Transcript of Conference Call on Unpacking the Litigation Against NAR, with Real Estate Executive Jack Ryan and Antitrust Attorney Darren McCarty

Nov 14, 2023

On November 7, The Capitol Forum spoke with Jack Ryan, cofounder and CEO of the real estate brokerage REX, and Darren McCarty, lead lawyer in the current antitrust litigation for REX, to discuss the recent litigation against the National Association of Realtors and what it means for the future of residential real estate. The full transcript, which has been modified slightly for accuracy, can be found below. 

TEDDY DOWNEY:  Good morning and welcome to our conference call on Litigation Against the National Association of Realtors. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And today’s guests are Co-Founder and CEO of the real estate brokerage REX, Jack Ryan, and lead lawyer in the current antitrust litigation for REX, Darren McCarty. Jack and Darren, thank you so much for being here today.  

JACK RYAN:  We’re glad to be here.  

DARREN McCARTY:  Thank you. 

JACK RYAN:  I just wanted to say a brief thing about Darren and Lynley, who’s our Co-Founder, as background. So, also on this call, in case you have questions in the Q&A, Lynley Sides, she’s our co-founder. She’s started or helped launch a dozen businesses over her career. She also has done a lot in the real estate sector as well as the consumer sector, for those who are investors or regulars on the call. Lynley has an EE degree from Georgia Tech, an MBA from UCLA and has been named Enterprise Woman of the Year, Businesswoman of the Year, tons of accolades for Lynley. She’s joining us today.  

And then Darren McCarty, as you may know, he led the 48 states who came together to sue Google for antitrust violations when he was in the Attorney General’s Office in Texas, has been involved in all sorts of litigation. He was a partner in two very well-known national law firms. He left that to work on antitrust in the government, which is very noble. And he was one who also helped us launch our first lawsuit against the National Association of Realtors and Zillow. He’s one of the best  with David Boies and Boies, Schiller  who’s working with us too and done a great job  he’s one of the best antitrust lawyers in the U.S.  

TEDDY DOWNEY:  And also, as part of background, you all have been talking to the DOJ on this issue for a while now, correct?  

JACK RYAN:  Yes.  

TEDDY DOWNEY:  Okay, awesome. Just wanted to give everyone as much context as we could. And before we get underway, if you have questions, please enter them into the questions pane of the control panel. Or email them to and we’ll collect the questions and address them at the Q&A in the latter half of the interview. And so with that, we’ll get started. Jack, I would love it if you could walk us through the litigation and why it’s been successful so far. Kind of set the table for us, for this conversation.  

JACK RYAN:  Yeah, I’ll do that, Teddy. And by the way, I also want to thank you and Jake for getting us on here. What you’re doing at The Capitol Forum is so important. I think you’re really the Waze at the most busy intersection right now in the U.S. economy, which is the merger — the coming together of antitrust and business, I think, will be the busiest intersection for a long time. So, you’re – being Waze, like kind of telling people where the traffic is and what’s going to happen, I think is really critically important. So, I just want to thank you for having us. And your work’s been fantastic. So, congratulations on your success.  

TEDDY DOWNEY:  Thank you so much. Thank you.  

JACK RYAN:  So, I think, just as background related to The Capitol Forum, I think what was more easily visible in the 20th century were kind of monopolies because of horizontal price fixing. And there were big utilities or big physical assets you could see. And so, it was more easy to identify antitrust behaviors. The 21st century is increasingly digital, right? So, it’s harder to see that maybe. And so that’s another good reason why The Capitol Forum should exist.  

But one of the things that’s kind of emerged out of the two , as we move from the physical economy to the digital economy, is the realtor industry historically. And this, Teddy, and for all those who are listening in, I think generally speaking, as you all know, the law basically, generally not all the time, follows common sense. And so, you saw this big antitrust verdict two or three months ago. But if I were an investor or a regulator or a lawyer, I’d be saying to myself, will these verdicts be upheld on appeal? Will these other class actions that are being formed be successful? And also — we have our own antitrust lawsuit — what does this mean?  

So, with that, let me just follow up. I’m just going to ask you a few questions that I think reflect “does this make common sense?”. If it does, it’s probably going to be sustained, not only the antitrust activity but the verdicts themselves. And then second, should we care? And I’ll turn it over to Darren to talk about how are they doing this, if we think it’s wrong and the damages that pending are correct. So let me just start with the first one, Teddy. And then I’ll respond to your questions as you direct me. 

So, on the very first issue, Teddy, this is so much commonsense. But you have to ask yourself why are residential real estate agent fees in the U.S. on average two to four times what they are in almost every other developed country in the world? Does that make any common sense?. . . Isn’t that kind of peculiar?  

And why is it that every other intermediary’s fees in the 21st century have come down by 85 or 90 percent? Stockbrokers, travel agents, taxi dispatchers for example, except for one, in the age of the Internet  residential real estate agents. . . Isn’t that bizarre?  

And why is it that their work effort has gone down by probably 30 or 40 percent? So, labor inputs, for those of you who care about antitrust issues, are way down. And yet, the fees are still the same . . . Isn’t that aberrant in a free market economy? How could that be happening?  

And why is it always the same fee, whether it’s a $5 million home or a $500,000 home or a $200,000 home?  . . . It’s always the same fee.  

And why is it the same fee, whether it’s a first-year associate at a real estate firm or a 30-year veteran? Is that how it works at the DOJ? Is that how it works in law firms? Is that how it works at Goldman Sachs or any other group? Shouldn’t your level of experience and talent be somewhat correlated to the price you’re charging? But no.  . .Isn’t it kind of exceptional that it’s always the same fee independent of your experience level? 

And whether it’s a good economy or a bad economy, does the fee change? Now, we all know that there’s a supply and demand curve. And as demand comes down or up, it should change the price. But the price never changes. In fact, in a global pandemic, if you wanted to say “let’s take the most extreme case”, you know how in the Socratic method, they say “let’s take the most extreme case and see what would happen in the most extreme case”? Take the most extreme case. We’re going to have a global pandemic, and a shutdown of the U.S. economy. Does the fee change?  . . . No, it doesn’t change.  

