scale down and save on costs, referral fee networks are doing the opposite – they are actively growing.

“Real estate referral [brokers] often use the power of Google AdWords and Facebook to run ads and collect leads, based on location, buying behavior, and interests. From there, interested prospects often land on a webpage where they fill out a contact form to receive more information from you. Referral [brokers] can target buyers or sellers in a specific zip code, and good programs only work with one agent per zip code. This approach cuts down the competition in your local market and makes your ads unique for better conversion in your local area.” Source: Clever Real Estate.

Clever Real Estate is one such referral fee broker, and their blatant explanation clearly claims the “benefits” of pay-to-play consumer steering because this “approach cuts down the competition in a local market.” Obviously, such “benefits” are limited to colluding parties: a broker who receives and blanket referral fee, and a broker who receives consumers’ information in an exchange for a cut of their future commission.

Agents who choose not to participate in such schemes operate at a disadvantage, while consumers end-up being steered receive poorly-negotiated services, hidden kickbacks, and questionable quality from service providers in one of the most valued transactions of their lives – a purchase or a sale of a home.

Some of the most successful real estate brokers in the United States today are referral fee brokers. For example, as of 2019, HomeLight, one such broker, claims to have steered 390,000 consumers toward their “partner agents.” HomeLight alone claims to have “driven well over $17 billion of real estate business nationwide” since inception. Assuming a "standard" 25% referral fees paid on this volume of originated commissions, this yields a mind-blowing estimate of $4.25 Billion in commission kickbacks paid to HomeLight from participating “partner agents” across the United States. Almost all of it is profit since HomeLight doesn’t perform any services typically offered by real estate brokers.

HomeLight advertises its platform as "100% free and unbiased," yet this broker has a direct financial incentive to steer consumers toward brokers who charge higher commissions. Yes, this is a Billion with a “B” problem. This money paid to HomeLight, structured as junk fees, now resides in 390,000 hard-earned mortgages, collecting interest. A simple ad on Google or Facebook, only worth a few dollars to HomeLight, is easily converted into tens of thousands in “blanket” referral fees. HomeLight claims to make such conversion every two minutes. These are appalling statistics.

In 2020, the consumer brokering trend is getting much worse. Zillow Group, for example, now aims to bring in Billions each year in referral fees from their new Zillow Flex program that, too, operates on a “standard” referral fee basis. Some industry “experts” call this a “Billion dollar opportunity” for Zillow because it yields an immense referral fee revenue. Consumer brokering is extremely profitable with a revenue per lead that is 32x greater than typical advertisements. This is a massive revenue opportunity that should never be used as a go-to-market strategy in a free-market economy.

News Corp, the owner behind Realtor-dot-com and Opcity, now receives massive amounts of revenue generated with a similar process described by one consumer as a “referral system that uses third world boiler rooms to contact potential customers.”

Unless a direct action is taken to stop this practice and to reimburse consumers for the damage, these schemes will continue to grow into a single-offer proposition. All real estate brokers across the United States are now placed before the fact: either to engage with these online brokers with the use of illegal referral agreements, or lose the majority of their business.

Legitimate consumer-focused agents, such as Door Real Estate , Flyhomes , and Homie that currently offer savings to consumers are being run out of business. Whenever an agent openly advertises their competitive fees to consumers, they cannot secretly incorporate referral fees into their agreement because their rates are highly transparent.

All referral fee brokers utilize present inefficiencies of the real estate industry in scale, via the Internet. Consumer-focused agents, such as Flyhomes, must actually deliver tangible services to consumers locally, while companies such as HomeLight, utilize false statements and hidden kickbacks to expand their “services” nationally.

Flyhomes carries real expenses and risks in their effort to offer value-added services to consumers, while HomeLight benefits by converting effective ads into kickbacks.

In this broken environment, brokers have little incentives to actually provide a service at a competitive price, and instead, are encouraged to set up and use massive networks without taking any risks of expansion into new markets.

In today’s uncertain economic environment it is crucial for the government to support legitimate consumer-focused businesses that help consumers buy and sell homes. Without direct government action, all competitive forces in the housing industry will be replaced with pay-to-play online referral fee schemes as the primary go-to-market strategy.

Competitive agents will lose their battle to offer better services in the industry unless a fair playing field is established where all brokers are obligated to compete for consumers without collusion.

What is your role in the situation in question?

I currently serve as a CEO HomeOpenly. HomeOpenly is an Open Real Estate Marketplace™ designed to provide home buyers, home sellers, and real estate agents with a transparent representation search experience. HomeOpenly is built as Internet service in an effort to improve the homeownership experience in the United States.

The core feature of the platform allows home buyers and sellers to receive live and actionable savings from local competitive real estate agents, including listing rates, home buyer’s refunds, and flat fees. HomeOpenly service is absolutely free and does not tax our users with referral fees.

HomeOpenly does not lock anyone into any specific rates or rebates — competitive market forces guide the process. HomeOpenly doesn’t fix prices, instead, we maintain the fair and open competition at the core of our platform.

HomeOpenly is not a real estate broker, and we never intend to become one. HomeOpenly is always an Internet technology company. With my request to the Department of Justice and the Federal Trade Commission, I am seeking a fair and open competitive environment to develop our service. Successful implementation of an Open Marketplace™ platform requires full enforcement of existing antitrust laws that are enacted to protect US consumers.

As long as Referral Fee Networks are able to practice market allocation, consumer allocation, and price-fix services of independent brokers with the use of blanket referral agreements advertised to consumers with heavy use of paid Internet channels, an Open Marketplace™ operates at a competitive disadvantage and suffers damages as a result.

If you have a question or comment about an antitrust issue, you may submit it to the Bureau of Competition at the United States Federal Trade Commission and/or to the Antitrust Division of the United States Department of Justice.

Related to: antitrust, market allocation, consumer allocation, price fixing, real estate

Your feedback is incredibly valuable. Please tell us what is important to you about your homeownership experience, what you look for in a trust-focused platform and how we can better serve you as our user.

Leave your comments

Thank you!

Your comments have been successfully received. Please allow 24 hours for your comments to become available.

Feel free to contact us if you need further assistance. At HomeOpenly we aim to make the opportunity of homeownership transparent, affordable and an open experience.

Last updated: April 26, 2020
First published: April 26, 2020