Residential real estate is thinking big again.
Weathered by years of a stalled housing market and high mortgage rates, brokerages, mortgage companies and other residential firms have been pushed to join forces or perish.
Rocket Companies launched itself into the future of housing firms with two seismic deals announced in a matter of weeks: a $1.75 billion deal to acquire Redfin and a $9.4 billion deal for top mortgage servicer Mr. Cooper Group.
The firm appears to be learning from the collapse in mortgage originations that left it fighting for survival in recent years. Adding home search and mortgage services expands its pipeline of consumers at the very beginning of looking for a new place.
Compass is also making deals to increase the size of its funnel. It has spent the last year gobbling up players small and large, growing its agent headcount to the largest in the country and establishing footholds in nearly every region from the Northeast to the Gulf Coast to California.
While acquisitions have been a part of Compass’ strategy from the start, its $400 million purchase of @properties and Christie’s International Real Estate — and rumors of another major buy in the works — are part of the industry’s new normal, with consolidation on the rise.
But with bigger deals come antitrust concerns. Pressure on the industry isn’t new: The Department of Justice is less than a year off securing record settlements from residential players and the industry’s top authority. But how big can the consolidation wave get before drawing federal action?
Antitrust appetite
Attention from antitrust regulators in residential real estate has been focused on the National Association of Realtors, the nation’s largest trade group and the industry’s preeminent voice on ethical standards and practices.
The Department of Justice’s antitrust division set its sights on the group about 20 years ago, clashing with NAR periodically over some of its rules that regulators pegged as anticompetitive.
In 2008, the DOJ agreed to a decade-long settlement with the organization, requiring NAR to allow online agents to access multiple listing services under its control. But the agreement expired and the organization again landed in the DOJ’s crosshairs under President Donald Trump’s first administration. The two struck another deal, this time with an emphasis on NAR increasing transparency around its commission policies.
The trade group appeared to be in the clear with the latest agreement. But President Joe Biden’s administration reneged on the deal, following his vow to double down on antitrust enforcement. The move was later backed by appellate court judges, despite NAR’s challenges.
Though the agency had the green light, regulators, then facing a regime change, didn’t take any decisive action against NAR, perhaps satisfied by the organization’s policy changes following a wave of civil lawsuits.
Another federal authority, the Consumer Financial Protection Bureau under the first Trump administration, took action against real estate firms in the name of public interest. The firm sued Townstone Financial, alleging the lender violated the Equal Credit Opportunity Act (ECOA) through discrimination against prospective borrowers and reached a settlement with Mr. Cooper for $73 million in redress and a $1.5 million penalty.
Both the new chair of the FTC, Andrew Ferguson, and his counterpart at the DOJ, Abigail Slater, have indicated that their agencies will keep in place strict merger guidelines passed under the Biden administration, dashing the hopes of many in the business community.
Ferguson has been vocal about antitrust concerns in the tech sector, though he has not said what other industries he’d tackle. His methods hint that he is willing to go beyond traditional monopoly indicators like price and market share.
“Where there’s smoke, there’s not always fire, but there might be,” Ferguson said at an antitrust law conference in April. “The whole point of having antitrust agencies is when you see smoke, at least take a look.”
Merger math
Federal law requires companies with pending deals above a certain threshold — typically about $100 million, though the standard is more complicated than dollar amount — to report the acquisition under what’s called the Hart-Scott-Rodino Antitrust Improvements Act.
Under those guidelines, Compass would have had to report its acquisition of @properties, though it appears the firm got the green light, as the deal closed earlier this year for more than $400 million.
Rocket Companies’ acquisitions are still pending and likely still under federal review.
Once a deal is reported, FTC and DOJ antitrust regulators evaluate whether any aspects of the transaction could significantly reduce competition in the industry or markets it affects.
The formula used to review these transactions is complicated, but “the simplest way would be by looking at the market share,” said Eric Posner, an antitrust law professor at the University of Chicago.
“Imagine there are four big residential real estate brokerages that operate in Chicago,” Posner said. “If one of them acquires another, then we would go from four companies to three companies, and that could be lessening of competition because now someone like you or me has fewer choices.”
If the government determines that a company has too much market share, it can either sue to block the transaction and allow the courts to confirm, or push back against its evaluation. It can also strike a deal with the company that would allow it to execute the transaction without substantially reducing competition.
Cutting deals, cutting headcounts
The CFPB was home to some of the most decisive action against real estate firms under the first Trump administration, but the Department of Government Efficiency has frozen headcount and processes. ProPublica reported in March that after the administration shuttered the agency’s headquarters and enacted sweeping layoffs, the bureau was forced to drop nine in-progress lawsuits, including one against Rocket Mortgage. (Rocket called the suit an “empty claim.”) Its agreed-upon settlement with Mr. Cooper, and a probe into alternative mortgage servicer Point, were also stalled. (A judge in April paused the administration’s mass firing attempt, leaving the department, and its actions, in limbo.)
Officials elsewhere in the administration have so far upheld Biden-era guidelines. But the Trump administration could have its own style of confronting deals.
“The first Trump administration was actually, I would say, also fairly tough on mergers, but they were willing to work with transacting parties to come up with some sort of solution,” said Rachel Lamorte, an antitrust attorney in Washington, D.C.
“Say the transacting parties could divest some part of a business, the Trump administration would work with those parties, and some version of the deal would get approved and closed,” Lamorte said. “The Biden administration was way less interested in doing that.”
Agencies have significant discretion in how they choose to enforce — or not enforce — those rules and which companies or industries they train their attention and resources on.
“Enforcers, increasingly, are taking a really broad view of transactions,” Lamorte said. “They are looking at your market share, but they’re also looking at the practices of companies and how particular practices may or may not grow to affect the rest of a market following a transaction.”
Listing inventory may land among those factors if regulators turn to brokerage. Though the majority of Compass’ listings aren’t yet private exclusives, if the company continues to push agents toward the platform, its control over listings in a given market could turn into a red flag or a sticking point in future deals.
Brokerages on a quest to build an arsenal of private exclusive listings available only to other agents with the firm — a departure from the current system that requires agents to publicly list properties — include competitors Douglas Elliman and Corcoran.
As the outlook for large residential players lifts and smaller brokerages evaluate their place in the race for listing inventory, the wave of consolidation isn’t likely to slow down.