Corrupt Realtors

The real estate industry is known for its significant financial transactions and influence over one of life’s largest purchases: homes. However, the incentive structures within this industry are often misaligned, leading to practices that can be considered unethical, including collusion and price-fixing. Several factors contribute to these problematic behaviors, ranging from the commission-based income structure to market opacity and lack of accountability. These issues not only impact consumers directly but also create broader social distrust in the real estate profession. And all the people who barely passed high school are swarming to get their license. True professionals.

The commission-based model, which dominates the real estate industry, is the primary driver of these issues. Most real estate agents are compensated by receiving a percentage of the property’s sale price, typically 5-6%, which is then split between the buyer’s agent and the seller’s agent. For a $1 million home, this means each agent might receive $25,000 before further splitting it with their brokerage, paying taxes, and covering additional fees. Once all deductions are made, the agent’s take-home pay is often significantly reduced, making each transaction highly important.

In competitive markets such as the Greater Toronto Area, over 78% of realtors assist with fewer than five transactions per year. Many agents even report having zero transactions in a given year, making it challenging to earn a sustainable income. This scarcity creates a situation where agents may prioritize speed and maximizing commission over the interests of their clients, leading to “short-termism” and, at times, unethical practices. The enforcement and regulatory regime is thin, and consumer protection is about the same as getting ripped off in a drug deal.

Realtors might rush to close deals rather than seek the best value for clients, seeing any transaction as essential to maintaining their livelihood. Or they conspire with each other to raise prices on motivated buyers, creating fake bidding wars to inflate commissions. Realtors often informally collude to keep commission rates high. Although commissions are technically negotiable, many realtors adhere to a standard percentage, and agents who offer discounted services may face penalties, such as other agents refusing to show their listings.

This practice resembles price-fixing in that it discourages price competition, allowing commissions to remain inflated. If one seller lists at a lower rate, agents may avoid the listing, dissuading others from seeking lower commission structures. Another consequence of high commissions is that many agents will steer clients toward listings with higher payouts. For instance, if a property offers a full commission for the buyer’s agent, it is more likely to be shown to clients, even if there are less costly options. Buyers, unaware of these dynamics, may never see all available listings, limiting consumer choice and transparency.

Realtors hold exclusive access to the Multiple Listing Service (MLS), a database containing vital information on real estate listings, which creates an information asymmetry that disadvantages consumers. Agents sometimes exploit this access to manipulate listing data, relisting properties multiple times to reset the “days on market” metric, thereby creating a false sense of demand. This practice is particularly evident in hot markets, where properties are relisted to appear as “new,” despite sitting unsold for extended periods.

Data manipulation extends to practices such as “ghost offers,” where listing agents hint at competing offers to push buyers into offering more. This tactic exploits buyers’ fear of losing out, inflating prices without transparent competition. Such actions erode consumer trust and artificially inflate market values. Professions like medicine or law have high barriers to entry and are built around accountability and trust in their licensing. Becoming a realtor is… I don’t want to disparage anyone, so go ask Google or ChatGPT how rigorous those realtor exams really are.

The real estate industry is predominantly self-regulated, allowing unethical practices to go unchecked. Unlike industries with stringent oversight, such as finance, real estate lacks rigorous enforcement of ethical standards, and agents face few repercussions for breaches. Disciplinary action, when taken, often results in minor penalties that do little to deter future misconduct. As a result, practices like collusion and data manipulation are normalized within the industry, with agents confident that any infractions will likely go unnoticed.

This self-regulation not only allows unethical practices to persist but also leaves consumers vulnerable. For example, while legal protections like lawyer review clauses in offer agreements can shield buyers from legal fraud, there are few safeguards against real estate practices that may still be ethically dubious. This regulatory vacuum underscores the need for stricter oversight to ensure that realtors operate in a way that protects consumer interests. We need reform—except people who can actually afford to buy a home these days don’t really care about losing a few percentage points to a charlatan.

Alternatives & Potential Reforms

In response to these challenges, some consumers have begun exploring alternatives to traditional real estate agents. Options such as “mere posting” fees allow homeowners to list on MLS for a fraction of the cost, ranging from $80 to $200, enabling them to save on agent commissions. Homeowners can also independently contract services like photography, staging, and landscaping—typically managed by agents—at lower costs and potentially with higher quality.

Despite these cost-saving measures, real estate agents continue to have the upper hand. Many agents will avoid showing properties that do not offer a full buyer’s commission, further discouraging consumers from opting for independent sales. This practice reinforces the need for commission reform and transparency, as it demonstrates how realtors’ financial incentives can limit consumer options.

In addition to alternative listing methods, consumers increasingly call for industry reforms, such as unbundling MLS data from agent control. If consumers had direct access to MLS data, they could make more informed decisions without relying on agents.

Additionally, some argue for an hourly compensation model rather than commission-based fees, which would reduce agents’ incentive to maximize sale prices and expedite transactions.

The Real Problem: Misaligned Incentives

The current structure of incentives in the real estate industry fosters unethical practices that ultimately harm consumers.

• The commission-based model incentivizes agents to prioritize quick, high-value sales over their clients’ best interests.
• The control over MLS data and lack of regulatory oversight perpetuate a closed, opaque system.
• Dual agency (where one agent represents both buyer and seller) exacerbates conflicts of interest.
• Informal collusion keeps commission rates high and discourages alternative pricing models.

Until such changes are made, consumers remain at a disadvantage—vulnerable to inflated prices, limited options, and unethical practices. The push for transparency, accountability, and more consumer-friendly practices is critical in reshaping an industry that, for too long, has operated to protect agents’ interests rather than those of the people it’s meant to serve.

But there are good ones out there who take their ethical obligations seriously; you just need to get lucky enough to find them.

Hi, Ted.