How about the size of the house? The bigger house, the more complexity, the more it takes to do a showing, does that change the fee?  . . .No, that doesn’t change the fee. 

And we keep asking all these questions. Isn’t this odd, peculiar, aberrant, exceptional, singular, unique? The answer to all those questions is, yes, that is strange. Then what are the odds, again, of all these things happening at the same time? So, if you thought it was like a one in ten chance that fees wouldn’t change depending upon the health of the economy  or by the way, I’m in Austin today.  

And in Austin, homes were selling in two or three days’ time a year ago. Wouldn’t someone reduce their fee to get more market share because the time to sell the home was so quick and so fast? Your margins are greatly expanded. So you’d cut your fee to get more share in a world where homes are selling in days? No. No one did that. . .Have we ever seen that in the history of the U.S. economy before?  

And by the way, just want to finish this off, Teddy, because I don’t want to bore you or your people. Because I think the point’s been made. But as you know from your math background or stats background, these aren’t all independent events. But just assume they are for a second. What are the odds of all these things happening at the same time? There’s something going on. It’s a levitating price. This is the greatest levitation act in the history of the U.S. economy in terms of price, right? 

So, let’s assume there’s price fixing of some sort. I think, going on. Should we care? Now, I’ll move to that question, Teddy. Maybe you have a different agenda for the next question. So, I’m kind of playing your role by saying, should we care? But I don’t want to take over your role as moderator.  

TEDDY DOWNEY:  No, no, I think that’s a great way. Look, I’m learning. I’m happy. Darren seems happy. Let’s keep going. Like, should we care? I mean, the one thing I would say is when it comes to should we care — but we’ll get to it later. But in terms of caring, I do care and I’m very interested in how this plays out. So, should we care seems to me kind of obvious, just given the size of the residential real estate market and how everyone, not everyone, but a lot of people at some point in their lives go through this process. And everyone also knows a realtor. Like some of my best friends are realtors. And I want them to have an opportunity to be successful one way or another. Obviously, preferably in a competitive, you know, like a legitimate system. So, I have a lot of reasons why I care. But I would love to get your take on why should we care or should we care?  

JACK RYAN:  Okay. Well, let’s go back to your friends in a little bit because we care a lot about real estate agents and those types of real estate agents. So, we want the best of for agents and for your friends because we want them to do well also.  

But should we care? I was talking to Teddy before the call and said something that many of you may think is hyperbolic or exaggerated or just too much, or this isn’t provably true. The takings from middle class Americans, that are going to realtors, is bigger than OPEC. 

 I just pause there for a second.  . . Now, we all thought OPEC was the biggest cartel in the U.S. or the country, or the globe. But generally, economists think that on the 150 billion gallons of gas that are sold in the US per year consumers  are “taxed” at the price of fifty cents or so a gallon. Here in Texas, it’s only like $2.50 a gallon. In other places, it’s much higher. But generally speaking, that’s (50 cents per gallon as a result of OPEC) what people think. It could be wrong. That’s $75 billion a year of takings. 

In this industry, if you look at the price of the U.K. or Sweden or Singapore or Hong Kong or other countries, it’s about one to one and a half percent. Sometimes it’s two percent. But we should be lower in the U.S. because we have more economies of scale. But let’s assume it’s one and a half percent across other developed countries and in the U.S. it’s five and a half percent. So, the rent — and I mean in the monopolistic sense, not in the real estate sense  the rent is four percent on $3 trillion a year of transactions. That’s $120 billion of takings each year. OPEC – 75. Realtors – 120.  

All right. So that’s one thing. This creates a huge disruption to the U.S. economy, right? So, we’ll pause on that for a second. But a lot of your people on this call, hopefully on your podcast, are into different industries on this and it affects them in many ways also. So, I’ll just touch on the other knock-on effects just very briefly.  

One is this fee is embedded in the price of every home. So, we hear about housing affordability. If the market starts moving toward — because of the things that Teddy and I talk about —  if we move toward market clearing prices in other countries the price of every home in the US drops by four or five percent.   

Huge, right? So that’s a big deal.  

If you’re a homebuilder, your average margin is 7 to 12 percent. If suddenly this buy side fee goes to close to zero or half a percent or something, all of a sudden, your margins go up by 50 percent. So, if you want to long/short home builders, as this trial unfolds itself, I’d say, man, it seems like their margins are going to go up quite a bit. Because they don’t have to pay this buy side fee. I did not say this but I meant to do so, so let me know if I can add it: And as their ROI goes up, a lot more homes get built – driving the supply of homes up, and the prices of homes down yet again. 

The price of rental housing, the price of rentals will come down by about the average rental in the U.S. is about $2,000 a month, $2,100 a month. But the person who bought the house to rent has to pay that realtor fee. Or bought the four-story brownstone in Chicago, who’s renting it out, has to pay a five percent fee. So, generally speaking, the price of rentals will come down by $100 a month. Right? That’s going to free up a lot of money for people who are living hand-to-mouth.  

If you care about CPI, Consumer Price Index, 40 percent of CPI is housing costs. So, if you drive down the cost of housing by five or ten percent over time, this affects the CPI and rightly so. I mean, most people spend about a third of their income or more on housing.  

If you’re in the trades, (plumbers, electricians, painters), their jobs cluster around the purchase and sale of homes or the construction of homes, when people do most of their work with plumbers and carpenters. It’s when you move into a new home, you might change it for yourself. So, their jobs, the number of jobs go way up and their wages go up.  

American productivity – Teddy, we’ll come back to this later. But we have over one percent of the U.S. workforce say that they are a realtor for a living. One and a half million people think that’s their primary job. It may be right now. But does that make sense in an economy to have this big SG&A, for those of you in the business world, where one percent of all workers are real estate agents? We’ll come back to that, Teddy, in the Q&A.  

