Does The DOJ Buy Into The “Practice Changes” In The Proposed NAR Settlement ?

We at The Data Advocate have been trying to understand  the underlying concerns that the DOJ and FTC have with the alleged anti-competitive practices of the residential real estate industry. We’ve reviewed the Executive Order On Promoting Competition, the proposed NAR Settlement agreement, the volume of lawsuits, the opposing and supporting Amicus briefs, DOJ Statements of Interest (SOI), numerous journal articles, webinars, and podcasts.

Here’s what we learned:

There’s a lot of speculation. We’ve discussed these questions: “Is the DOJ’s main concern the total elimination of the offer of compensation? Even from the seller? Is it finding ways to reduce commissions and sales prices? Is it opening up access to the MLS? Is it unlinking the MLS from the Association? How about reducing “steering” that directs buyers away from low cooperative listings?”

Perhaps there will be some answers regarding the DOJ concerns in light of a US Court of Appeals decision that directed NAR to respond to the DOJ’s Civil Investigative Demands (CID).

Latest Update: U.S. Court of Appeals Confirms Justice Department’s Authority to Investigate Potentially Anticompetitive Conduct by NAR

  • Today (April 4, 2024), the U.S. Court of Appeals for the District of Columbia Circuit lifted restrictions imposed by a lower court that had prevented the Justice Department from investigating potentially anticompetitive conduct by the National Association of Realtors (NAR).  The D.C. Circuit’s decision confirms the United States’ position that it retains the authority to investigate NAR’s Participation Rule and Clear Cooperation Policy to protect competition for the benefit of homebuyers.
  • “Real-estate commissions in the United States greatly exceed those in any other developed economy, and this decision restores the Antitrust Division’s ability to investigate potentially unlawful conduct by NAR that may be contributing to this problem,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. “The Antitrust Division is committed to fighting to lower the cost of buying and selling a home. I would like to commend the staff of the Antitrust Division and our colleagues in the department for achieving this important result.”
  • As a result, the court was able to confirm that the United States was authorized to update the Civil Investigative Demand (CID) No. 30729 and serve on NAR the updated CID No. 3  that clearly focuses on any rules relating to the payment of broker commissions or offers of compensation under NAR’s Participation Rule, as well as its Clear Cooperation Policy..

What Is the CID and who can enforce it?

  • CID is a type of “administrative subpoena” used by the Department of Justice (DOJ) and other federal and state law enforcement agencies to gather information and evidence relevant to their civil investigations.
  • An agency does not need a court’s approval to issue a civil investigative demand (CID) and may issue one before filing a complaint. A CID does not subject an agency to reciprocal discovery obligations. An agency can ask for a court’s help to enforce a CID if the recipient does not comply. Courts can hold in contempt parties that do not comply with a CID, potentially leading to criminal charges.
  • An agency cannot issue a civil investigative demand (CID) to investigate solely criminal allegations. However, if a CID results in any evidence of criminal misconduct, the agency may use it to pursue criminal charges.
  • Federal agencies authorized to issue CIDs include: the DOJ, Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB).
  • For anyone who has ever gone through the pain of an IRS tax audit, the CID process is at least 10X as gruesome. You’ll shutter if you receive one of these CIDs.

What CID did the DOJ send to NAR? Civil Investigative Demand Number 30729 (now CID No. 3)

Here is what the DOJ sent NAR.  NAR tried unsuccessfully to claim the DOJ had previously agreed not to pursue the investigation into the Participation Rule and the Clear Cooperation Policy. The Court of Appeals held otherwise, so NAR now has to promptly spend the time and resources to comply.

          “This civil investigative demand is issued pursuant to the Antitrust Civil Process Act, 15 U.S.C. §§ 1311-1314, in the course of an antitrust investigation to determine whether there is, has been, or may be a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 by conduct, activities, or proposed action of the following nature: policies, guidelines, rules, or practices that may unreasonably restrain competition in the provision of residential real estate brokerage services in metropolitan areas throughout the United States.

You are required by this demand to produce all documentary material described in the attached schedule that is in your possession, custody, or control, and to make it available at your address indicated above for inspection and copying or reproduction by a custodian named below. You are also required to answer the interrogatories on the attached schedule.

