Jack Ryan’s Mission To Free the Real Estate Market

Once a high-flying investment banking partner at Goldman Sachs, Ryan was drawn to public service because he believed that America’s schools were failing the nation’s most vulnerable students.

“The abuse of the kids” in inner-city schools, he told RealClearPolitics, “is just something you cannot … abide.” So, Ryan left Wall Street for the South Side of Chicago to teach history and literature at Hales Franciscan High School – an all-boys, all-black Catholic school that, unlike its ailing area peers, would prove a paragon of academic achievement, regularly sending all graduating seniors to college.

Ryan was buoyed by this experience, but also deeply troubled by the knowledge that the vast majority of Chicago students were condemned to a fourth-rate education in the public schools. Born into a family that emphasized the importance of service, he felt compelled to seek office to broaden the opportunity for children to receive a first-rate education, running in his mind as a “single-issue candidate” – that issue being school choice.

He secured the Republican Party nomination, only to find his campaign derailed in nasty fashion when a judge unsealed divorce filings – against the wishes of the candidate and his ex-wife, actress Jeri Ryan – containing salacious allegations. Ryan denied them, but the damage was done. He withdrew from the race, putting his opponent, a little-known Democratic state senator by the name of Barack Obama, on a glide path to the Senate and ultimately the White House.

Ryan’s bid to take on what he calls America’s “worst” cartel, the public school establishment, ended. But his determination to take on such power centers – and help provide needy kids with a quality education – never waned.

Another Formidable Adversary

In 1996, GOP presidential nominee Bob Dole tried to take on the bureaucrats and teachers’ unions he said were running the nation’s public schools “into the ground” with the acquiescence of Bill Clinton, whom Dole called the union’s “pliant pet.” Dole stressed how much he respected hard working classroom teachers, but Democrats and the union leaders were quick to portray Dole’s salvo as an attack on all educators.

One of Dole’s problems was that Gallup surveys consistently show that elementary and secondary school teachers are considered vastly more ethical and honest than politicians, even war heroes like Dole (and much more popular than journalists, for that matter). The same is true of real estate agents and brokers, but that hasn’t dissuaded Jack Ryan. Far from it. The “second worst” among cartels, in his telling, is the National Association of Realtors (NAR).

NAR is America’s largest trade group, boasting some 1.5 million members. The organization holds enormous sway over the economics of the residential real estate industry. Namely, it essentially requires realtors to join one of more than 800 local real estate cooperatives known as Multiple Listing Services (MLSs) to effectively access and participate in the marketplace, while imposing rules governing the realtors’ policies and practices.

Through the MLSs, the trade association says, “brokers share information on properties they have listed and invite other brokers to cooperate in their sale in exchange for compensation if they produce the buyer,” benefiting buyers and sellers alike through creating something of a centralized marketplace.

Critics have long contended, however, that NAR’s rules – including around compensation – are anti-competitive and artificially raise prices for consumers.

Buyers and sellers bear customary brokerage fees ranging from 5% to 6% of the total purchase price of a home, often split in various formulas between the buyers’ and sellers’ agents. These commissions can run into the tens of thousands of dollars per transaction.

Collectively, Ryan estimates that, assuming an average brokerage fee of 5.5% in the U.S., versus about 1.5% in other European and Asian nations, and $3 trillion worth of annual transactions, brokers collect $120 billion in commissions from Americans yearly. That is greater than the estimated $75 billion in taxes collected annually on U.S. oil sales – hence his argument that realtors represent a larger cartel than OPEC.

These fees, a relic of past rate-setting customs (when home prices were far lower) have persisted despite authorities’ attempts to curtail such practices, and the explosion of publicly available information about homes on the Internet that would seem, minimally, to decrease the value provided by agents and brokers.

A primary reason rates have remained at their historic level, critics say, is that NAR and its MLSs have stipulated that sellers make “blanket unilateral offers of compensation” to buyers’ brokers, in a practice known as “tying.”

“That’s a bribe,” Ryan quips.

The Justice Department, which has for decades, alongside the Federal Trade Commission, hacked away piecemeal at such policies on antitrust grounds, suggests this amounts to de facto price-fixing. The Department wrote in a recent court filing in a case concerning the practice that:

As long as sellers can make buyer-broker commission offers, they will continue to offer “customary” commissions [of 5% to 6%] out of fear that buyer brokers will direct buyers away from listings with lower commissions — a well-documented phenomenon known as steering. When sellers make such offers, buyer brokers need not compete on price to attract buyers.