I also want to touch on a few more ramifications of this and why this is so important, so big and so dramatic for the U.S. economy. The opportunity for wealth creation goes way up because this 5 percent fee is 25 percent of people’s down payments in a standard mortgage. So, more people have access to homes, coupled with the price of the home coming down.  

Taxes revenues will go up in the (delete ‘the’) municipalities. There’s often a transfer tax. When you sell a home in a county in Virginia, there’s often a transfer tax that funds police, teachers and fire. When the price of trading a home goes down, what happens? The number of transactions per year goes way up, supply and demand, increasing revenues for counties and municipalities. 

There was a study in Toronto that when they had a one percent tax on the transfer of homes, the number of the homes sold and traded went down by 10 to 20 percent. What happens to the number of homes that trade when the fee goes from five and a half percent to one and a half percent? It goes way up. And we’ll talk about this more later if you care and your investors and your lawyers and your regulators care. But driving the transaction costs down is going to do the same thing that happened on Wall Street. When it was 12 cents to sell a share, a big day was 100 million shares traded today on Wall Street. Big day. Now it’s three billion because the transaction costs are so low.  

And then, of course, with liquidity, it’s less risky to own a home, et cetera.  

So, I won’t spend more time because I think I’ve gone on too long, Teddy. And we can talk about other things, including how are they doing this? But the damages are huge. And it’s not just the $120 billion first order effect. The knock-on effects, I think, are much bigger and much more impactful. And so, what does that mean for your investor? We can talk about what would you go short? Would you go long? Macro-investing, et cetera? I used to be at Goldman Sachs and I love talking about those things. Even though I’m in the disruptive formal antitrust businesses now. I’ll probably stop there because feel like I have taken too much time. And when I look at my clock, maybe I have.  

I think if you are someone out there in the audience and they say, well, how are they doing this levitation? How is this magic trick working where I can charge three or four times what an agent would get in the UK? And with that, I’ll turn it over to Darren. But I’ll pause again, Teddy, because it’s your panel, your moderation.  

TEDDY DOWNEY:  No, that’s a perfect transition. I mean, how they’re doing it and then from there, transition to Darren also like how that’s playing out how the arguments are playing out in court around like why that’s bad would be great.  

DARREN McCARTY:  Thanks, Jack and Teddy. I’m reminded why I don’t like to follow Jack. He has been an advocate for this for a long, long time now and has been quite successful in a number of ways and I think has brought tremendous attention to this issue. And I don’t think it’s an exaggeration to say that a lot of what’s happening in the courts, with government, et cetera, and what you’re seeing in the press, would not be so, absent Jack’s leadership on this issue. And I can tell you, without question, Jack is not purely self-interested in this issue. It really is an issue of ideological and public importance for him.  

So, talking about how they do it, put very simply, it’s this. If you join NAR and its MLS’s and you play ball with all of their myriad rules, you get in and you get all the party favors. At the top of the list is the buyer/broker commission rule where we know the seller ends up paying three percent or so to the buyer’s broker. There are a lot of ways that they enforce that, but it’s become a cultural issue.  

We all know that real estate commissions are six percent. Now, is there a price list out there that says six percent? Not anymore. There used to be a long, long, long time ago. The realtor boards, et cetera, would put out price lists. But they don’t do that anymore. Obviously, that was found to be a problem, but it has become a cultural phenomenon. So maybe sometimes it comes down to five percent. But it’s significant and we all sort of know that we have to pay it. And Jack did a great job of saying that. It doesn’t ever change.  

So, it’s an incredibly lucrative market. You want to be a part of that market. And as long as you join, you pay your fees and you abide by the rules, including paying your competitor across town his sell side fee, et cetera, you’re going to make a lot of money or you can make a lot of money. Maybe you don’t want to work very much and you just want to do a couple of transactions a year and you can pull that off, et cetera. But those are quite lucrative transactions.  

And so, the opposite of that is if you don’t join and you don’t follow the rules, like Jack’s company, REX, did. He said, we’re going to have licensed agents. We are going to sell homes. We are going to give all of the services that a traditional agent gives. But we are not going to join the MLS’s. We’re not going to join the NAR. And we are not going to commit to a buy side commission.  

Well, having been in the guts of that fight, I saw all of the struggles that REX faced when it tried to take a different approach to the model. Why is NAR able to exercise so much power? When I say NAR, National Association of Realtors and its MLS’s. Why is it able to? Well, for decades, countless decades, it has built up this model. And that’s been true though in any number of industries that Jack went into, the brokerage industry, travel agents, et cetera. There was this long history of an intermediary developing sort of business models, et cetera.  

Then the Internet. Well, that’s a real threat to the National Association of Realtors. There’s something out there, if your audience hasn’t read it, they should look for something called the “Danger Report”. It was a report that the National Association of Realtors commissioned and it talked about the threat that the Internet posed to the traditions of the National Association of Realtors and the culture there.  

They were very clever though, in my estimation, and they wanted to make sure that there was a big tent. So how do you create a big tent? Well, you bring the Internet under the tent of the National Association of Realtors. And that’s where my background in digital platforms, and REX’s business model that was heavily technology dependent, et cetera., ran into the old tradition of the National Association of Realtors.  

And as we know from the digital platform world, being the default, being the place where all the network effects are happening, right? You want to be Google. You want to have the most search function. And then it sort of builds upon itself, right? Every chat board, you want to have more participation. If you have more participation, you have more participation, right? And if there’s some downward spiral, like I think there were in some of the early social media platforms, people tend to fly away from that very quickly. It’s either going up or down and rarely perfectly stable.  

Here the National Association of Realtors had a rule, an optional rule — although over 70 percent of the MLS has adopted it — that said, you cannot list on an Internet site MLS listings with any other listings. Okay. So,, which was controlled by the National Association of Realtors, et cetera, didn’t do that. But one did. It was Zillow. Zillow became very successful doing that and some other things. They listed everything. You went through zip code, you saw all the listings in the zip code.  