Each interrogatory must be answered separately and fully in writing, unless it is objected to, in which event the reasons for the objection must be stated in lieu of an answer. Production of documents and answers to interrogatories shall occur on the 5th day of August, 2021 at 5:00 p.m.

Your attention is directed to 18 U.S.C. § 1505, printed in full on the reverse side of this demand, which makes obstruction of this investigation a criminal offense. The information you provide may be used by the Department of Justice in other civil, criminal, administrative, or regulatory cases or proceedings.”

 

Here are the Specifications that are lengthy but will give us a good idea about what the DOJ is thinking as they map out any further action they or the FTC may have in mind.

SPECIFICATIONS:

  1. Submit all minutes (including attachments) of meetings of (a) the Association’s Board of Directors or any committees thereof relating to MLS rules or NAR’s code of ethics and (b) NAR’s Multiple Listing Issues & Policies Committee and any predecessor thereof.
  2. Submit all documents relating to any policy, guideline, rule, or practice: (a) requiring listing brokers to make an offer of compensation to buyer brokers to list a  home on an MLS; (b) conditioning MLS membership or participation on offering or accepting compensation to and from other MLS participants; (c) prohibiting, restricting, or inhibiting display or publication to consumers (including potential home buyers, clients, or customers) of the compensation offered by listing brokers to cooperating brokers; (d) prohibiting buyer brokers from making the submission of an executed offer to purchase contingent on the listing broker’s agreement to modify the offer of compensation or using the terms of an offer to purchase to attempt to modify the listing broker’s offer of compensation; (e) permitting Realtors® to represent their services as free or without cost; (f) encouraging or requiring MLS members, syndicators, purchasers, or users of MLS data or operators of IDX sites or VOWs, when displaying MLS listings, to separate MLS and non-MLS listings or to treat MLS and non-MLS listings differently any other way; (g) permitting listing brokers to make offers of compensation to other MLS participants that vary based on the identity of the cooperating broker; and (h) regulating, inhibiting, restricting, prohibiting, or impeding the negotiation of offers of cooperative compensation between brokers.

For documents responsive to this Specification relating to any possible or actual rationale, reason, or basis for the adoption, approval, maintenance, or retention of any policy, guideline, rule, or practice, submit all documents regardless of the date that such documents were prepared, created, sent, altered, or received. For all other documents responsive to this Specification, please follow the default Timing instruction articulated below.

  1. Submit all documents relating to any policy, guideline, rule, practice, or software enabling or permitting brokers to search for, filter, or exclude MLS listings based on the level or type of cooperative compensation offered by a listing broker.
  1. Submit all documents relating to any possible, proposed, or adopted policy, guideline, rule, or practice that restricts a brokers’ marketing of off-MLS listings (such as NAR’s Clear Cooperation Policy) or increases the incentives for brokers to list all properties with MLSs (such as the proposed policy described in NAR’s September 18, 2018, request for a Business Review Letter to the Department of Justice Antitrust Division (subsequently withdrawn)).
  1. Submit all documents relating to the purpose or the expected or actual effect of any change in Northwest MLS’s rules announced in July 2019 and implemented on October 1, 2019, including all communications relating to any change.
  1. Submit all documents relating to brokers steering potential buyers toward or away from homes for sale based on the amount of cooperative compensation offered by a listing broker.
  1. Submit all documents relating to any possible or actual rebates of any broker commission or any offer of any gift card or other benefit to any home seller or buyer, including all communications relating to such rebates or offers between NAR and (a) any personnel of any state regulatory agency or legislature or (b) any personnel of any association of Realtors®.
  1. Submit all documents relating to the benefits of membership in MLSs and the role of MLSs in the market for real estate brokerage services.
  1. Submit all documents relating to or produced by NAR in the Moehrl Antitrust Litigation or the Sitzer Antitrust Litigation.
  1. Submit all documents relating to United States v. National Association of Realtors®, Case No. 1:20-sv-3356 (D.D.C.), including all communications with NAR members about the filed Complaint or proposed Final Judgment and any contemplated changes to any NAR policy, guideline, rule, or practice related to the Antitrust Division’s investigation into or settlement with NAR.
  1. Submit documents sufficient to show all of NAR’s policies, guidelines, rules, and practices existing currently or at any time during 2018 or thereafter, relating to: (a) the retention and destruction of documents, including the retention, storage, deletion, and archiving of electronically stored information, including e-mail; (b) or the use of personal electronic devices or personal email for NAR business.
  2. Submit all documents relating to any allegation that the Association is behaving or has behaved in an anticompetitive manner.
  1. Identify all local associations of Realtors® and local MLSs currently affiliated with the Association.
  1. Submit all documents relating to any former or potential withdrawal of any broker from an MLS.
  1. Describe all instances in the past 15 years in which any broker has withdrawn from an MLS, and identify each broker.
  1. Describe any rationale for any policy, guideline, rule, or practice requiring listing brokers to make an offer of compensation to buyer brokers to list a home on an MLS.
  1. Submit all studies either performed or commissioned by NAR relating to broker commissions and any underlying data.
  1. Submit all documents discussing, relating to, analyzing, or relying on any study produced in response to Specification 17.

