NFHA v. Redfin: Partner Program Price Thresholds

Redfin Partner Program is a broker-to-broker collusion scheme

Today, the National Fair Housing Alliance (NFHA) announced a settlement agreement to resolve a fair housing lawsuit that will “expand housing opportunities for consumers in communities of color in major cities throughout the United States.”

Lisa Rice, president and CEO of NFHA, failed to understand that Redfin Partner Program is something consumers should not have access to at all. The fact that Redfin have had price thresholds against it actually helped consumers avoid being scammed into paying inflated broker commissions.

I, therefore, had filed an objection with the Western District of Washington United States District Court asking the judge to reject the proposed Settlement Agreement with regards to the case 2:20-cv-01586-JLR-TLF (NFHA v. Redfin) Obviously, my objection is solely focused on the broker-to-broker collusion scam known as Redfin Partner Program, and not the services provided by Redfin Agents.

Redfin currently mandates a 30% blanket referral fee from agents that participate in this program. This open arrangement between competitors leads to an inefficiency known as “reverse competition” where referring brokers end up competing not for the consumer attention but for the attention of the middle-man who steers the consumer toward its network of brokers and away from competitors. Such pay-to-play steering results in lower quality of service and/or higher commissions, fees, and price levels. In effect, Redfin turns consumers into a commodity for sale to a competing brokerage. According to Redfin, “Redfin Partner Agent keeps 70% of the commission when a referral closes a transaction.” This means that consumers are systematically overpay for commissions in this scheme — they hire two brokers for the work of one. In effect, the colluding Partner Agent works for their client 70% of the time and 30% is converted into a junk fee.

To comply in good faith with 12 U.S.C. 2607 (RESPA Section 8) and 12 CFR Part 1024.14(g)(1)(v) (Regulation X) exemption for cooperative brokerage and referral arrangements, real estate agents must render referral agreements on an individual basis, in a particular instance for a particular transaction.

The amount of a commission, a rebate, or a referral fee is always negotiable and must be negotiated with respect to an individual transaction. It is a per se violation of the Section 1 of Sherman Act for real estate brokers to agree on a “standard” referral fee that will be paid for producing a client. Real estate brokers may discuss or negotiate the referral fees compensation only with respect to an individual transaction. Real estate professionals are not allowed to enter into “standard” referral agreements because such agreements always restrict free trade.

Since 2004, Redfin Partner Program was the first online broker collusion scheme that scaled into tens of millions of US homes. People intuitively think that Redfin saves money, and it doesn’t — it costs money. Over 40% of all transactions originated by Redfin are farmed out to random competing brokers. Redfin only operates as a brokerage in select areas, everywhere else it uses “partner agents” 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.

“Yes. It’s not something we broken out into a lot of detail, but generally you should think of revenue from partner transactions as having very high gross margin because the cost to serve the customer mostly comes from the agent who does that, not someone from within Redfin. So again, we haven’t broken it out, but you can’t certainly use that assumption that as very high gross margin on the partner business and disentangle it using that.”

This is an excerpt from a statement by Chris Nielsen, Chief Financial Officer at Redfin, who openly admits in Q2 2021 earnings call that collusion with competitors is a “high gross margin” revenue source for the brokerage because the cost of a tangible service “to serve the customer” does not exist for the “hub” that administers the scheme.

The BIG underlying problem here is that Realtors would much rather collude with “no upfront costs” with these schemes and give up 30% of their future commissions into a referral fee network than to offer these same amounts as savings to their clients. The reason for this is that each transaction is handed to a Realtor at no upfront cost and often brings in tens of thousands to a broker. A Realtor would rather lose 30% of this large fee for a 100% certainty of receiving 70% of the gross commission, instead of offering 30% as savings to their client. The only way to prevent this is to stop brokers from being able to pool together to form referral networks, meaning, to enforce the Sherman Act.

Redfin Partner Program is a broker-to-broker collusion scheme, where “partner agents” unlawfully agree to pay massive kickbacks to receive your information and engage in market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices in violation of, inter alia, 18 U.S.C. § 1346, 18 U.S.C. § 1343, 15 U.S.C. § 1, 15 U.S.C. § 45, 12 U.S.C. § 2607, 12 C.F.R. § 1024.14.

As a consumer, you will always significantly overpay for Realtor commissions subject to hidden kickbacks and pay-to-play steering promoted in this scheme.
 
United States federal antitrust laws prohibit consumer allocation and blanket referral agreements between real estate companies.

Author: Litesand

Antitrust, real estate, e-commerce, fintech, proptech, bigtech

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