Redfin Opendoor Consumer Allocation and Antitrust
A copy of the request filed with the US-DOJ and the US-FTC asking to review practices of Redfin and Opendoor.
A copy of the author’s official request that asks the United States Federal Trade Commission, the United States Department of Justice, and the United States Consumer Financial Protection Bureau to investigate Redfin Partner Program Opendoor Brokerage Opendoor as colluding iBuyers and shell real estate hub-and-spoke schemes operating in an open collusion with Partner Agents on the grounds of an alleged violation of the Federal Trade Commission Act of 1914 (15 U.S.C. Section 45) an alleged violation of the Sherman Antitrust Act of 1890 (15 U.S.C. Section 1) an alleged violation of RESPA Section 8 (12 U.S.C. 2607) as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with alleged broker-to-broker market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices.
Attn: Citizen Complaint Center, Antitrust Division
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530
Attn: Office of Policy and Coordination, Room CC-5422
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave. N.W.
Washington, D.C. 20580
Please see information about a possible antitrust violation as described below.
What are the names of companies, individuals, or organizations that are involved?
Redfin Partner Agent Program
1099 Stewart Street, Suite 600
Seattle, WA 98101
Phone: (844) 759-7732
Washington DOL License 9081
Opendoor Partner Agent Program
5307 E Mockingbird Lane, Suite 220
Dallas, TX 75206
Phone: (214) 378-3667
Texas TREC License 9008105
Opendoor
405 Howard Street, Suite 550
San Francisco, CA 94105
Phone: (888) 352-7075
California DRE License 02061130
Further, thier respective partner agent networks of a fluid number of licensed real estate agents who choose to execute blanket referral agreements in participation with above mentioned broker-to-broker collusion schemes, "paper" "shell" "sham" real estate brokerages registered as licensed brokers in any state.
Acting as the "spokes" within the "hub-and-spoke" broker-to-broker collusion scheme, tens of thousands of colluding Partner Agents are independent Realtors firmly affiliated with various brokerages such as Berkshire Hathaway HomeServices, eXp Realty, Windermere Real Estate, Keller Williams Realty, Inc., RE/MAX, Coldwell Banker, NextHome, Inc., HomeSmart, Compass, John L. Scott Real Estate, CENTURY 21, Realty ONE Group, Vylla, ERA Real Estate, Weichert Realtors, Better Homes and Gardens Real Estate, Fathom Realty, Intero Real Estate Services, John R. Wood Properties, Worth Clark Realty, Sotheby's International Realty, etc.
How do you believe they have violated the federal antitrust laws?
Redfin Corporation operates as a referral fee broker network (DBA Redfin Partner Agents) and a real estate agent (DBA Redfin Agents). Opendoor operates as a real estate investor (DBA Opendoor), and a referral fee broker network (DBA Opendoor Brokerage). Opendoor further operates as a real estate agent for buyers only (DBA Open Listings Brokerage) and does not represent sellers in any transactions. Opendoor Brokerage further operates as a referral fee broker network that matches consumers with listing agents whenever the company’s cash offer is unavailable or is declined. Redfin Corporation and Opendoor are in direct competition with one another.
To ease operational risks and to increase an ability to sell failed requests, two companies have recently entered into a consumer allocation agreement with each other. In this scheme, if one company is unsuccessful or unwilling to represent the consumer in a transaction, or fails to provide an acceptable pre-market cash offer, that company “hands-off” the consumer to the colluding competitor in exchange for a set referral fee. Redfin and Opendoor admit to the arrangement in press releases, but companies do not disclose the fee amount, or how the fee is calculated. Redfin likely receives a fixed percentage of the accepted Opendoor offer. It is possible that Opendoor also receives a pre-set referral fee from Redfin.
Can you give examples of the conduct that you believe violates the antitrust laws?
First issue: consumer allocation between Redfin and Opendoor
Both companies directly benefit from their recent consumer allocation agreement because payment between parties only occurs only if a sale is made - there is no downside to either broker to allocate consumers. Such blanket referral fee agreements directly cause noncompetitive behavior in the residential real estate industry and lead to higher costs in commissions and greater loss of home equity from single-bid cash offer propositions. Referral fees eventually result in reverse competition, lower quality of service, confusion with consumers, and higher closing costs. Please notice that these practices are taking place in the middle of a housing crisis in the United States.
Second issue: market allocation and price-fixing by Redfin Partner Agent and Opendoor Partner Agent referral fee networks.
