REX, a privately-traded discount real estate brokerage, heavily promotes that it offers buyers as much as 50% of the buyer's agent commission as a closing refund. The brokerage is currently operational in 17 states, including Oregon, which it entered in 2019 by opening an office in Portland. Shortly after it launched in the state, the Oregon Real Estate Agency sent the company a letter warning it that its policies violated an existing ban on rebates for homebuyers. Now REX has fired back with a lawsuit and the implications could stretch beyond the state.
Why Oregon buyers can't collect
Oregon Statute 696.290 states in part that a licensed agent can not "give, pay, or rebate" any part of their commission from a transaction or pay a finder's fee to anyone who is not licensed. The origin of this law isn't to prevent buyers from getting a rebate but is instead meant to discourage kickbacks between real estate agents and other types of real estate professionals.
Oregon isn't the only state to have these types of rules, and whether or not they should exist has been a source of contention for decades. Currently, 11 other states have rules that prohibit real estate rebates.
In 2005, the Department of Justice (DOJ) settled with the Kentucky Real Estate Commission to allow real estate brokers in Kentucky to offer rebates to their customers. Since then, the DOJ has taken a stance on this issue, saying rebate bans that prohibit brokerages from negotiating on price "artificially inflate the cost of real estate services."
The REX lawsuit says in part that this rule drives up the cost of homes in the state and is anticompetitive. The firm alleges that "rebate bans are unconstitutional and violate federal antitrust law."
A growing conversation over buyer's rights
The REX lawsuit comes just days after the Department of Justice filed a lawsuit and proposed settlement with the National Association of Realtors to clarify the role of the buyer's agent. The settlement is also designed to prevent agents from steering buyers away from listed homes that offer a lower buyer's agent commission.
REX CEO Jack Ryan sees his company's practices as a "transformational reform in the U.S. real estate industry" and calls Oregon's rebate ban "an affront to middle- and lower-income families."
From his point of view, the NAR and multiple listing services as well as large brokerages are complicit in keeping rebates away from buyers. According to a press release from REX, a 1.5% rebate for buyers would save Oregon homebuyers $385 million in fees each year. However, it must be noted that REX doesn't offer a buyer's agent commission split, and it does not list the homes of the sellers it works with on multiple listing services. Instead, it uses social media ads as well as promoting properties on Zillow (NASDAQ: Z) (NASDAQ: ZG) and other websites. The company has raised over $140 million, including most recently $25 million from Lion Capital in return for a minority stake in the company.
The potential impact for real estate investors
Real estate investors who buy multiple properties tend to work with the same agent over and over. The idea that they could get a discount on properties is undeniably attractive. REX is a relatively small player in the brokerage industry, but if it's able to amass significant market share, it could put pressure on other brokerages to offer similar incentives. As we've discussed before, the role of the buyer's agent has become less important in the eyes of many consumers who are choosing their future properties online. If REX is able to get the DOJ involved and change the laws in Oregon, it could pursue other states with similar legislation.