2005 DOJ Sues NAR for Policies which Clearly Stonewall Real Estate Brokers from Offering Better Service and Lower Costs to Consumers
Back On September 8th, 2005 The Department of Justice’s Antitrust Division filed a lawsuit against the National Association of Realtors (NAR) to specifically address restraint of trade as a result of policies within their organization. The lawsuit challenged a policy that obstructs virtual real estate brokerages who use innovative Internet-based tools to offer better services and lower costs to consumers. The NAR’s policy prevents the full benefits of competition in an effort to lock in certain business models and discourage discounting. In short – the policies enabled and required Brokerage firms to blackball other Brokerage firms via internal and external marketing policies (opt out requirements), internet flow of listings and other strategically employed strategies in which full-service and Big Box Brokers per se’ sought to prevent the success of both brick and mortar as well as Virtual Brokerages to offer Flat Fee MLS Listing Services saving Sellers thousands of dollars in commissions fees which often benefited both the Seller and Buyer with substantial savings.
2008 Justice Department Announces 10 Year Settlement with NAR
May 27th, 2008 – just 3 years after filing this initial lawsuit, The Department of Justice announced proposed settlement with the National Association of Realtors (NAR) in which the NAR agreed to a 10-year settlement to ensure that it continues to abide by the requirements of the NAR allowing fair competition between Virtual Brokerages and traditional Brokerage firms allowing more service options and lower commission rates for consumers. The NAR did comply with the terms specifically pertaining to IDX fees and requiring Brokerage firms to post only their own Brokerage listings on their website or to feed listings from all Brokerages to their websites. This was a huge win for Brokerage firms such as Ohio Broker Direct, a Virtual Brokerage offering Flat Fee MLS Listing Services which sought to provide Sellers the opportunity to choose a listing service that best suited their needs.
2018 Years Later the DOJ and FTC
The FTC and DOJ held a joint workshop on competition in real estate just months prior to the expiration of the 10 year settlement between the DOJ and NAR.
2019 Numerous Lawsuits Filed
Just a few months after the first class-action antitrust commission lawsuit emerged in 2019 (several have been filed since), the public was made aware the DOJ was actively investigating the commission rules of MLSs and had submitted a civil investigative demand (CID) letter to CoreLogic referencing its MLS software.
Additional Lawsuits Asserts the Following:
- Compensation: Sellers are encouraged to pay an inflated higher commission rate, so more money can be offered to Buyer Agents to entice them to show the property ensuring the Brokerage firm makes more money. Some Agents and Brokers purposefully blackballed listings that were not offering a certain amount fully knowing that doing so was a violation of ethics and more.
- Steering: Many MLSs in conjunction with the NAR set in place optimal listing search criteria in which the Buyer Agent was motivated to utilize options which prevented their Buyers from receiving leads regarding properties that met their specific search criteria based upon the amount of commission being offered. For example-a Buyer Agent could set the search criteria to include only listings that offered 3% which blackballed listings in which the commission was lower – perhaps 2% for a Seller trying to save money or higher at 4% which is common for Sellers who want to move a property as quickly as possible. In short, the Buyer Agents in certain areas were steering buyers from listings that fall significantly below a market’s average Buyer Broker commission while inadvertently shorting themselves of commission opportunities in which higher commissions were being offered.
- Compensation Negotiation: Allegation state the NAR’s Code of Ethics, had terms the Agents and Brokers were required to comply with. These terms made it difficult for buyers to understand what compensation the Buyer Agent was being paid for the services they were providing as NAR rules either prevented or made it challenging for them to negotiate the fee.
- Compensation policies Inhibit Competition: The compensation Listing Brokerages offer to Buyer Brokerages through the MLS impedes competition as Buyer Brokerages are compensated the same regardless of quality, price or service level. Here is an example-lets take the commission in which the Listing Brokerage charges the Seller 6% and is offering 3% of the sales price to a procuring Buyer Brokage. 6% of a million dollar home sale would result in a $60,000 commission of which a $30,000 commission is paid to a Buyer Brokerage. That figure is built into the listing price to cover said cost. This begets the question as to why one should receive 3% of the sales price on a million dollar property as 3 % ($3,000) is often offered on a hundred thousand dollar property. While one often asks what is the listing agent doing to justify their exorbitant listing fee, one must also ask what is the Buyer Agent doing that justifies the amount of commission?
2020 DOJ Continues to Investigate NAR Policies
The DOJ and NAR reached a proposed settlement in which the NAR agreed to change certain compensation policies.
2021 DOJ Rescinds Settlement and CHOOSES to Further Investigate Policies and Procedures of the NAR.
The settlement between the DOJ and NAR has been rescinded as the DOJ chooses to facilitate further investigations – however some progress has been made as a result of the NAR’s efforts to reduce potential fallout.
- Broker Compensation: NAR now requires MLSs to publish Buyer Brokerage compensation with listings that appear on any of its public-facing websites. In addition, it requires them to provide that data in IDX and VOW feeds to participants. Participants can choose to display the compensation or not on their websites.
PRO-this provides some disclosure on public facing sites / CON-this applies to commissions being offered directly by the Listing Brokerage and does not reflect bonus offerings or other compensation that may be paid directly by the Builder or Seller.
Advertising Services as “Free”: NAR passed a policy prohibiting Buyer Agents from advertising their services as free when they are collecting a commission. This will require the rewriting of training manuals and numerous policy manuals utilized by certain Brokerages who encouraged their Buyer Agents to claim their service was free so as to convince a Buyer to retain their services.
Filtering Listings by Compensation: NAR added a policy to prohibit MLSs from providing its members the ability to filter listings by Buyer Brokerage compensation. I personally had numerous conversations with the Presidents or top leadership at Boards of Realtors in Ohio that offered such a tool asking them to remove it as utilization was clearly a violation of Ohio ethics as well as a violation of their own ethical standards. They consistently responded with verbiage referencing it was NAR approved and had no interest in addressing the concerns. While the vast majority of Buyer Agents would never jeopardize their licensure by utilizing such a tool-there are always bad apples in the cart per se’ and we consider this a HUGE win for consumers.
2023 As Litigation Continues Sellers and Buyers MUST Continue Advocating on their Own Behalf
One of the most publicized lawsuits against NAR was the Moehrl case. While there are many lawsuits targeting NAR’s Buyer Brokerage Commission Rule — also known as the Participation Rule. The Moehrl case truly jump-started the pathway to change.
The NAR just recently disclosed that the trial date for Sitzer (now known as Burnett) lawsuit which was originally planned for February/March 2023, has been postponed to an undetermined date in Late 2023.
While extensive progress has been made, we must all continue to proactively monitor the NAR and Boards of Realtors to ensure they do not resume the use of certain tools to sabotage the success of Virtual Brokerage firms in order to further enhance their alignment with Big Box Brokerage firms per se’. The ultimate goal is for the NAR to modify their model to treat Virtual and Traditional Brokerage firms with equal respect as both models are an asset to each other. There are additional critical concerns that we have yet to see addressed which we expect are being thoroughly researched and evaluated by the DOJ and will be addressed in future rulings. Therefore it is imperative Buyers and Sellers continue to advocate on their own behalf whether it is referencing terms in a Listing Agreement, Buyer Representation Agreement or Purchase Agreement. Tana and I will discuss this and more in further blogs and we invite you interact or submit comments or recommendations for discussion to either of us at Sold@ohiobrokerdirect.com
To our shared success,
Joan Elflein and Tana Lantry, Brokers