Further thoughts:

  • BREAKING NEWS: We learned that “both Fannie Mae and Freddie Mac published explicit confirmations that buyers whose agent is compensated by the seller will continue to have access to financing through those institutions.  Furthermore, so long as it remains “customary” for the seller to pay commissions, those will not be added to the interest party contributions (IPC) and subject to the caps on IPCs. Interpretation of this rule under the proposed settlement was of great concern, and NAR wrote to Fannie Mae, Freddie Mac, and the FHA seeking confirmation of our interpretation. In a letter to NAR, FHA confirmed that this interpretation does hold.”
  • NAR President Kevin M. Sears recently asked Veterans Affairs to revise its policies pertaining
    to fees veterans cannot pay when using their VA home loan benefit.
  • Note that The Sherman Anti-trust Act is more than a civil remedy. It needs to be taken seriously. It is a criminal statute.
  • The power of the DOJ has been rejuvenated by the DC Court of Appeals decision re CID No. 3.
  • Will NAR file an amicus brief to the NAR Settlement? There’s a lot of speculation on that issue as well. Remember, the DOJ is not part of that private settlement, so the DOJ (or FTC) is free to take their own action once they evaluate NAR’s responses to CID No. 3.
  • Even the NAR Settlement agreement provides for the possibility of further action by the government: “if in an action brought against the National Association of REALTORS® by the United States Department of Justice, United States Federal Trade Commission, or any State Attorney General and a final judgment is entered by a court (with all stay rights exhausted) which requires the National Association of REALTORS® to adopt any “practice changes” that are inconsistent with the practice changes required by this Settlement Agreement, the National Association of REALTORS® may comply with the terms of such judgment, unless the judgment is reversed or vacated, notwithstanding the practice changes specified in this Settlement Agreement. In such circumstances, the National Association of REALTORS® will continue to be obligated to observe the practice changes specified in this Settlement Agreement that are not affected by such judgment.”
  • NAR has agreed to make required practice changes by the end of July 2024. https://www.nar.realtor/the-facts/nar-settlement-faqs
  • The United States has filed several amicus briefs and statements of interest supporting competition in the real-estate industry and meaningful relief for homebuyers and sellers.
  • To address persistent and recurrent practices that inhibit competition, the Chair of the FTC, in the Chair’s discretion, is also encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority, as appropriate and consistent with applicable law, in areas such as Section 5 (h)(iv – vii) at Executive Order Promoting Competition at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/:
    (iv)   unfair competition in major Internet marketplaces;
    (v)   unfair occupational licensing restrictions;
    (vi)   unfair tying practices or exclusionary practices in the brokerage or listing of real estate;
    (vii)  any other unfair industry-specific practices that substantially inhibit competition.
  • We can picture the DOJ staff savoring the return-the-favor moment of pain that NAR staff now will have to endure complying with the extensive CID subpoena.
  • For Related Pleadings in Broker Commission Lawsuits click HERE

 

 

 

 

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One Response

  1. Lots going on John…many “dots” which can be connected for a better picture of the assault. It will be interesting to see if the DOJ takes on the tying issue re MLSs and association membership, as mentioned in the White House Executive Order of July 9, 2021.

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