Jay Thompson is a former brokerage owner who spent over six years working for Zillow Group. He retired in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column publishes every Wednesday.
The federal government and our legal system never fail to mystify. Last week, the U.S. Department of Justice (DOJ) announced it would be pulling out of the proposed settlement with the National Association of Realtors (NAR).
What “proposed settlement”?
In a matter that you would think every agent and broker would be well aware of, but many are not, the DOJ filed an antitrust lawsuit against the NAR back in November 2020 alleging some NAR rules are illegal restraints on Realtor competition.
At the same time the DOJ filed the antitrust suit, they also filed a proposed settlement, one previously negotiated with the NAR. In my decidedly non-legally trained mind, it seems what happened is the DOJ said, “Hey, NAR. We’re suing you because you’ve got some anti-competitive rules. But if you address these rules, we’re settled, the lawsuit goes away.”
Those rules, according to the complaint, included:
- Prohibiting MLSs that are affiliated with NAR from disclosing to prospective buyers the commission that the buyer’s broker will earn if a buyer purchases a home listed on a multiple listing service (MLS).
- Allowing buyer’s brokers to misrepresent to buyers that a buyer broker’s services are free.
- Enabling buyer’s brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential homebuyers.
- Limiting access to the lockboxes that provide licensed brokers with access to homes for sale to brokers who work for a NAR-affiliated MLS.
NAR quickly responded with the legal speak typical in any situation like this:
“While NAR disagrees with the DOJ’s characterization of our rules and policies, and NAR admits no liability, wrongdoing or truth of any allegations by the DOJ, we have agreed to make certain changes to the Code of Ethics and MLS Policies while we remain focused on supporting our members as they preserve, protect and advance the American dream of homeownership.”
As reported by Inman, according to NAR’s vice president of communications, Mantill Williams, those changes, which conformed to the DOJ’s proposed settlement, were:
- In accordance with the MLS system’s long-standing focus on creating an efficient, transparent marketplace for home buyers and sellers, the amount of compensation offered to buyers’ agents for each MLS listing will be made publicly available. Publicly accessible MLS data feeds will include offers of compensation, and buyers’ agents will have an affirmative obligation to provide such information to their clients for homes of interest.
- The rule changes re-affirm that MLSs and brokerages, as always, must provide consumers all properties that fit their criteria regardless of compensation offered or the name of the listing brokerage.
- While NAR has long encouraged buyers’ agents to explain how they expect to be paid, typically through offers of cooperative compensation from sellers’ agents, there will be a rule that more definitively states that buyers’ agents cannot represent their services as free to clients.
- With the seller’s prior approval, a licensed real estate agent will have access to the lockboxes of properties listed on an MLS even if the agent does not subscribe to the MLS.
NAR and MLSs even went so far as to begin implementing some of these rule changes, before the courts stamped the agreement with their approval. An approval that was widely expected to happen given that the plaintiff in the case (the DOJ) had negotiated the proposed settlement with the defendant (the NAR) and was fine with proposed rule changes.
So, we’ve got a government entity (the DOJ) suing a trade organization (the NAR) and negotiating changes to satisfy their concerns. Said trade agency is in the process of implementing those changes while the paperwork winds through the legal system for final approval. All seems well and good, right?
Wrong. Fast-forward to sometime in the recent past. The DOJ says, “Whoa, wait a minute. There’s something in our proposed settlement we don’t like. NAR, you need to modify the settlement.” The settlement the DOJ had already negotiated with NAR.
NAR says, “Nope. We negotiated the proposal together, we’re implementing the agreed upon changes, but we’re not modifying the proposal we’ve both already agreed to.”
So, the DOJ takes its ball and runs home, refusing to play together. It essentially tells the courts, “We want a do-over! Now we don’t like the proposed settlement, and these guys won’t make changes to it!”
So, the DOJ withdraws from the settlement it has already agreed to. Mystifying, isn’t it?
NAR’s reaction to the DOJ settlement withdrawal seems justified. It said:
“This is a complete, unprecedented breach of agreement by the Department of Justice to withdraw its consent from a fully negotiated settlement that had been approved by the head of the Antitrust Division and we had begun to implement. The National Association of REALTORS®’ rules and policies have long sought to ensure fair and competitive real estate markets for home buyers and sellers. Grounded in our commitment to act in the best interests of buyers and sellers, we regularly update our rules and policies to protect consumers and provide transparency. NAR has fulfilled all of our obligations under the settlement agreement and now DOJ is inexplicably backing out. If the Department does not live up to its commitments under the terms of the agreement, we are confident in our pro-consumer and pro-competition policies.”
Subsequent comments on that post by NAR state that “the proposed rule changes under the settlement are on hold for now. “
Can’t say I blame NAR for being more than a bit miffed at the DOJ. A lot of time, work, energy and one would assume money went into dealing with this lawsuit, settlement, and subsequent rule changes.
Not that it matters, but personally and professionally, I agree with most of NAR’s proposed rule changes (the lockbox one is a bit odd and seems problematic) and feel it’s unfortunate that work on changing those rules will grind to a halt.
The DOJ is claiming it needs to have the proposed settlement it authored modified to “permit a broader investigation of NAR’s rules and conduct to proceed without restriction.”
That statement should elicit quite the cause for concern. What “rules and conduct” need a “broader investigation”? What has changed since the DOJ proposed the settlement? Only the DOJ knows what it’s thinking.
The timing of the withdrawal is interesting in that it coincides almost exactly with the appointment of Lina Kahn to chair the Federal Trade Commission (FTC). The FTC, along with the DOJ, are the two federal agencies responsible for antitrust enforcement, and Kahn is widely regarded as a “champion of antitrust reform.” Perhaps it’s merely a coincidence this settlement withdrawal coincides with the appointment of an antitrust champion. Perhaps not.
Meanwhile, there are several antitrust lawsuits in process against NAR, Realogy, Keller Williams, RE/MAX, Zillow and other large players in the real estate space. The Moehrl class-action suit continues onward. The MLS is “under attack.” Now the DOJ is withdrawing its proposed settlement to “permit a broader investigation of NAR’s rules and conduct to proceed without restriction.”
Words like mystifying, unprecedented and broader investigation are not really what you want to hear or think about when it comes to your livelihood. Equally disturbing in this sordid mess is how oblivious many real estate professionals seem to be that it’s even happening. That a government entity would negotiate a settlement — presumably in good faith — then renege on said agreement is baffling.
You need to understand what’s happening in your industry. Keep a close eye on these developments, it doesn’t look like they’re going away, and the DOJ’s most recent action seems to be a giant step backward toward any resolution.
Jay Thompson is a real estate veteran and retiree living in the Texas Coastal Bend, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.