The Legal Saga of the NAR Settlement Continues! Next Step ?
There’s plenty of speculation as to what the next step will be for the Department of Justice (DOJ) and the Federal Trade Commission (FTC) regarding the proposed NAR Settlement and perceived anti-competitive activity in the residential real estate space. How does the DOJ/FTC intend to accomplish their already-stated goal of driving down broker fees and housing costs?
And does the settlement fit that purpose, especially with respect to the structure of the buyer compensation agreement designed to increase competition for buyer-broker services? Could the commission rates be re-negotiated — with buyer and seller agreement — at the time of negotiating the terms of the purchase contract if needed to make the deal work? Could dropping a few % points actually tamp down costs for buyers and put a dent in housing affordability?
Today’s WSJ Headline: “The DOJ Asks: Does the Landmark Real-Estate Settlement Go Far Enough?”
The article (cited below) notes that the Justice Department might pursue additional changes to the costs associated with buying and selling a home, or suggests that the federal judge could pause the November 26 final settlement approval date (attorney payday) and send the parties back to the negotiating table.
The battleground between the DOJ/FTC and NAR is decades old, involving many lawsuits and Consent Decrees. Note that even when the feds did win, they found the impact to be insignificant in accomplishing their true purpose of breaking the interdependence of brokers on one another (commission sharing) as facilitated by the MLS rules. Is the commission sharing target the DOJ/FTC ‘s true end-game or do they also want the seller not to make offers of compensation in advance of the purchase contract negotiations?
As it appeared in the prolific-commentator Rob Hahn’s well-researched blog in 2022: “The DOJ and the FTC both know that lawsuits do not create fundamental change. They’ve been there, done that and got the T-shirts to prove it. But here we are in 2022, and they’re at it again both as principals and as behind-the-scenes helpers to the civil litigants in Moehrl and Sitzer/Burnett (and others).” Hahn adds that if the fight continues, the result will be either — the DOJ/FTC will lose; the DOJ/FTC will win but the impact will be negligible; or the DOJ/FTC will win and figure out a way to break the interdependence of brokers on one another.
As far back as the 1983 FTC’s Butter’s Report (cited below), the FTC understood that the “Interdependence of brokerage firms and brokers is a function both of their need to cooperate with each other, usually through a MLS, in marketing houses and their individual incentives as established by the form of their compensation. Many observers believe that most firms, and especially small firms and new entrants, are dependent upon the MLS and cooperative sales and cannot take any risks that might lessen the cooperation they will receive.”
Will the real estate industry continue to experience delay, confusion and risk of never-ending litigation? Death by 1000 cuts? Are the unforeseen consequences of federal intervention — in the micro-management style of the FTC — be far worse than modifying the traditional offer of compensation practice?
So, for readers who are research-oriented, we share the following library collection of lawsuits, amicus briefs, Statements of Interests, pleadings, reports and more that can help unlock the mystery of what is the real intention of the government and the class action attorneys. If any of these links help you figure out the next step, please fill us in.
FLASH UPDATE July 15: The latest order by a court of appeals in Washington, DC, allows the DOJ to reopen its investigation into the National Association of Realtors and force NAR to respond to the lengthy Civil Investigative Demands (CID). The order states: “Upon consideration of appellee’s petition for rehearing en banc, the response thereto, and the absence of a request by any member of the court for a vote, it is ORDERED that the petition be denied.”
For details on a CID Does The DOJ Buy Into The “Practice Changes” In The Proposed NAR Settlement ?
