The DOJ is sending signals that they will intervene in the proposed NAR settlement

The DOJ is sending signals that they will intervene in the proposed NAR settlement

Early in the month, the Council of Multiple Listing Services (CMLS) held its annual conference in Seattle where one of the hot topics was the proposed NAR settlement as well as the Clear Cooperation Policy (CCP) and Office Exclusives. Two of the top MLS attorneys Mitch Skinner and Ed Zorn, along with antitrust attorney Claude Szyfer participated in a “Legal Update: What to Know, What to Watch” where there appeared to be consensus that the DOJ would step forward before the election to present its Statement of Interest (SOI) in the NAR settlement case based on the $5 billion Sitzer-Burnett lawsuit. Interestingly, also speaking were  Compass CEO Robert Reffkin who urged elimination of the CCP and 1000WATT’s Brian Boero who favored keeping the CCP.

We agree with the attorney’s expectation of a DOJ intervention. And we’ll add our prediction that we will hear from the DOJ by the end of October. We base that prediction on signals from the DOJ in a series of pleadings and actions over the past 4 years, including these two facts: firstly, during a spring hearing in the MLSPIN case, DOJ attorney Jessica Leal said the DOJ would make a decision about whether or not to file a statement of interest in the Sitzer/Burnett suit sometime around October. “The schedule for that is still far out so we’re still analyzing,” Leal said; and secondly, Roger Alford, a law professor at the University of Notre Dame who previously served at the Justice Department, said he thinks the department will likely want to take further action before the election in November.

• For those interested, we’ve summarized some of the key points as the DOJ makes its strong case for supporting the Sherman Antitrust Act that  “does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers.” The Act “is comprehensive in its terms and coverage, protecting all who are made victims of the forbidden practices.  The Act “rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress.”

We’ve collected a mini library with 30 references at Click Here

Here’s the summary:

DOJ Amicus Brief filed in Nosalek v. MLSPIN (2-2024)

• This is one of many cases alleging that buyer-broker commission rules stymie competition and raise prices for home sellers and buyers through artificially inflated real-estate broker commissions. The DOJ, not a party to the lawsuit, requested the trial judge to deny preliminary approval of the settlement agreement.
• As long as sellers can make buyer-broker commission offers, they will continue to offer “customary” commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions—a well-documented phenomenon known as steering. As a result, commissions on home sales will remain inflated, reducing the net amount the seller receives for the home and driving up the purchase price paid by the buyer.
• These stubbornly high broker fees owe in large part to rules and practices perpetuated by multiple listing services like MLS PIN. As private entities composed of competing brokers, these associations “have economic incentives to restrain competition and . . . standards set by such associations have a serious potential for anti-competitive harm.”
• The seller’s offer of compensation to buyer brokers is set “without regard to the experience of the buyer-broker or the services or value they are providing.”
• The rule thereby gives decision-making authority for setting buyer-broker commissions to sellers, and it rewards buyer brokers a fixed amount regardless of the services buyers actually receive. The critical issue is not how much a seller should offer a buyer broker, but whether a seller should set buyer-broker compensation at all.
• If MLS PIN rules prohibited sellers and listing brokers from deciding what buyer brokers would be paid, sellers would be responsible for determining only the compensation of their own broker in the listing contract, while buyers would be responsible for determining the compensation of their own broker in a buyer-broker representation contract.
• A change that makes it the buyer’s responsibility to negotiate broker commissions directly with her buyer broker would not force buyers to pay those commissions out of pocket. While some buyers might choose to pay their buyer brokers out of pocket, other buyers might request in an offer that the seller pay a specified amount to the buyer broker from the proceeds of the home sale. Thus, the current practice could continue, where the seller factors the commissions into the offer the seller is willing to accept. Such relief would likely increase competition for buyer-broker services—the competition Plaintiffs allege has been broken by the Rule—to the benefit of home sellers and buyers alike.

