[REN #743] NAR Antitrust Investigation Intensifies

Picture of woman holding bag for Real Estate News for Investors Podcast Episode #743

The antitrust lawsuits against NAR are piling up, and now the Department of Justice has opened an official probe into alleged anti-competitive practices in the real estate industry. It issued an investigative demand to real estate data firm, CoreLogic, and other MLS platform vendors, for various documents and information related to the distribution and use of MLS data and the way that buyer agent commissions are paid.

NAR has been hit with three class-action lawsuits in the last few months. Among the allegations — the plaintiffs claim that NAR requires a non-negotiable commission for buyer agents, paid by the seller. They say it drives up costs for sellers at a time when buyers do most of the leg work and only seek a broker’s help after they’ve done their own searching online. Plus, the plaintiffs say this set fee interferes with what should be a competitive marketplace.

The plaintiffs say, NAR’s rules for paying that commission are outdated but remain in place because NAR also controls the MLS system, which obligates brokers to play by the rules, both written or unwritten. One complaint says, in part, “Through their control of the MLS’s, defendants and their co-conspirators have market power in the local markets for real estate broker services.”
 

Three Antitrust Lawsuits

The first lawsuit was filed in March by a home buyer in Minneapolis and has the firepower of at least five top law firms. Two copycat lawsuits were filed in April by another home seller in Minnesota, and one in Missouri. NAR has filed motions for dismissal in at least the first case, saying the plaintiffs have misunderstood NAR rules and the value of the MLS system. (1)

NAR president, John Smaby, said in a press release, “In today’s complex real estate environment, Realtors and multiple listing services promote a pro-consumer, pro-competitive market for home buyers and sellers, contrary to the baseless claims of these class action attorneys.”

In regards to the commission paid to the buyer’s broker, NAR says the class action attorneys have fabricated anticompetitive rules that simply do not exist in NAR’s Handbook or Code of Ethics. It says that NAR directs listing brokers to negotiate commissions and that NAR has nothing to do with setting those prices. Basically, NAR says the lawsuits are “wrong on the facts, wrong on the law, and wrong on the economics.”
 

Broker Commissions

A common figure for agent commissions is 6% split down the middle for seller agents and buyer agents. Many decades ago, realtors were required to charge that amount to prevent undercutting, according to a CNN Business article. (2) Then in 1950, the Supreme Court ruled that the 6% rule amounted to price-fixing, and banned the requirement. But, apparently, old habits die hard, and the 6% figure is still being used. It’s just not a written rule, and according to NAR, is open for negotiation.

The plaintiffs claim that it’s not negotiable and a high price for the seller to pay, especially for a buyer’s agent who may have contributed very little to the sale. On a $300,000 home, a 6% commission adds up to $18,000 — $9,000 for the buyer’s agent and $9,000 for the seller’s. NAR argues that it is negotiable, but some listing agents worry that if they lower the commission for the buyer’s agent, it may also lower the rate at which the property is shown to clients.
 

Commission Transparency

Plaintiffs also object to what they say is a lack of transparency about the commission amount. It’s not included in MLS listings for the public, and is often something that comes to light at the end of the process. There’s also the argument that it isn’t even the seller who pays the commissions, because it’s the buyer who’s footing the bill, and likely paying a higher home price to cover those commissions.

It’s a complicated legal issue, that could put the U.S. real estate system in jeopardy. One of the lawyers in the first case, Benjamin Brown, has said that damages could be in the billions of dollars, against NAR and co-defendants Realogy, HomeServices of America, RE/MAX, and Keller Williams.

As Inman News reports, NAR has posted a FAQs page for realtors on all the issues associated with the allegations to keep realtors informed. (3) It runs through each allegation, including the one that “listing brokers and buyer brokers conspire to keep commission fees high.” NAR says, “The claim is patently false.” It says, they are “established in a listing agreement” as the “result of negotiations between the seller and the listing broker.” It also explains that that law requires commission information to be included in the closing documents, but not on the MLS.

Currently, the National Association of Realtors has more than 1.5 million members. Real estate marketing consultant, Rob Hahn, said, in the CNN article, if the plaintiffs win, and there are big changes to the way the system works, along with hefty damages, the industry could whither and the number of real estate professionals could plummet to about 200,000.
 

Motion to Dismiss

NAR defends the MLS as a system that “has been around for well over 100 years and has contributed to an orderly and efficient marketplace.” The association is planning an aggressive defense, as well as its co-defendants. The co-defendants filed a motion to dismiss in the first case, as NAR did.

As the defendants wait for a ruling on those motions, Keller Williams also filed for a stay in the discovery proceedings by the DOJ. Inman reports that it’s not clear if the DOJ’s investigative demand for information is directly related to these lawsuits. But, the demand does seek information on whether MLS listings can be searched according to buyer broker commission, which is central to these lawsuits.
 
Links:

(1) NAR Lawsuits

(2) CNN Business Article

(3) Inman News Article

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