Both, Redfin Corporation and Opendoor Brokerage further individually engage in the market allocation and price-fixing of services of independent real estate agents across the United States. Redfin currently operates Redfin Partner Agent program at 30% referral fees from the commission earned. Redfin Partner Agent program is a market allocation scheme; the company has recently seized price-fixing practice. In the past, Redfin had actively dictated that Partner Agent commission listing rates are set at 1.5%, or that Partner Agents issue rebates set at 15% to buyers (15% went to Redfin as a referral fee.)
Opendoor Brokerage has recently launched several “promotions” that advertise services of independent agents at pre-set rates. Opendoor Brokerage refers consumers to third-party agents that can represent them in a home purchase (“Opendoor Partner Agent”) and requires buyer’s agents to offer certain discounts or promotions contingent upon working with the referred consumers. Opendoor recives a 1% pre-set referral fee from the total transaction value from third-party brokers, which translates into a 30%-40% fee from the commission earned when consumers list or buy a home with an Opendoor Partner Agent.
To entice home buyers into referral scheme, Opendoor Brokerage requires Opendoor Partner Agents to offer 1% of the purchase price to buyers at closing in the form of a commission rebate. The amount is subject to a minimum buyer’s agent commission to Opendoor Partner Agents of $3,000, which means it is calculated as the lesser of either 1% of the price of the property consumer buys, or Opendoor Partner Agent’s commission minus $3,000. According to Opendoor Brokerage, this amount may be prohibited or reduced based on the purchase type (e.g., short sale), lender requirements, loan type (e.g. FHA, VA), or the rebates law. This is a plain price-fixing agreement.
Open Listings, fully owned by Opendoor, works on a similar principle by referring clients to Partner Agents who are employed by or work with their brokerages. Open Listings keeps referral fee amount hidden and does not disclose the split amount it receives from Partner Agents – this practice is highly deceptive and is designed to deceive consumers into thinking that Open Listings is the brokerage they are working with. Open Listings dictates that Partner Agent rebates 50% of their commission in order to work with a referral. This too is a plain price-fixing agreement.
For purposes of the present discussion, brokerage fees are always negotiable and no broker should set rates and rebates for other brokers. Each firm should establish its policy as to its fee structure and charges, amount of commissions, and rebates. Referral fees added easily cost consumers tens of thousands per transaction in inflated commissions, or additional loss of equity from under-priced single-bid cash offers.
Third issue: prefixed financial incentives offered by Opendoor to listing agents.
Further, Opendoor improperly offers financial incentives to listing agents to help convince consumers to take lower-priced offers from the company, instead of listing homes on the open market. iBuyer offers, accounting for fees and reduced market value, are systematically the most expensive way to transfer ownership. Accepted iBuyer offers typically result in 15%-20% in total equity loss to a home seller.
In this scheme, a listing agent is offered a financial incentive from Opendoor to bring their client to the company for a pre-market offer. No real estate investor (iBuyer) should be able to offer any financial incentive to a third-party representative to persuade others to accept their offer. By offering a fixed financial incentive (currently set as 1% referral fee) to listing agents upon acceptance of an Opendoor offer, the company acts to create a conflict of interest between a listing agent and their (present, or potential) client.
A listing agent, in this case, has to choose between having to represent a consumer to sell a home in the open market and getting a “quick cash” for handing them off to Opendoor. Today the company offers 1% referral fee to the listing agent, tomorrow, the company decides to set this incentive at 2%, 3%, 4%, 5% or some other pre-fixed amount. Such incentives are a form of price-fixing and directly affect listing agents’ ability to work with their clients on fair terms.
As a real estate buyer, Opendoor claims to have paid out $430 million to independent agents over the recent years in operation. All home buyers must legitimately place offers on homes without enticing listing agents with fixed compensation amounts. Buyers can negotiate a buyer’s agent commission refund and, technically, Opendoor must negotiate a refund with their own buyer’s agent (or act as its own buyer’s agent). To offer a pre-set incentive to a listing broker is a form of price-fixing.
According to Opendoor, "Agent Access enables agents to earn their traditional commission plus an additional 1 percent commission on top of that for each seller-represented transaction an agent closes." The company also has a tiered incentive program for agents who close deals through Opendoor with a commission plus points system to encourage closed transactions. Each of the first five transactions nets an agent 1 percent commission. On the fifth transaction, agents earn 100 points plus $5,000. The tiers fluctuate for each subsequent deal.