Well, Zillow changed. It joined the National Association of Realtors. The National Association of Realtors, via its optional rule that was implemented by over 70 percent of the MLS,  basically required Zillow, more or less, to place all of the non-MLS listings into a second page, a menu called a hidden page that people didn’t see. It was not the default page, et cetera. As you can imagine, views on that page dropped off the cliff.  

And so, as you saw views on the secondary page drop off a cliff, including REX’s, including owners who were trying to sell themselves outside of the system, including builders who were not represented by agents in the MLS, you saw a shift from when this rule was immediately implemented on Zillow for about 10 percent of the listings typically being on the second page to now almost none. And why is that? Are they not being sold? No, people have realized if you want to be on Zillow, if you want to be seen on the Internet, you have to play ball once again with guess who? The big tent. The National Association of Realtors, the MLS, et cetera. Because you have to be on Zillow, because Zillow is far and away, by a factor of three or so, the largest Internet aggregator.  

And make no mistake that this, what we’ve called the segregation rule, i.e., if you’re not an MLS member, your listings don’t get on the first page. Everyone knows how important that is and they know how important it is. Along with the segregation rule, they have a rule that if you are an MLS member and you have a listing, you cannot be segregated from the bulk of listings. 

So again, you get and you play ball, you play by the rules, you get all the party favors. You’re out, you’re out. Is it the only thing? No, it’s not the only thing. There’s a culture around that. REX has a number of steering calls, and some of them sound absolutely terrible. When they ask REX if you pay a buy/sell commission, REX basically says, well, no, we don’t, but we can negotiate. You can negotiate it with your buyer, et cetera, et cetera. And you hear things like, well, I’m not going to show your home. I’m going to tell my buyer it’s already been sold. I’m going to tell all my agent friends not to do business with you, things like that.  

And so, it is a very, very hard fought, and understandably so, sort of last hurrah, I think, for the large transitional industries. Are they going to yield to the sort of democratization of commerce, the disintermediation of commerce, in the real estate market? Or is this way of doing business, this culture of doing business, that’s cost consumers so much money, going to you finally end? And I think that’s where we are right now.  

TEDDY DOWNEY:  Okay, great. And I would love to talk a little bit more about the legal timeline here. And we had this recent jury decision. Can you tell us a little bit about the legal landscape? There are a lot of different lawsuits. There’s been some recent success. I’d love to hear how you both see that success continuing and the timeline. And also, I am really interested in this idea of a jury trial. Because a lot of times people, you know, we do these antitrusts, we do these bench trials, and it’s highly technical. And the idea that a jury would be weighing in, I think it seems compelling because some of it seems more commonsense to me than technical. But I would love to get your take on the jury trial itself, the recent success, and a timeline on the litigation going forward.  

DARREN McCARTY:  Sure, I’d be happy to take that. So, what we saw in the Sitzer trial in Missouri is essentially we have a $1.8 billion verdict over sort of a — well, not sort of — a Section 1 conspiracy claim between the National Association of Realtors and the large brokerages over the buyer/broker commission role as a direct attack on that rule.  

And so now you’re going to have some post-trial motion practice that’s going to take up a little bit of time. And then the National Association of Realtors, and I think some of the other brokerages  some of them are settling in these cases – said that they’re going to appeal it. So, it’s going to go up to appeal. This will be in the Eighth Circuit. It’s going to take some time for that to wind through. We’re in the Ninth Circuit in our case, which is a little bit slower just because of the volume of cases that they have there. The Eighth Circuit, I don’t think we’ll have sort of a final answer from the circuit likely for at least a year and probably a bit more than that.  

Then the question becomes, does the Supreme Court take it? Who knows? It depends on what the legal issue is that comes out of that. And then we have the Moehrl case that’s pending in Illinois. And that’s going to trial, probably in the next several months, unless the National Association of Realtors, the big brokerages, try to work out some sort of general resolution. And now, of course, we have followon cases because the $1.8 billion verdict tends to attract a lot of attention. And so there will be more.  

And I think what happens is — my view of this is — and I’ll talk about our case in a second, because I think our case is equally important. I don’t see an end to the legal controversies. I think, obviously, I believe the jury got it right in this case. I don’t think it’s going to be a unique verdict. And if that holds true, then change has to come. And obviously, we’re hearing other things out of Chicago, National Association of Realtors. There seems to be a bit of chaos there. And maybe out of chaos, we see positive change.  

Although, I will paint this one word of caution, though, largely on the wall. Just because the rules change immediately or within the short term doesn’t mean the industry is going to shift overnight with that change. It will open up the doors to competition, open up the doors to innovative competitors like REX. But there’s a culture. And as you know, those cultures tend to shift a little more gradually. You can change the leadership at the top of a large organization, but when it comes down to the rank and file — like we see in DC every 4 to 8 years — it takes a bit for that ship to move even a few degrees one way or another. So, I think we are going to have a little bit of time before those cultural shifts. 

Finally, talking about our case a little bit. You know, we challenged really the buyer/broker commission rule in terms of the segregation rule, as we call it, being a ring fence to protect that anti-competitive practice. And obviously, the segregation rule in and of itself is anti-competitive because it excludes competitors. And so, we did that. Unfortunately, the antitrust claims, on what we think is sort of a misguided interpretation of the law on a tactical issue. To your point about judge bench trials, the judge found that NAR was not conspiring with Zillow based on a lack of agreement, et cetera. No combination conspiracy. That’s going to go up to the Ninth Circuit. And so, we’ll see how that eventually plays out. I think it is an important issue. Because again, is NAR going to control how consumers access listings on the Internet? Incredibly important. Very basic.  

And so, buyer/broker commission rule, segregation, rule. There are other things out there. How do you get access to homes, et cetera, on the MLS? All these things are going to be an issue. And the DOJ, we know from what they’ve said and what they’ve done publicly, that they’re quite interested in the issue. And I think we’re going to see action on a lot of fronts.  

