Moving to the DC Area? The DOJ Blew Up the Real Estate Industry

There is so much happening now in the real estate industry. I’m not really one for reporting the news and how it impacts us because I usually keep my head down and do my thing. I love it in the trenches, helping you all buy houses. But current developments and knee-jerk reactions are directly impacting you, the consumer. Between the governing bodies trying to make the real estate industry transparent and fair for consumers, some (not all) real estate brokerages trying to increase their market share, and portals like Zillow and Redfin choosing to only supply you partial information, things are getting wild. You need to know what’s happening and how to protect yourself.

To understand how we got here, we have to pick a starting point. Let’s rewind to 2020, when the National Association of Realtors, or NAR, instituted a Clear Cooperation Policy. Any listing by any member of NAR needed to be in MLS, the Multiple Listing Service, within 24 hours or face a $5000 fine. The reason behind this was a good one. NAR wanted to ensure that the consumer had equal access to all properties for sale. Should a seller want to be privately for sale though, they were allowed to do this by signing a form. 

Private sales, per NAR, that would NOT be listed in MLS, could also not be marketed and shared with anyone outside the listing brokerage.

In theory, very few properties should be privately listed. Think of the wealthy or those who don’t want people in their home. In practice, some real estate brokerages who had self-serving interests in mind, used this as an opportunity to double their revenue.

At the time Clear Cooperation was enacted, I was outraged. My then-broker said, “You are all about fairness, and you are a huge critic of another brokerage in DC that hoards their listings. Why are you not in favor of this?” I said, “Can you not be stupid for a moment. Do you think this solves anything? If you tell a room of 100 pedophiles that you’ll cut their nuts off if they molest any more children, will that stop all 100 of them? No. There will still be some who will go to extreme lengths to keep it even more secret – putting victims in even worse danger. This new regulation, courtesy of NAR, makes things worse for the consumer, not better.” 

He did not agree. But, this is exactly what happened. 

This new system for private listings played right into the greedy brokerages hands. They wanted to do what we in real estate call “double-ending the deal,” which is getting both sides of the commission. It made things terrible for the consumer. Sellers, who usually have the goal of getting the most money for their house, were dumped into a limited pool of buyers and convinced it was a better outcome. Buyers were worried about which agent to hire because some brokerages were marketing exclusive listings behind a wall, and you had to sign up with one of their agents to get access.

I saw a lot of people fall for these traps. And NAR helped that happen, which was exactly what they were trying to prevent.

Buyers felt pulled in different directions on which agent to hire to help them based on which brokerage had more “private listings.” Brokerages had outright lies on their websites, saying things like, “there are 1400 private listings you could have access to if you sign an agreement with one of our agents.” Straight up blackmail with a side of bait and switch.

If a seller’s primary goal is to net the best offer possible, then going to the open market where you have the most buyers and the most competition is almost always the right answer. Sellers were sold a bill of goods on why it was better to sell privately vs go out to the open market.

Then came the Department of Justice / NAR Lawsuit. The suit was filed by a group of sellers contesting the legality of being forced to pay buyer agent commissions where a legal relationship didn’t exist between the buyer agent and the buyer. This was only a thing in 33 states. DC, Maryland and Virginia were not in those 33 states. Even though locally in the DC area we were subject to the outcome of the lawsuit, nothing really changed. We always had buyer agency in DC, Maryland and Virginia and we were always required to obtain signed agreements before showing property to buyers.

When my brokerage did some company-wide calls and I was in group chats with Realtors in other U.S. cities, I was astonished at how they approached buyer representation in other cities. They never had signed agreements, never explained the whole process, didn’t have a book they provided to clients outlining this process. I’m no lawyer, but I could see the premise for why a lawsuit was filed.

With every action, there is always an equal reaction. So how did the industry respond?

By circling the wagons. 

One exciting change post-lawsuit is that there is more freedom in marketing private listings. They no longer have to be kept secret from other brokerages. There are a lot more properties listed privately now than ever before. The best agents will go on a daily fishing expedition to find those properties. I love puzzles though, so this idea of chasing down a square peg for a square hole is really satisfying for me on both a personal and professional level. I love finding a needle in a haystack for a client that they couldn’t have found on their own with the online portals. 

This is like old-school real estate again, much like when I lived in Connecticut and wanted to rent property. You either looked in the paper, or you hit the phones and called brokerage after brokerage to find out what listings they had. So, if you think about it, we’re going backward. Real estate transactions now are reminiscent of the 80’s and 90’s. 

Just when we thought the NAR lawsuit was the last of the high-drama we would endure, there’s more.

In response to the evolving private listing networks, the portals, i.e. Zillow and Redfin, have responded. Zillow has become a brokerage, but they are not a robust one. They don’t have an army of agents with listed property. Zillow is a portal first and they rely on listings to feed to their site from MLS. 

Zillow just announced that if a property was ever listed privately, they won’t allow it to feed to Zillow. Zillow can do what it wants. It’s in charge of its own website and it makes the rules. But, I would argue that it hurts the consumer. And it does, but Zillow doesn’t care. They only care about Zillow. And they aren’t a stranger to doing things that hurt others. Since their inception, they have sold advertisements for competing agents on the public listings that feed from MLS. They take an agent’s listing, put it on their site, and sell ad space to other agents to appear there as if they are the point of contact for that listed property.

That’s kind of like you building a house and another builder sticks their sign in the ground offering information about the house you are building. They collect phone numbers and then sell them back to you when it was your product that procured the lead to begin with. Not really fair, is it? This never really bothered me much because Zillow is a crappy platform, the information is constantly outdated, and I’ve never known anyone to use it.

Redfin said they would do the same as Zillow. My reaction here is the same. Redfin can do whatever it wants with its website. Their portal is good and very user friendly, but they haven’t managed to turn a profit. They were also just purchased by Rocket Mortgage. 

What does this mean now? Well, in addition to hawking their title company which has made serious mistakes when Redfin buyers have purchased my listings, they will now be hawking Rocket as a mortgage provider. This is how Redfin will become profitable – by offering ancillary services. Consumers will sign a form stating they acknowledge this, but many of them will still “choose” to use the Redfin-recommended mortgage and title companies.

So…behind the scenes, everyone is getting into bed with each other. 

What does all of this mean for you, the consumer?

This isn’t just lip service. It is more important than ever to hire the right agent. 

You want an agent who gives you recommendations for lenders and title companies where they have zero financial interest. 

You want an agent who can hustle and find you a home whether it’s on the MLS, in the off-market, or somewhere in between like a portal. 

You want an agent who knows what they are doing, can advise you properly and who can protect you from your home search through closing and beyond because it’s getting crazy out there, and it is likely to continue the spiral.