DOJ brief filed in PLS.com v. NAR (4-2020)

• The court added that, if not for its findings on “antitrust injury,” the court would have found “that PLS has alleged facts plausibly to show that the Clear Cooperation Policy is a prima facie unreasonable restraint of trade under the Rule of Reason framework.”
• The agent-members of realtors’ association, who were the relevant “consumers of the multilisting service,” had antitrust standing to bring a claim for conspiracy to monopolize the multi-list market.
• In our free-enterprise system, competition determines which firms in a given market will succeed and which will fail. As this Court has recognized, “fierce, no-holds-barred competition will drive out the least effective participants in the market, providing the most efficient allocation of productive resources.”  It can be pro-competitive for a new real estate platform to compete with an MLS for listings, and it is important for the antitrust laws to preserve “the free opportunity [among brokers and agents] to select among alternative offers.” Indeed, antitrust jurisprudence firmly establishes that the role of courts’ antitrust analysis is to protect competition, not to pick winners and losers in the marketplace.

DOJ Statement of Interest (SOI) re Top Agent Network (TAN) 8-2023

• Customer-facing websites such as Zillow or Trulia, for instance, do not compete with TAN or MLSs, as they are consumers rather than suppliers of property listing services. These websites report listings that appear on MLSs but do not independently generate listings. TAN, like PLS, alleged that the relevant product market is “professional real estate listing services,” where TAN competes against NAR-affiliated MLSs.
• It alleged that the Policy violates, among other laws, Section 1 of the Sherman Act, 15 U.S.C. § 1, as both a per se unlawful “group boycott” against TAN and an unreasonable restraint of competition in the market for professional real estate listing services. The District Court’s reasoning, however, effectively precludes any off-MLS competitor not available to all agents from challenging MLSs in that upstream market—improperly entrenching the dominant market position of the NAR-affiliated MLS system.
• In cases alleging injury in upstream input markets, the plaintiff is often a competitor. That was the case in PLS.Com, where the plaintiff, like TAN, was a new entrant in the upstream listing services market. There, PLS alleged—again, like TAN—that NAR’s Clear Cooperation Policy “prevented PLS from gaining a foothold in the [listing services market] and makes it virtually impossible for new competitors to enter, leaving agents with fewer choices, supra-competitive prices, and lower quality products.” This Court held that PLS “adequately alleged antitrust injury.”
• By assuming consumers are better off with the current dominant provider—instead of with additional rivalry—the District Court’s reasoning disregards basic antitrust principles. As the Supreme Court has made clear, “[t]he Sherman Act reflects a legislative judgment that ultimately competition”—here, between listing services—“will produce not only lower prices, but also better goods and services.” For this reason, “[t]he heart of our national economic policy long has been faith in the value of competition.”
• Antitrust law “assesses both harms and benefits in light of the [Sherman] Act’s basic objectives, the protection of a competitive process.”
• In short, new entrants—including those with differentiated business models—must have the opportunity to compete against MLSs at the listing-service level so brokers and agents can choose the service they consider superior, granting options and improved service to consumers in the downstream market. See PLS.Com (referencing the harmful impact of the Clear Cooperation Policy on a new entrant’s “ability to compete . . . on the merits” against the MLSs “in the market for sellers’ listings”).
• After dismissal but before briefing in this case, we considered the sufficiency of similar allegations in PLS.com Because the facts of PLS.com are sufficiently analogous to the facts as alleged here, we vacate the district court’s order and remand Top Agent’s claims for reconsideration under PLS.com. Filed 08/28/23

DOJ  Statement of Interest in REX v. Zillow (6-2024) NAR No-Commingling Rule (“ Segregation Rule”)

• There was no apparent reason for NAR to enforce the no commingling rule when it allegedly knew that MLSs would enforce it. This Court addressed this sort of MLS enforcement scheme in PLS.com, where the challenged NAR policy (the Clear Cooperation Policy) was enforced by MLSs. “Agents who did not comply faced severe penalties, including in some cases several-thousand dollar fines, or suspension from, or termination of, their access to the MLS.”  A similar enforcement scheme allegedly applied here.
• A policy or rule does not have to be mandatory to be part of an agreed-upon common scheme.
• Indeed, for mandatory rules governing members’ conduct, proof of enforcement is unnecessary because the existence of the rule is direct evidence of concerted action.”

DOJ files major civil complaint against dominant commercial real estate broker RealPage  (8-23-2024)

• The Department of Justice (DOJ) filed a 115 page civil complaint, joined in by 8 state attorney generals, that describes with witness testimony  how RealPages’ scheme not only replaces competition with coordination, it substitutes unity for rivalry. “It subverts competition and the competitive process. It does so openly and directly–and American renters are left paying the price.” https://thedataadvocate.com/why-has-the-doj-not-intervened-in-the-nar-settlement-yet/

• Relief sought: Adjudge and decree that RealPage has acted unlawfully to restrain trade in conventional multifamily rental housing; Adjudge and decree that RealPage has acted unlawfully to monopolize, or attempt to monopolize, the commercial revenue management software market.