TEDDY DOWNEY:  A couple quick questions. So, I know DOJ is in talks with those plaintiffs in a recently decided case on a motion to intervene to ask for an injunction. I was curious to get your take on that because DOJ kind of seems a little bit hamstrung potentially because of that Trump era settlement. And just DOJ’s involvement, that motion, how important is that to the broker commission thing? 

And then my followup question is, to me, the Commission issue seems less important than what you are fighting on, which is access to the market in many respects. Because if say, you can’t be collusive on the compensation, they might be able to find other avenues to protect themselves. Whereas, that threshold question with Zillow seems like if you can’t get into the market, if they keep controlling access to the market, that is pretty prohibitive for competition.  

DARREN McCARTY:  Right. Yeah, we agree obviously, which is one of the reasons why we follow the case. I mean, obviously, first and foremost, Jack had a duty and Jack and his management team had a duty to their shareholders to do what was in their best interests, and that’s what they did. But it’s also a matter of who is going to finally sort of break this hold? As we see it, we see it as a hold. And we see it as exclusionary. And I don’t think you can say, hey, if you’re an MLS agent, your listing goes here. If you’re not in MLS agent, your listing goes here. Even though it may have all the same things. You could say to somebody, well, you have to mimic an MLS listing, absent the rules like buyer/broker commission, et cetera. But to have all the data, which anyone could do and it could be in the main listing. But that’s not how it works and that does seem a little bit out of balance. So yes, we do think it’s an incredibly important issue. And we’re hopeful, obviously, that the Ninth Circuit, when it’s able to get to it, will and will see the importance of it. 

Secondly, on the DOJ front, you know, hard to predict. I mean, it is surprising that they sort of got a setback early on related to the old settlement that it did not clear the Tunney Act. And that’s what they relied upon to sort of break that when they saw things that they believe were continuing concerns in the real estate industry. And so, that’s yet to be played out. But the DOJ, even that settlement will eventually run. It doesn’t last forever and the prohibitions around it.  

So, it’s not going to last forever. And I think we’re already seeing so much right now. There’s so much pressure right now. And let’s face it, when big brokerages are getting verdicts that are $1.8 billion against it, and then you have all the other issues relating to antitrust and how those numbers get increased, it’s joint several liability in the antitrust world. And so, can big brokerages even tolerate the risk anymore? Who knows? There are a lot of issues in play.  

I personally just don’t see how it continues as it is now, the rules. The culture, again, I think it’s going to take a little bit of time to shift. But we are also in a very fast-moving dynamic world right now and cultures are going to shift more quickly now than they have. Because with the entry barriers starting to be removed, the buyer/broker commission rules, hopefully the segregation rule, these types of things, it will allow current realtors or real estate agents to buck the rules and introduce the competitive models. And fortunately, we’ll have the free-market system work the way it’s supposed to, which is you get to work in your own personal interest. And if your own personal interest and drive indicate that you can make money by working out of the system and not agreeing to pay all the fees, all the cultural things that we’ve done for so long, then I think forward thinking agents, et cetera, will do that.  

TEDDY DOWNEY:  I’ve got a couple questions. Has there been any interest from the FTC? Or is this all DOJ? I mean, I know the FTC looks at rulemaking on exclusionary conduct. They have Section 5 authority, which seems like some of these kind of like unfair methods of competition. Any interest from the FTC? Or is this strictly a DOJ game here so far? I have some other followup questions as well.  

JACK RYAN:  Well, Teddy, maybe Darren’s in a better position to answer that question. I have been talking to both groups for a while. And there’s always a fight between who has the jurisdiction, the FTC and DOJ. The way this one broke is we’re (DOJ) going to take this one for the most part. Having said that, there’s a lot of things that are very peculiar about this industry that are FTCspecific, like the advertising. How are you allowed to advertise “you can list your  home for two percent” when the buy side fee is compelled? There’s a way you can list your home for 2%, not a way you can sell your home for two percent. That’s the listing fee. That’s not the price or fee you can sell your home. I’m sorry, Teddy.  

TEDDY DOWNEY:  No, no. I was going to say, also, CFPB regulates those kickbacks. We looked into the Zillow kickbacks to the brokers as being potentially illegal. I know the CFPB has done some work on that also.  

JACK RYAN:  But some of our competitors put signs on buses that say sell your home for one percent. You cannot sell your home for one percent – list maybe. But what good does that do to list your home? Oh, you want to sell your home? Well, there’s another forced three percent on the buy side. So, there’s some FTC issues that relate to how people talk about the industry.  

Another thing too, Teddy, for the economists or regulators on the phone, there’s this thing called salience. I’m sure you probably know. It’s like “can people see the price and what they’re getting for the price”? But this industry has like the buyer, there’s the buyer and the seller. Like, talk about ethics and common sense. How is it that a sell side party can compensate their counterparty? Can Goldman Sachs give Morgan Stanley two percent if they get the buyer to buy this division that we’re selling for 3M or something? Can a law firm say, hey, plaintiff’s attorney, I’m going to pay you a little something to help on this trial? I’m the defendant’s attorney. There’s reasons why there’s ethics rules that say you can’t do that.  

And so, this idea about this buyer/broker commission that Darren was so articulate about, it’s also a huge ethical issue. Who are you representing when the fee’s actually coming from the other side? Is my role to pay, pay or pay off, whatever phrase you want to use, your counterparty? That makes no sense.  

Hey Teddy, I just wanted to mention a couple of topics. I’d love to come back to. This is a really big topic and it’s kind of a little bit complex, but it’s so interesting, I think, for so many people. At least, I think it’s interesting. I don’t know if your audience thinks it’s interesting. But you had said “common sense”. You like juries because juries have to follow common sense.  

We’re data driven people, Darren and I are. Darren because he follows — he’s big on these platforms and how they consolidate power the way old utilities used to do this. But the jury deliberated for two hours and came back. What did they do?  . . .have a hot dog and then they came back? They came back in on $1.7 billion verdict before time transpired for two hours. The jury figured this out pretty dang fast relative to your point about judge trials — bench trials versus jury trials. Didn’t take them long to say, man, this sure feels bad to me. I think we’ll come back with this decision. So, I think common sense means a lot. 