Building a Better Widget

Not content to wait for regulators to clip the wings of the realtors, Ryan sought to disrupt the industry and its compensation structure by building what he considers a better widget.

Riding a wave started by innovative companies like Redfin and online real estate marketplace company Zillow, Ryan launched Real Estate Exchange, Inc. in 2015. But REX had far more sweeping goals than just putting a few (thousand) more dollars in homebuyers’ pockets. Yes, it was a discount brokerage firm devoted to driving down brokers’ fees to as low as 2.5%, with the ultimate goal of “usher[ing] in an era of zero-commission home sales where consumers would be free to move about the country without the enormous personal expense in brokering a home.”

But that was just the start. This increased mobility and reduction in transaction costs, the firm argued, would lead to a virtuous cycle of positive macroeconomic effects, richly reward REX, and enable the company to build and donate one home to a family in need for every 100 sold – and, Ryan vowed, to underwrite a world-class boarding school for rural American children from broken homes.

REX’s model relied upon using “data modeling and machine learning to match sellers and buyers of homes as accurately and speedily as possible on Zillow, Google, Facebook and more,” marketing homes directly to consumers, which, in tandem with paying its agents via salary rather than commission, drove clients’ fees down to an average of 3.3%. This resulted in savings of $29 million for consumers as the business scaled up, en route to a projected $100 million in annual savings.

The model seemed to catch on. While “growing at a 100% rate every single year,” according to Ryan, the company raised around $200 million from prominent investors who “had actually taken on entrenched incumbents and won,” including among them the founders of Sun Microsystems, Best Buy, and Crate and Barrel.

“I thought, we’re gonna break the cartel the way that Uber broke the taxi dispatching cartels in New York,” he said, “the way Expedia broke the travel agency cartel,” or the way the government broke the Wall Street brokerage house cartel via antitrust actions.

But on the eve of going public in the 2020-21 period, at what Ryan says would have been a $1 billion valuation – with the pitch books from bulge bracket banks to prove it – the business tanked. So what changed?

Buyer traffic plummeted, and sellers terminated contracts, REX claimed, after Zillow joined NAR and the MLSs. The ubiquitous home search platform did so in conjunction with its push into buying and flipping homes, which included the launch of its own brokerage business, a move it announced in fall 2020.

NAR issues guidelines for the MLSs, calling for, among other things, the segregation of MLS and non-MLS listings on brokerage websites. Consistent with those guidelines, in January 2021, Zillow rolled out a new interface wherein it bifurcated its search results between “Agent listings” – the default array of properties one finds when searching homes – and “Other listings.”

REX properties were relegated to the non-default tab – this despite its employment of licensed agents and participation in Zillow’s “Premier Agent” program. Buyers could not as easily find REX properties, and sellers fled REX knowing their homes were less likely to be seen.

Noting that mere months later Zillow would exit its home-flipping business, Ryan is convinced that Zillow entered NAR to prevent a cratering in brokers’ fees that REX’s pending successful IPO would have stimulated. He believes investors’ endorsement of REX would have led to an explosion of competition in the discount brokerage space. The downward pressure on fees would ultimately hurt Zillow’s business model, since it relies on advertising revenues driven by artificially high buy-side broker fees. Agents spend about $1 billion on Zillow advertising and related services annually – accounting for half of its $2 billion in annual revenues.

The Uphill Bid To Break the Cartel

Zillow and NAR would object to these claims, and others, when in March 2021 REX filed a suit alleging that Zillow and NAR had violated various state and federal antitrust laws – conspiring in restraint of trade – and engaged in false advertising by labeling agents like REX’s as non-agents.

It called for injunctive relief and treble damages, which Ryan believes should amount to $3 billion, given the wiped out $1 billion IPO valuation he says REX was poised to achieve. It failed to do so, shutting down as the litigation dragged on.

In August 2023, after more than two years of legal wrangling, the presiding judge dismissed REX’s antitrust claims. Ryan thinks the court was overly dismissive of the idea that a conspiracy took place, and that the antitrust questions should have been put to a jury, not jettisoned by the judge. By dint of joining NAR and abiding by its terms, he says, “that’s an agreement.”

The parties proceeded to trial in October of that year regarding alleged federal false advertising and state unfair or deceptive practices violations, with the jury siding with Zillow. Later that month, REX filed a motion for a new trial, which the judge denied. In February 2024, REX announced it would appeal its case to the Ninth Circuit.