• Each of these landlords uses RealPage software, knowing or learning that RealPage will use this data to train its models and provide floor plan price recommendations and unit-level pricing not only for the landlord, but for the landlord’s competitors (and vice versa). Landlords are therefore joining together in a way that deprives the market of fully independent centers of decision-making on pricing. That’s classic price fixing.

• The sharing of nonpublic, competitively sensitive data with RealPage, and its use in AIRM and YieldStar, is anti-competitive. It harms or is likely to harm the competitive process and results, or is likely to result, in harm to renters and prospective renters in at least the relevant antitrust markets identified in this complaint. In each relevant market, RealPage and participating landlords have sufficient market power, including market and data penetration, to harm the competitive process and renters.

• RealPage has unlawfully monopolized the commercial revenue management market through unlawful exclusionary conduct. RealPage has amassed a massive reservoir of competitively sensitive data from competing landlords.

Executive Order authorizing the DOJ and Federal Trade Commission to investigate anticompetitive activities:

• Competition at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/:
• Section 5 (h)  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:
  (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; and
  (vii)  any other unfair industry-specific practices that substantially inhibit competition

• Group Boycott case Homie v. NAR (8-22-2024)  — click here

• An action for damages and injunctive relief under the antitrust laws of the United States and of the State of Utah. Not a class action case — Group Boycott; Conspiracy; violations of antitrust under many NAR MLS rules.
• The conspiracy alleged is per se illegal, or in the alternative is unlawful subject to a “quick look” or under the Rule of Reason. Editor note: The Sitzer case (and Moherl) were both decided under the federal judge’s use of the per se standard (automatically a conspiracy and illegal) – with jury left to only determine damages. NAR will have to fight really hard to file its Motion to Dismiss the Homie lawsuit, or at least argue in favor of getting a Rule of Reason standard where they at least have a chance for the jury to consider the pro-competitive practices (which NAR never had the chance to do at the per se Sitzer trial with Judge Bough).
• Together, NAR’s Buyer-Broker Compensation Rule, Commission-Filter Rules and Practices, Commission-Concealment Rules, Free-Service Rule, and the Clear Cooperation Policy (together, “NAR’s Exclusionary Rules and Policies” imposed substantial barriers to the entry and expansion of brokers offering low prices to compete across the United States and in Utah.
• Homie’s initial success sparked an anti-competitive campaign among Homie’s competitors to exclude Homie. The campaign against Homie was facilitated by NAR’s Exclusionary Rules and Policies, each and every one of which hampered Homie’s ability to compete in Utah, permanently depressing Homie’s market share, revenue, and profitability. The anti-competitive effects of NAR’s Exclusionary Rules and Policies adversely impacted Homie’s provision of brokerage services to both sellers and buyers.
• Homie also competed with new technology, including a consumer-facing app that automated portions of the sales process for both sellers and buyers. By automating portions of the sales process, Homie lowered its costs, which, in turn, allowed it to lower the price of its brokerage services to consumers
• The Buyer-Broker Compensation Rule was exclusionary. Because the blanket offer was required to be made available to every buyer broker using the MLS (i.e., virtually all buyer-brokers) and could be compared to the blanket offers that every other seller-broker must post to operate on the MLS, the Buyer-Broker Compensation Rule created tremendous pressure on sellers to offer the high, standard commission that had long been maintained in this industry. Seller-brokers knew that if the published blanket offer was less than the prevalent commission, many buyer-brokers would “steer” home buyers to the residential properties that provide the higher prevalent commission.
• Buyer-broker fees, though nominally paid by the home’s seller, are ultimately paid out of the buyer’s funds from the purchase price of the house. If buyers are told that buyer-broker services are “free,” they are less likely to think to negotiate a lower buyer-broker commission or to view buyer-broker rebate offers as attractive. In these ways, NAR’s Free-Service Rule reduced demand for—and competition from—buyer-brokers attempting to compete through low prices. It is evident that the DOJ anticipated that a process in which the initial offer of compensation comes from the buyer at the purchase agreement stage rather than earlier would result in more intense negotiations among brokers competing for the buyer to sign a representation agreement, and thus — to the DOJs thinking — lowering the buy-side commissions in the transaction.
• Buyer brokers now have to utilize their professional skills to compete for the buyer’s agreement,  just they they have always done to earn the seller’s listing. There’s no more guaranteed compensation under the MLS rules.
• A seller-broker who represented a seller without using a listing service would lose access to the large majority of potential buyers, and a buyer-broker who represented a buyer without using a listing service would lose access to the large majority of sellers. Brokers cannot compete effectively without access to a listing service.
• In remarks on MLS : “If you up the commission, I will bring my buyers. If not, I will not. It’s a disservice to your client. Please educate them. Please let them know that. I truly have a buyer that would possible [sic] buy this house. I won’t show it until the commission is raised.” “I wouldn’t have an issue with Homie and would happily show your listings if you’d offer a fair and reasonable BAC but since you are not you won’t get a showing out of me unless a client specifically asks for one on your listings.” Agents on social media posts made similar statements (brokers should have a company office policy addressing social media posts by their agents).