The last thing I’ll say on cultural issues is – I was a Goldman Sachs when there was U.S. vs Alex Brown et al. And et al were all of the other investment bankers. And culturally, if you tried to trade shares for less than twelve cents, you’d get a call from your counterparty — or rather, your boss would get a call saying, “Hey, Jack Ryan’s trading shares at eight cents. That’s unprofessional. If you want to keep trading with us, Morgan Stanley, Merrill Lynch or pick your big counterparty, let’s be professional, would you please? And then there was a settlement between U.S. and Alex Brown. And what happened, Teddy? And this goes to your friends. Fees came way down, consolidation occurred. But trades went way up!  

So, for good real estate agents, guess what’s going to happen? Those six million homes sold per year are going to be twelve million. And the good agents will get a lot more business. And then there will be consolidation, just like there was among the investment banks. There used to be at least 100 investment banks. Now we’re down to like ten who compete vigorously. But there will be consolidation, but the amount of business is going to skyrocket. Anyway, you mentioned a number of things. I’m sorry to go back in time, Teddy.  

TEDDY DOWNEY:  No, that’s perfect. That’s perfect. I’m interested in all that stuff. And just staying on culture and the speed of change. You mentioned the chaos at NAR. I think that the head recently stepped down. I don’t know what other crazy stuff is going on. But I was curious if the brokerages that have settled and the ones that ultimately settle, what are they doing to stop colluding on the fees or to address? What’s the resolution on their end so far? And does that give us any hints as to how comprehensive or a preview of what the ultimate outcome is? 

DARREN McCARTY:  Well, I haven’t seen the settlement agreements, but, you know, there’s a problem. There’s a fundamental disconnect because we still have the rule. So, you want to be in the MLS’s, you want to be part of NAR, the rule’s still there. So, DOJ is right and the others are right to try to produce change in the rules at that level, because that’s really, you know, otherwise everybody’s at risk.  

TEDDY DOWNEY:  Then how do they settle? They can’t be operating under the rules anymore. So, are they out of NAR? Or we just don’t know yet. We just have to wait. 

DARREN McCARTY:  Well, I don’t know. I can’t see that they’re out of NAR at this point. I’ve never heard that and one would not expect for that to be the case. I mean, it could be purely a monetary settlement at this point. But yes, you do continue to run the risk. I mean, how do you that? But’s that’s back to the point of how do major brokerages — not major brokerages, mid-market brokerages — how do they continue to operate this way when you see verdicts coming in for $1.8 billion, involving the very same behavior that is going on all the way across the country? I mean, that has got to be producing conversations daily, if not late into the evening, all over the country. 

TEDDY DOWNEY:  Yeah. And so, I know there’s kind of a cultural issue in terms of how fast things will change. But I’m curious. You’ve got this big verdict that’s going to be sitting out there. Are we going to be waiting – is the sort of inflection point for everyone to realize that this is sort of inevitably going away? Do you see it as sort of not being one moment? Or is it going to be all these lawsuits over time just wearing the system down? Or could it be an appellate decision coming up? What do you see as like the key pivotal moments in the next few years where we can say, okay, the tide has turned? We’ve talked a little bit about this in the timeline, but I want to get your sense of are there going to be these pivotal moments? Or is it going to be kind of a slow, gradual build?  

DARREN McCARTY:  Well, we’ve reached a pivotal moment, right? But I think it’s both. I think now you’re going to see continue to be followon suits. And all these cases are now going to be under appeal. We have the first one that’s going to be appealed very quickly. The REX case will go up to the Ninth Circuit. The case in Illinois will presumably be decided, go up to the Seventh Circuit. And then the question is, is the Supreme Court going to take any of these?  

But if you have a decision from the Eighth or you have a decision from the Seventh Circuit, if those are the same, I think we have an answer, right? That’s it. If they’re split  and the Supreme Court is almost certainly to take it if they’re split on an issue of law, which these are pretty much cases of law. There are not a terribly large number of facts in dispute. And so, I think that would be the death knell.  

But in the interim, as these cases get filed, et cetera, how long are the major players in the industry going to tolerate the risk? I don’t know that they can. Let’s face it, if you’re a major player at NAR and you’re somebody that is listened to, you have to be having really, really thoughtful conversations about the path forward and whether continuing to take this economic risk, which is massive, makes sense. So, it would not surprise me to see a change produced before the final word from the courts.  

TEDDY DOWNEY:  Jack, I like to be solution oriented and just thinking about like what the world looks like going forward. And we mentioned, look, you’re going to have lower broker’s fees, but more transactions. But if NAR is going to get into compliance or otherwise, the brokerages come up with another association or what have you, another plan for doing business, how will the structure look? How will it be more competitive? We mentioned the broker fees will come down. We mentioned is Zillow going to change? Like the regulatory structures here seem like Zillow and NAR. And how will we know, if we’re watching the market, that we’re seeing this behavioral and cultural shift?  

JACK RYAN:  I can give you a thought. And then when Lynley joins us, she can weigh in on this. But I think that the world moves to this — what we (REX) were doing in a free market. We were growing 100 percent a year, by the way, Teddy. And then even during COVID, we grew at 60 percent. Going public with JPMorgan, Wells Fargo and Bank of America and then Zillow [inaudible] they joined NAR. Let’s just say they joined NAR. And then, all of a sudden, we’re put on a tab that has 10 percent of the views that the default tab gets. And all of a sudden, we can’t finance ourselves. What would have happened had that not happened?  We would have kept growing, driving the fees lower and lower until eventually you get to zero. Just like TD Ameritrade and Schwab. Well, how do you make money at zero? And I know Schwab’s going through a tough time right now.  

