MW Rocket-Redfin deal could make home buying more convenient - and more expensive

By Aarthi Swaminathan

'There's an apparent trade-off here between increased convenience and higher cost'

One of the biggest mortgage lenders in the U.S. announced this week that it plans to buy a well-known real-estate brokerage - and the deal, once it goes through, could have major consequences for millions of home buyers.

Rocket Cos. $(RKLB)$ said Monday that it would pay $1.75 billion to purchase Redfin $(RDFN)$. Rocket is one of the biggest lenders in the U.S., and Redfin is the seventh-largest brokerage, according to RealTrends.

The companies said the deal would make it easier for people to buy a home, from the process of getting preapproved for a mortgage to receiving the keys from the real-estate agent.

But that added convenience may come at a cost to the average buyer, experts say.

Related: Redfin's stock soars on buyout deal with Rocket Cos. that looks to speed up home buying

A 'holy grail' for the real-estate industry, and more convenience for home buyers

The 30-year mortgage rate has doubled since early 2022 and home prices have hit new record highs, making homeownership such an expensive proposition that many Americans have been shut out of the market. At a mortgage rate of 6.76%, the typical buyer who purchased a home for about $380,000 is paying over $2,700 a month for their mortgage, according to Redfin.

Meanwhile, the real-estate industry, typically a slow adopter of new technology, has been trying for decades to make it more convenient for people to buy a home. That drive has intensified in recent years, particularly as home sales plummeted to a 30-year low last year due to the crisis of affordability.

"Everybody in this industry is going for the holy grail of what we call digital closing," Tomasz Piskorski, a professor of real estate at Columbia Business School, told MarketWatch.

Buying a home has typically involved a fragmented process, Piskorski said. From start to finish, it involves an array of actors including title companies, real-estate agents, mortgage brokers and insurance companies.

Bringing these entities together on one platform would make the home-buying process not only less complicated, he said, but also much faster.

Glenn Kelman, the chief executive of Redfin, told MarketWatch in an interview that the deal is "a match made in heaven."

"You could be on a site and within minutes figure out what you can afford, what you're preapproved for, where you should be looking, what house you can see this afternoon. That's a powerful competitive advantage," particularly in markets where housing supply is constrained, he said.

But it's unclear whether consumers will accept a fully digital process for one of the biggest purchases they will make in their life, said Kurt Carlton, co-founder and president of New Western, a real-estate marketplace.

"This isn't DoorDash. People buy a house once every 10 years," he said. "People want to talk to an individual [before closing on a home]."

A trade-off between 'increased convenience and higher cost'

Buyers who do prefer a hands-off approach might pay a price for the convenience of buying a home online, experts told MarketWatch.

Buyers already pay a variety of expenses on top of the home's price, spending an average of nearly $32,000 on upfront expenses in addition to their down payment, according to a survey by Clever, a real-estate platform. These include expenses such as repairs and renovations, closing costs and moving costs.

With the Redfin-Rocket deal, buyers could end up paying even more. Previous research by Piskorski and his co-authors found that when fintech mortgage lenders offered more convenience to borrowers, they charged a higher premium of up to 16 basis points, or 0.16%. That's roughly an additional $640 on a $400,000 loan.

"We find that fintech shadow banks" - or financial institutions that aren't regulated like traditional banks - "charge significantly higher interest rates," the authors said.

Consumers did not seem to mind the higher costs associated with buying a home through a fintech lender. In fact, their acceptance of higher rates contributed to the growth of companies like Rocket and other digital lenders, the authors said, as shadow banks' market share nearly doubled between 2007 and 2015.

Consumers might also be less likely to comparison shop across multiple lenders after the merger goes through, said Stephen Brobeck, a senior fellow at the Consumer Policy Center, a think tank.

Comparison shopping refers to the process of a home buyer obtaining multiple quotes from different mortgage lenders in order to obtain the lowest fees and rates possible. Shopping around for a mortgage could save a buyer an average of $76,410 over the lifetime of a 30-year fixed-rate mortgage, according to research by LendingTree (TREE).

But with the Rocket-Redfin deal, "when you have a relationship ... between a mortgage lender and a [real-estate agent], that discourages comparison shopping by the consumer," Brobeck said. "There's an apparent tradeoff here between increased convenience and higher cost."

One broader concern experts raised was the potential for the combined company to dominate the real-estate market and potentially charge higher prices.

"Everybody wants to be the Amazon of real estate," where a prospective buyer can purchase a home with the click of a button, Piskorski said. But "if there is too much concentration in the industry," it raises the question of whether a buyer is getting a fair deal.

The convenience promised by the merger could also lead to an increase in home prices, Piskorski said.

In separate research, he argued that reducing the fees buyers pay their agents could lead to an increase in home prices. As the transaction costs of buying and selling homes decrease over time, homes will be 4% to 5% more expensive, he posited.

Read more: Would lower real-estate commissions lead to higher home prices? Economists are split.

"Anything that lowers transaction costs is good for consumers, with one qualifier: The easier it is to buy a home, the [higher the likelihood that] house prices will become more expensive," he said.

Rocket Chief Financial Officer Brian Brown told investors Monday that he expects the deal with Redfin to result in a reduction of the fees buyers pay.

"This deal allows us to lower home-buying costs for consumers," he said. Each layer of the process, from hiring a buyer's agent to finding a mortgage broker to getting the deal closed, adds transaction costs that can total up to $40,000 for a $400,000 home, Brown said, and "this friction is our opportunity."

But Brobeck at the Consumer Policy Center said consumers shouldn't necessarily worry about the Rocket-Redfin deal. Rather, they should focus on doing independent searches for a mortgage and for real-estate agents and comparing fees and services.

"Consumers just do not have good information about rates right now," he said, "which is why it's so important to comparison shop and talk to several agents," and to negotiate commissions and fees paid to buyer's agents.

Trump's CFPB drops lawsuit against Rocket

Under the Biden administration, regulators accused Rocket of providing incentives to real-estate agents and brokers in exchange for steering home buyers toward Rocket for loans. The Consumer Financial Protection Bureau, a federal consumer watchdog agency, sued the company in December, alleging in part that it had pressured brokers and agents to withhold information from clients about products offered by Rocket's competitors.

"Rocket engaged in a kickback scheme that discouraged homebuyers from comparison shopping and getting the best deal," Rohit Chopra, then the watchdog agency's director, said in a statement. "At a time when homeownership feels out of reach for so many, companies should not illegally block competition in ways that drive up the cost of housing."

President Donald Trump's administration has dramatically scaled back the CFPB's enforcement actions and recently dropped the agency's lawsuits against Rocket and several other companies.

Rocket said in a statement to MarketWatch that it was "good to see the truth come to light," calling the case a "misrepresentation of the facts" and an "empty claim."

Read more: CFPB drops its enforcement lawsuits against Capital One, Rocket Homes and others

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-Aarthi Swaminathan

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March 13, 2025 13:00 ET (17:00 GMT)

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