Random collection of relevant compensation statements from pleadings and articles:

• The Compass position on eliminating the Clear Cooperation policy: This language, from Compass’ Private Exclusives site, “In an inventory constrained market, access to listings is everything. Working with a Compass agent from the #1 brokerage in the U.S. opens the doors to homes that are not available to the public yet or may never hit the market.”
• Just saw this email push for off-MLS from a Compass agent where there is no listing agreement and instead a commission agreement until they were ready for MLS . The email read: “I currently have access to over 50 off-market listings in coastal Orange County. You will not see these listings on the MLS, Redfin or Zillow. It’s called Compass Private Exclusive, and I have access nationwide. Haven’t been able to find that perfect home or investment property? Reach out for these exclusive off-market listings. #lagunabeach  #clientsofcompass “
• If the Justice Department thinks the MLS is fundamentally anti-competitive and anti-consumer, they should meditate on what it means when housing is labeled “Private Exclusive.”  They should look hard at Europe, as they did when comparing commission rates to those found in the United States, to understand what happens to consumers when listings (otherwise known as “homes”) are closely held.
• The underlying message of the NAR settlement is based on mandating NEGOTIATION among consumers and brokers; the message with the DOJ is the protection of a COMPETITIVE process. Now is the time to explore the difference between Collaboration and Competition.
• https://thedataadvocate.com/now-is-the-time-to-reconvene-the-nar-settlement-parties/
• At a MLSPIN hearing, DOJ attorney Jessica Leal added that the DOJ didn’t want to see offers of compensation being made anywhere “We believe offers of compensation should not be made anywhere, but certainly not on the MLS,” Leal said. Attorneys for the DOJ made clear they were not happy with the deal in a February statement of interest in which they rejected rule changes that would keep offers of compensation in the MLS and instead the DOJ called for “an injunction that would prohibit sellers from making commission offers to buyer brokers at all.” A DOJ lawyer told a judge the National Association of Realtors settlement doesn’t go far enough, and that they don’t want seller agents offering compensation to buyer agents on the MLS or anywhere else.
• Although Leal highlighted the DOJ’s belief that offers of compensation should not be anywhere, she did not explicitly say what specific changes the DOJ might look to pursue beyond those outlined in the terms of NAR’s settlement agreement. Additionally, she said the DOJ would make a decision about whether or not to file a statement of interest in the Sitzer/Burnett suit sometime around October.
• According to the National Association of REALTORS® (NAR), the “actively endeavor” requirement for MLS participation means that a real estate firm or individual must consistently work to list properties, share information, and make properties available for showing to potential buyers and tenants. This requirement applies to all participants and potential participants in a non-discriminatory manner. The previous requirement to accept offers of compensation was eliminated 8-16-2024.
• Mere possession of a broker’s license is not sufficient to qualify for MLS participation. Rather, the requirement that an individual or firm cooperates means that the participant actively endeavors during the operation of its real estate business to list real property of the type listed on the MLS, shares information on listed property, and makes property available to other brokers for showing to prospective purchasers and tenants when it is in the best interests of their clients. “Actively” means on a continual and ongoing basis during the operation of the participant’s real estate business.
• As reported in Reuters, NAR has petitioned the US Supreme Court to bar the U.S. Justice Department from reopening a probe of the influential trade group after a prior administration reached a deal ending an inquiry into its broker commission practices.
• Report: DOJ Begins ‘Formal Inquiry’ Into California Realtors contracts-–