But there are so many attendant services to the real estate transaction, right? There’s the mortgage when you buy a house. And mortgages are not optional, by the way. It’s not optional. I don’t mean from a regulatory point of view, but not optional for most homebuyers. Beyond the mortgage, there is title, escrow, home insurance. Some people are going naked in Florida right now on home insurance, but that’s a pretty risky thing to do. A lot of people want home insurance. All those things have to be considered.  

The other thing I think I’ll say, Teddy, is I’m putting out a book with a guy named John Tamny — who you might be familiar with. He was the former editor of Forbes — called “Bringing Adam Smith into the American Home”. But Teddy, any moment you spend thinking about the heating or air conditioning or plumbing or electricity in your house, it’s a misuse of  your resources. Your highest and best use is putting on great forums like this, bringing attention to where the traffic jams are in this intersection of interstate commerce and antitrust.  What does that mean for investors and regulators, et cetera? Your (Teddy) thinking about the carpentry in your kitchen that’s warping is a bad use of your time, right?  

And so, I think increasingly people are going to say I’m either going to rent my home or outsource the entire management of my home to somebody else who does this for a living. The idea that we all should own a home and manage our own home  I know this is like a crazy thought, you have to buy the book  is something that should never have existed in the first place. You can’t imagine that we’re still going to raise our own crops. We’re going to sew shirts in the front yard. And then we’re also trying to put out our own fires. No, the division of labor makes sense.  

And so, I think what’s going to happen is that fees go down, down, down, and it’s all these ancillary — not ancillary — services that are necessarily attached will be a way that people can make money, but it won’t be through the brokerage fee, just like happened in the travel agent world, the stockbroker’s world, and now increasingly in the taxi dispatcher world.  

TEDDY DOWNEY:  First of all, we’re going to need to book a separate call with you and my wife to explain to her about the benefits of renting over home ownership. That would be amazing.  

JACK RYAN:  I can do that, Teddy. I’m really good at that. 

TEDDY DOWNEY: I’m taking you up on it. I’m taking you up on it. But I want to push back a little bit because there are great brokers out there that provide legit service, right? Like, this is how much you should bid. This neighborhood is the best. Here’s all the hidden things about why this neighborhood is great, pointing out all the little details like why it’s a better house. Like, just like there’s just so much institutional knowledge. Is that going away? I mean, I didn’t really mind travel brokers going away. But it actually made my life a little bit worse. Like at my old firm, we had a travel broker. I didn’t have to worry about it. It was always taken care of. It was just like, you know, take care of this. It was kind of nice, you know? But yes, I don’t mind that it’s gone. But I might mind the loss of the expertise. And how is that going to be replaced? I’d love to get your thoughts on it. 

JACK RYAN:  I just want to put a caveat out there. For purposes of simplicity in a 45-minute conversation with you and your audience, I’m making sweeping generalizations to make it simpler, et cetera. And if we have a followon conversation with your group, love to do it and will get more into the details. But you’re right, Teddy. What’s going to happen is that the people who are really good at buying and selling homes, they’re going to do much better with them because they’re going to have a lot more homes to sell. And people will say, yes, I want to use this person because they are so good in the areas and certain cities or states where they’ll be.  

So that job isn’t going away. Just like some people still pay for wealth management services and they’re very valuable. The number of RIA (registered investment advisors) companies, the people who advise you on your wealth, has gone up a lot. The transactions, they don’t make the money on the transaction anymore. They make it by charging a percent of the assets that you manage. That’s exploded since the (transaction) fees have gone way down. Same with there’s still travel agents who will do a really good job. So that you can figure out where to go in Albania that you are never going to know Teddy. Yet it’s the place I want to go to that I’ve never gone before. I’d love to go there. It’s beautiful. But I need somebody to tell me where to go.  

So, I think that’s going to continue. Same with people are still going to use sedans that are personal to them as opposed to Uber. But you’ve got to be really good at your job. It’s going to be raising the bar for everybody. Some won’t be able to pass the bar and some will. And those who do, I think it’s going to be better for them. Because we will see more transactions which get them more and more information, which can make them more and more useful, and they’ll make more and more money if that’s what they’re going for.  

So, yes, what you say is correct. I made a sweeping generalization. It was for purposes of this conversation. But if anyone’s listening, from the defendant side or whatever, I wanted to tell you I’m speaking in a very general way. And what you’re saying is true, Teddy.  

TEDDY DOWNEY:  And I want to get back to what, the hat that you were wearing at the beginning, where it’s kind of like all the knockon effects. What do you think are some of the most underappreciated results of this trend? You know, I’d say, look, the trend that we’re going to see over the next year or two years, three years, five years, this transition, some of the things that you’ve thought about that when you talk to people about it, like, wow. I hadn’t thought about that as one of the results.  

JACK RYAN:  Well, if you have investors, if the homes go from six million trades per year to twelve million trades per year — and then Darren should add to this because he’s thought a lot about this too — what will happen to Home Depot’s stock. Because when do most people go to a Home Depot? When you’re about to buy or sell your home. When you bought a home and you’re moving in and changing it. When you’re trying to sell a home, you spruce it up before you sell it. So, think about who’s affected when the transactions double or triple in size because the transaction costs go way down.  

What’s going to happen to states? You know, people are talking about the migration from blue states to red states and things like that. When the transaction costs are really low, guess what? People can move a lot more easily. What happens to . . .  just the freedom of the human spirit to move there? And to use a phrase that Adam Smith said, to meet their full glory as a person. Or what’s going to happen to the welder in Detroit who can make twice as much at Tesla but can’t move because his mortgage is the same as the price of his house and he can’t pay the six percent fee?  

There’s going to be such dramatic changes. I would say transportation companies, moving companies, their stock price will go up. Home Depot, their stock price will go up. Title companies, it’s required. That’s a different topic for a different day. It’s a very high margin business. It’s required. Every time you refinance, do a remortgage, you move, you’re paying that title click. They’re going to benefit. In the short term, mortgage companies that make most of their money on the placing on the mortgage, and they’re reselling it -they’re going to be helped.  

