The Law of Unintended Consequences

Dated: 05/17/2019

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The Law Of Unintended Consequences

Throughout history, man/woman has always thought that he/she could build a better mousetrap, and throughout history, he/she has been (mostly) right - but not without incurring some unintended consequences along the way. And many times, the unintended consequences have yielded bigger problems than the problem that the better mousetrap was designed to correct.

Case In Point: The current bevy of class action lawsuits aimed at NAR and various brokerages for alleged anti-trust violations. The stated aim of these coomplaints is to help consumers by eliminating MLS's cooperative commission structures. The lawsuits all cite to lower commissions paid by sellers in Europe as support for their positions. However, there is one glaring omission that doesn't get mentioned in any of these lawsuits: The Statistics on Housing Discrimination in Europe.

A 2019 study* of housing discrimination in Europe conducted by George Washington University reached the following conclusion: "Housing discrimination is widespread in Europe." And while the study cited to various potential causes for this, there is one huge correlation that wasn't mentioned - housing discrimination tended to be higher in countries where the buyer typically paid the buyer's agent's commission.

So let's play the "What If" game for a minute, and let's say the class action lawyers are able to convince a judge that the MLS structure violates anti-trust laws and that buyers should have to pay their agent's commission. Now, let's use a hypothetical couple: First-time home buyers, minority, with no additional funds to afford to pay a buyer's agent to help them. Let's go ahead and make them military veterans who were counting on 100% VA financing to buy their first home. Now, I ask you: What agent is going to work with a buyer client that can't afford to pay them?

Then, on top of that, let's throw in what the listing system would look like if the MLS's are disbanded: Pocket Listings, Private Sales, Exclusive On-Line Listings (that will require a fee to access of course), etc. Now tell me how, without the benefit of a real estate professional to guide this hypothetical couple through this new Wild-West of the various listing services, how is this hypothetical couple going to be able to buy a home, let alone have access to all of the homes in the marketplace in order to make a good decision?  The answer is, they won't.

Now, let's look at the sellers' side of the equation, and let's use a different hypothetical couple: an elderly couple on a fixed income that wants to downsize, monetize the equity in their home and move someplace warmer. Now let's put them in a hot buyer's real estate market where there is lots of competition among home sellers. The sellers that can afford to throw in a buyer's agent bonus or offer to pay the buyer's agent's commission will see more activity, less days on market and/or higher selling prices. The elderly couple on a fixed income can't afford to offer any of these perks, and because the new standard will be for buyers to pay for their agents, this couple will end up losing out to sellers who can. What is now an even playing field for buyers and sellers will become an uneven one and will ultimately shut out an entire segment of homeowners and buyers from the marketplace. Tell me how this is better for anyone? 

Bottom Line: Disbanding the MLS cooperative commission structure will end up disenfranchising an entire segment of the U.S. population, lead to a rise in housing discrimination and will only end up benefiting a few law firms and a few listing platform companies when it's all said and done.

Note: Before you start typing your comment about all the things that are wrong with the current system for buying and selling real estate, let me duly acknowledge all of its flaws. This article is not about what's wrong with our current system, it's about the unintended consequences of these lawsuits should they be successful. Thanks for reading!

*Hilary Silver & Lauren Danielowski (2019): Fighting Housing Discrimination in Europe, Housing Policy Debate, DOI: 10.1080/10511482.2018.1524443
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Chris Camperelli

*25 Years in Real Estate *Averaged 100+ Home Sales Per Year Since 2010 *Top 1% of Realtors Nationwide Since 2010 *Over 10 Years Advising Large Institutional Banks, Hedge Funds and Investors *Top 1% in....

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