A law review article worth reading, given who the author is. It raises a question: is stricter enforcement the only way forward?
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Prentiss Cox, a professor at the University of Minnesota Law School, has written a paper that was just published in the Iowa Law Review Online. The title of the paper is Reclaiming Homeowner Wealth: A Conversation with Barry, Fried, and Hatfield. The abstract:
Homeowners in the United States pay residential real estate brokers commission rates that are about twice as high as the commission charges by brokers in comparable countries. Given the enormous size of the residential home sale market-both in aggregate terms and as a percentage of wealth owned by the average homeowner-this cost discrepancy results in U.S. homeowners transferring tens of billions of dollars each year to brokers that would be saved in a more competitive and fair market.
In Et Tu, Agent? Commission-Based Steering in Residential Real Estate (“Et Tu?”), Jordan M. Barry, Will Fried, and John William Hatfield provide a superb study establishing the existence of steering by buyer brokers and explaining why this steering creates inflated costs in the U.S. market.
This Response lauds the market analysis in Et Tu?, but argues that the solutions proposed by the authors fall short of what is needed to create a competitive and fairly priced residential real estate brokerage. This Response suggests focusing on public enforcement of existing standards-based antitrust, fiduciary duty, and “UDAP” laws. It concludes by identifying three models for public enforcement cases that might yield the necessary market reform-the big case, the catalyst state case, and the piranha method. [Line breaks added for legibility]
I know Prof. Cox, like and respect him immensely, and we have been on panels and such together in the past. We do not agree on everything, in particular solutions to problems, primarily because I am far more libertarian than he is. Well, most people are, to be fair.
And normally, academic writings on real estate topics are of little interest because… well, they’re academic writings intended for an academic audience. In this case, however, I make an exception for a couple of reasons.
One, the issue of high commission rates for residential real estate transactions in the United States has not gone away because of the Sitzer case and the NAR Settlement. (Note: high vis-a-vis other developed nations, and yes, I know there are arguments that the total cost is comparable.) It is plain now with some time behind us that commission rates have not fallen significantly overall; and they might have gone up slightly in some segments of the market since the Settlement. Those who think that consumers pay too much to sell their homes in America (which may be everybody who isn’t in real estate) believe there remains work to be done.
Two, Prentiss Cox is not just an academic. Here is his official bio:
Professor Prentiss Cox ’90 writes and teaches in the areas of consumer protection law, public civil law enforcement, and legal practice skills. Prior to joining the faculty in 2005, Cox was Manager of Consumer Protection at the Minnesota Attorney General’s Office, where he continues to hold a Special Assistant Attorney General appointment.
Cox has prosecuted numerous nationally recognized cases involving subprime mortgage lending, foreclosure, banking regulation, state attorney general enforcement authority, consumer fraud, and related matters. Cox has drafted numerous consumer protection statutes and rules, and he has and testified several times before Congress and state legislatures. He also is co-founder of Law in Practice, which is a required 1L course that teaches integrated doctrinal and professional skills learning.
Cox has served as a trainer and consultant for national non-profits, state and federal government agencies, and for developing nations. He was a member of the inaugural Consumer Advisory Board of the U. S. Consumer Financial Protection Bureau, has been a Reporter for the Uniform Law Commission, and has served on numerous other boards and advisory commissions.
Cox is not just a legal academic; he was and remains very much a practitioner in many ways. He remains a Special Assistant Attorney General for Minnesota, for example. His views have an outsized influence on actual policymakers and enforcers.
What I want to do here is to go through his paper, look at his proposed solutions, and see what I think of them. This may be of little interest to practitioners, but if you are involved with REALTOR Associations, with policy, with MLS strategy, with government affairs… you might want to take a look.