Ryan says he’s “not a big fan of an antitrust, but when people are colluding among each other as opposed to” letting the “better mouse trap” win, he feels litigation and law enforcement are the only viable remedies to pry open a marketplace.

Ryan has taken his broader case against NAR and MLSs to state attorneys general, spoken at antitrust forums before the plaintiff trial bar, lobbied Democrat and Republican policymakers on Capitol Hill to try and generate support, and engaged in a press offensive. He found that state officers, as well as congressmen, lack the appetite to pursue NAR – Ryan surmises because it represents one of the biggest and most powerful lobbies.

According to OpenSecrets, NAR historically ranks as the first- or second-highest spending lobby of them all, running neck-and-neck with the U.S. Chamber of Commerce. It invests as much as $80 million a year in our political class.

Rachel Bovard, a Capitol Hill veteran and proponent of antitrust, corroborated Ryan’s view. The former top staffer on the Senate Republican Steering Committee, and current vice president of programs at the Conservative Partnership Institute, Bovard told RCP that “realtors throw around gobs of money and can terrify millions of homeowners in an instant (e.g.: this senator is trying to make it so you CAN'T BUY A HOME).”

For this reason, Ryan says, neither the relevant Senate nor House subcommittees responsible for antitrust (which did not respond to RCP’s inquiries in connection with this story) plan to hold hearings on the real estate industry of the kind he has called for, despite recent headlines suggesting the business is facing a reckoning and ripe for scrutiny.

Those headlines are the result of parallel litigation in several states wending its way through the courts, most notably a class-action suit from Missouri, dubbed “Sitzer-Barnett.” A federal jury found for the plaintiffs in the Missouri case in October 2023, awarding them $1.8 billion in damages which would triple under antitrust law to more than $5 billion.

In March, NAR agreed to a settlement, subject to court review, that would resolve not only the Sitzer-Burnett case, but a series of other lawsuits touching on allegedly inflated brokerage fees. Under the terms of the agreement, NAR will pay $418 million, and institute rules prohibiting offers of compensation to brokers via MLS and requiring that buyers’ agents enter into written agreements with buyers before they tour a home.

In exchange, NAR, its members, and myriad brokerages and MLSs will be released from liability nationwide. Many analysts have suggested that these changes will shepherd in the compression in broker fees that Jack Ryan has long desired. Ryan himself isn’t so sure. “I smell a rat,” he counters.

He says that originally “on the table was $5.1 billion, and that’s just one state and it’s not even one of the biggest states for real estate transactions. And then somehow six months later, all class actions settle for $418 million? That makes no sense.”

Given Missouri’s relatively small size in the real-estate market, he believes the total damages nationally would likely be “bigger than tobacco litigation. What if all the tobacco litigators settled for $400 million?” Ryan asks.

What’s more, he notes that there is a loophole to the settlement – one that NAR trumpets in its own statements about the accord – that its terms do not prohibit sellers from advertising buy-side broker fees generally, only through the MLSs. For these reasons, Ryan is dubious of the settlement’s impact.

He distinguishes his case against Zillow from others touching on commissions by noting that unlike the consumer-focused cases, his represents a competitor challenging NAR and the MLS on grounds not of price-fixing, but competition limitation.

“Our case is more about, how can competition come into this industry so … [its players] can start being disciplined … by Adam Smith's invisible hand – which will smack them back and forth until they get realistic or go out of business.”

To get there, he says, would require wholesale reforms. He sees obvious grounds for them, beginning with the Constitution’s Commerce Clause. If states cannot put up artificial barriers to trade, he asks, why should trade groups – which would include the hundreds of MLSs that each operate according to rules set by their members, at the direction of NAR?

Ryan believes his case against Zillow could solve part of the equation by bringing necessary competition and enjoining the anti-competitive practices REX identified.

Beyond those efforts, he says “the last best hope is the DOJ.” It was recently permitted by a federal appeals court to reopen an antitrust probe into NAR. Ryan proposes that should the “Biden administration with the DOJ go nuts on the realtors in an election year” – no sure thing – it ought to aggressively prohibit all anti-competitive practices.

“I’m gonna be suggesting that DOJ needs to strike down every single rule. Then,” he says, “the DOJ must ensure no new rules are promulgated.”

To do that, he thinks the department ought to install something like a monitor to oversee NAR. “We’re gonna put a district attorney on top of you to manage you until you until the virus which has infected your bloodstream is proven gone.”

“I have passion about this issue, it drives me crazy,” Ryan says. “If you hate cartels, I’m your guy.”