There’s a lot to talk about, about who’s going to be helped. And we can talk about who’s going to be hurt. On the hurt side, Teddy, I want to reinforce what you just said. This does not mean that brokers are going to go away. It means that business models are going to change and there’s going to be a burden of higher expectations for what you do as a broker agent. But those who can match that expectation are going to do really well. Those who, as Darren said, sell two or three homes a year in Malibu, but aren’t really adding much value. I think they’re going to have to figure out how they’re going to add value in a world where you just don’t get the fee for showing up.  

Darren, you want to say anything? 

JACK RYAN:  Not me. 

TEDDY DOWNEY:  Well, I don’t want to put too much on the nose, but it sounds like REX will have a lot of opportunity as well as part of this trend. Seems like you’re in a very good position. This Zillow thing really gets me. Actually, I have one last question. Are there any other like novel legal arguments — or not novel, but like nontraditional legal arguments? Like, you guys, what was the agreement that you made? Was it an agreement between NAR and Zillow that you made? Are there any other nontraditional arguments that can be made legally that we could see going forward? 

JACK RYAN:  That’s a field for Darren, I think, to speak about. We can talk about other things that NAR has in place that do restrain competition. That may be a topic for different conversations or a private forum with you and some of your most esteemed subscribers. But with respect to our case and the sister case, I think Darren’s the person most able to answer the question you posed. 

DARREN McCARTY:  Basically, we argued that there was a conspiracy between NAR, the MLSs, as unnamed coconspirators and Zillow, that there was a combination conspiracy, you know, agreement, whatever, all the things under Section 1. We made no monopoly argument or anything like that. There also are some consumer deception arguments, false advertising, things like that. They’re wrapped up in that.  

TEDDY DOWNEY:  Yeah, I am interested. That aspect of having it be both the FTC and DOJ seems interesting. I’m also like, did you think about bringing a case in California using their unfair methods of competition law? We had a conference call with AG Bonta previously. I’m just curious have you considered — or is it the state? Is it a federal? Is it always a comment I’ll come back to? I mean, is that prohibitive? Or what’s your thinking about state law around this? And are we likely to see any kind of follow-on litigation at the state level? 

DARREN McCARTY:  Well, it’s a really, really interesting question. I’ll leave it at that. 

JACK RYAN:  You (Darren) got forty-eight AGs who can’t agree on anything who agreed to sue. You’ve got the right guy to answer that question on the call right now. Anyway, with that background, Darren, I’m interested to hear your thoughts.  

DARREN McCARTY:  Well, as I said, it’s a really interesting question. And I want to give you credit for having a novel thought. But I’ll say this, I don’t think it’s quite novel. 

TEDDY DOWNEY:  I appreciate it. You know, I’ve been doing this for enough years where I kind of always come back to these same questions, especially when the AG is out there. I mean, we had AG Bonta on this exact same type of call, and then we met with him later. I mean, he’s very outspoken and very interested in, I think, using their state law and understanding the difference between their state law and federal laws.  

It will be interesting also to see at the state legislative level as well going forward. You know, we’ve seen this with PBMs. When enough people realize that there is a racket and that it sort of needs to be addressed, you start seeing a little shift in the law as well at the state level. So, I’m curious to see if anyone acts there. Maybe not. Just because your realtors are actually, in some respects, more powerful at the local level sometimes. So, we’ll see. But anyway, we’ve kept you both long enough. Thank you so, so much for doing this. Look forward to continuing this conversation and tracking this as we go forward. And just have a.  

JACK RYAN:  Teddy, I have a quick plug for three things. One is Lynley Sides, our Co-Founder. She’s one of the best operators in the world. So, for those who want more information about this, what board members should know about operations and then on antitrust, one of the best in the world is Lynley. And then on the antitrust side, Bois, Schiller has done a great job for us and David Bois is one of the best attorneys — with Darren. And I would say, Darren, I think I’m a sophisticated user of legal services. I did go to law school. I’ve never practiced. But I’ve had a lot of issues like this and he’s one of the best in the world, in the country. So, I just wanted to put in a plug for some people.  

And then The Capitol Forum. It’s really important that you guys are doing what you’re doing. Because increasingly, these issues won’t be as visible as they were. But the knock-on effects and the monopolistic impacts are as big as they ever were since Standard Oil in 1911. So, I’m so glad that you’re doing what you’re doing. Because it’s going to be more and more important in the 21st century when these things aren’t as visible to the naked eye because they’re all happening digitally, or in the code. Anyway, thanks for all you’re doing. 

TEDDY DOWNEY:  Absolutely. And I’ve long wanted to do a housing antitrust beat where we get to look at every  we’ve done so many mergers, like there’s only two manufacturers of paints, like Tyvek wrap, appliances. I can tell you right now there are a lot of things driving up the cost of housing that no one talks about which is like the things that go into your home. There’s only a couple of sellers. I mean, to be honest, Home Depot and Lowe’s. I mean, how many alternatives do you really have? So, I’m super enthusiastic about this space and learning more. My wife is an architect. So, I hear a lot about this let me let me tell you. So anyway, thank you so much. Really appreciate it.  

JACK RYAN:  Tell your wife you are welcome, that’s number one. Number two is demand for architects is going way up. Because when you go from six million homes traded figure to twelve to fifteen million, guess what? There’s going to be a lot more demand for architects: “I think I’ll add an addition to my house or tear down this house and do something else”. She will benefit. You said who benefits? Who’s going to get hurt? She’s going to benefit.  

TEDDY DOWNEY:  I love it. I love to hear it. We’ll have to talk about the architects as well. But architects, anyway, this is a totally separate issue. I won’t get into it. But the way they get paid seems a little bit messed up. But I will leave it at that. Thank you so much. I look forward to doing this. Thanks to everyone for joining us for the call today. Super interesting. Super fascinating. Can’t wait to keep talking about it.  

JACK RYAN:  All right. Thanks a lot, Teddy, for having us.  

DARREN McCARTY:  Thank you.  

TEDDY DOWNEY:  Thank you. This concludes the call.