Opendoor claims that "that’s really rare in real estate, for the buyer’s side of the transaction to pay the listing side of the transaction for a closing." It is "rare" because it is unlawful for any home buyer of real estate to incentivize the listing agent in the real estate transaction. Otherwise, any home buyer would simply make a payout offering to the listing agent, creating an unsolvable conflict of interest between the listing agent and their true client, the home seller. Opendoor violates not just federal price fixing laws, but a number of real estate provisions that prohibit real estate agents from receiving hidden fees and incentives from anyone other than their true clients. Realtors are not "partners" of Opendoor, they are competitors, and any pay-to-play agreed-upon scheme that fixes the amounts of commissions a Realtor is paid (other than a contract between consumers and the Realtor) compromises itself against the price fixing antitrust state and federal laws, local business and professions codes, and state and federal fair advertising regulations.
The aggregate effect of anti-competitive practices between Redfin and Opendoor.
Redfin Corporation and Opendoor operate subject to aggregate antitrust violations, including: price-fixing services of independent agents, market allocation as referral fee networks, and consumer allocation directly between the two companies.
Real estate agents must help consumers buy and sell real estate. Instant cash buyers (iBuyers) are real estate investors. It is not a professional qualification of a broker or an iBuyer to produce “network effects” or “savings” to consumers in the form of price-fixing business practice. Brokers can and should set their rates individually. Real estate investors should place bids on desired properties individually. As long as brokers are allowed to set rates between each other, and/or allocate consumers for kickbacks in plain sight, the United States residential real estate market will continue to suffer from a broken approach. In this non-competitive environment, a handful of companies continue to "invent" promotions in the form of pre-set rates for independent brokers, as a way to receive referral fees. Unless this practice is stopped, consumer brokering and allocation schemes will continue to grow and multiply in magnitude.
What is the product or service affected by this conduct? Where is the product manufactured or sold, or where is the service provided?
Consumer brokering in residential real estate is an act of selling information of potential home buyers and home sellers (paid referrals) between real estate brokers, in exchange for a cut of a broker’s commission.
Brokers on each side of the adopted scheme, cause direct damage to the real estate representation market with reverse competition, anticompetitive market allocation, price-fixing, lack of competition, limited choices to consumers, unnecessary high commissions, and improperly negotiated fees. A referring broker in such a scheme effectively agrees not to compete with referred brokers, or to only compete with referred brokers on a limited basis. Even though iBuyers are responsible for a very small percentage of home sales in the United States (about .02% of all homes are sold with an iBuyer), the entire residential real estate market is affected by Redfin and Opendoor consumer allocation and price-fixing practices in exchange for referral fees.
Who are the major competitors that sell the product or provide the service?
There are approximately 2,000,000 real estate professionals in the United States that aim to provide a great service for consumers buying or selling approximately 6,000,000 homes each year. Real estate brokers must and, generally, are eager to compete with each for the service to represent consumers.
It is not an occupation of a licensed real estate broker to promote other brokers, or to allocate consumers among brokers, or to collude with other brokers on commissions. It is certainly not appropriate for a licensed real estate broker to set service levels, commissions, and rebates for other brokers.
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. Our service is free and does not tax our users with referral fees.
As long as referring brokers can practice market allocation and price-fix services of independent brokers in exchange for referral fees, an Open Marketplace™ operates at a competitive disadvantage and suffers damages as a result.
Who is harmed by the alleged violations? How are they harmed?
Redfin and Opendoor antitrust and consumer allocation violations are not harmless. Real estate brokers who attempt to compete for consumers on fair terms are at a massive disadvantage in this environment. As a result of broker-to-broker collusion, consumers end up getting steered toward a limited pool of agents and overpay for commissions.
Consumers’ private transaction information is always shared with a referring broker that requires it to be disclosed to calculate the referral fees to be paid at the close of each transaction.
Recently, other companies have entered into similar collusion agreements, following the “green light” from Redfin-Opendoor deal. Such agreements make it harder for independent real estate agents to offer competitive rates and to gain customers on fair terms.
For example, a massively funded and a highly competitive brokerage, Purplebricks, has decided to exit all their US markets recently, and others may follow. Among other reasons, lower fees offered by Purplebricks were not effective enough due to price-fixing tendencies in the industry. Purplebricks was unable to compete with reverse competition forces in the US real estate industry built on referral fees. It is much easier and more profitable to price-fix services of others than to deliver the actual representation service to consumers.
Referral fee-based consumer allocation agreements eventually degrade the quality of service and reduce competitive offerings in the market. Improperly negotiated referral fees add tens of Billions in USD each year to the cost of buying and selling homes in the United States.
Consumers, of course, pay for this abuse with higher costs of commissions that eventually make it directly into their mortgages.
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 Potential violations of federal consumer protection financial laws, including RESPA, can be reported to the Office of Enforcement of the United States Consumer Financial Protection Bureau.