Rent Extraction is Not Moral Capitalism

In a recent antitrust lawsuit brought by sellers of houses in Missouri, a jury found that realtors had colluded to fix prices.  The realtor association adopted and enforced rules which have kept the commissions house sellers pay to realtors for assisting with a sale of their real property intact as the market price of houses rises.

As a result, realtors get more money for the same work performed.  A 6% commission as a fee for realtor service on a $100,000 house gives the realtor less cash than the same fee charged for assisting the sale of a $400,000 house.

The average price of a home in the U.S. as of July 2023 was $416,100.  In 2000, the average price of a home was $119,600.

As housing prices have increased through no effort on the part of realtors, owners end up paying more in cash for retaining a realtor.  What the realtor charges is set by rule, not by competitive market forces.  This is rent extraction.

Adam Smith was very aware of the benefits to businesses of fixing prices in order to extract more money from society.  He wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.”

The jury determined that realtors must return some $1.8 billion in commission fees to sellers of houses.