RELATED PLEADINGS IN BROKER COMMISSION LAWSUITS
REX v NAR-DOJ Brief 6-20-24 Click Here
PLS v NAR Complaint 5-28-20 Pocket Listings – Click Here
TAN v. NAR SOI 03/13/2023 – Click Here
NOSALEK V. MLS PIN – NWMLS RESPONSE TO DOJ SOI – 03/27/24 Click Here
NOSALEK V. MLS PIN CMLS AMICUS BRIEF — Click Here
NOSALEK V. MLS PIN DOJ STATEMENT OF INTEREST (SOI) — Click Here
NAR SETTLEMENT AGREEMENT – SITZER/BURNETT — Click Here
Buyer Broker Commission Rule Lawsuits
Declarations of Realogy Officials in Broker Compensation Rule Litigation
Moehrl vs National Association of Realtors October 2020
The Moehrl Class Action Complaint
Sitzer v. NAR — First Amended NAR Complaint-Class Action
US Statement of Interest in Sitzer Antitrust Case
Order Granting Class Certification in Sitzer v. NAR
REPORTS
The Residential Real Estate Brokerage Industry 1983 (Butters Report) — Click Here
COMPETITION IN REAL ESTATE BROKERAGE INDUSTRY — FTC and DOJ -2007 Click Here
The Report led to a 3 day Workshop June 2018 — Click Here includes video and transcripts
Executive Order on Promoting Competition in the American Economy
NAR FAQs –- (Paragraph 58) – Click Here
The MLS Of The Future by Saul Klein
Organized Real Estate – video by Saul Klein
Other Data Advocates Resources
Related Reading:
Two videos from NAR Chief Legal Officer and team:
https://www.nar.realtor/videos/nar-legal-team-reviews-settlement-terms-and-impact
https://www.nar.realtor/videos/nars-upcoming-practice-changes-and-recent-doj-engagement
Wall Street article July 14, 2024 —
The Residential Real Estate Brokerage Industry 1983 (Butters Report) – Key Points:
Butters report 1983 — Quoting from Chapter II (3) The Pricing of Brokerage Services: “The pricing of brokerage services appears, on the surface, to present a paradox. There are so many firms in the industry and ease of entry is so simple, that coordinated price determination would seem to be very difficult. On the other hand, fee schedules often were successfully utilized by brokers’ trade associations in the past. An apparent lack of much price competition persists and uniformity in commission rates is the general rule. The one aspect of the real estate brokerage industry that may be unique, however, is the degree to which individual firms are interdependent. We believe that this interdependence may be the key to understanding the apparent paradox of pricing brokerage services.
Interdependence of brokerage firms and brokers is a function both of their need to cooperate with each other, usually through a MLS, in marketing houses and their individual incentives as established by the form of their compensation. Of homes sold through brokers, about 90 percent are listed on a MLS. Perhaps as many as 53 percent of all sales involve the services of two brokerage firms, and 66 percent of sales may involve two individual brokers or salespersons. Many observers believe that most firms, and especially small firms and new entrants, are dependent upon the MLS and cooperative sales and cannot take any risks that might lessen the cooperation they will receive.
Relevant to the current DOJ focus on the fear of steering, the Butter’s Report stated “Steering may make discount brokers less successful in selling their listings through the MLS. Alternative brokers charging less than the prevailing commission rate, therefore, may find that while competition in price facilitates the acquisition of listings, it often hampers efforts to sell those listings. This, in turn, may make price competition a potentially unsuccessful competitive strategy, and it is our belief that this is the most important factor explaining the general uniformity of commission rates in most local markets.”
Now Is The Time To Reconvene the NAR Settlement Parties
DOJ argues Optional MLS rules can represent “concerted action”
14 Responses
Great work again John Reilly, in accumulating all of this relevant information. I remember the Butters Report well, as I was a broker in San Diego in the late 1970s and early 1980s and lived through all of this. I changed the direction of my real estate business to a “One Stop Shop” financial services business in the early 1980s because of the direction things seemed to be headed, but things remained pretty close to the same, even after the MLS changed from a Unilateral Offer of Sub-Agency to an Offer of Compensation in the mid 1990s.
i truly appreciate the comprehensive collection of materials related to this topic John – thank you compiling this – it’s like a one-stop shop for info on this topic.
Now that the unilateral offer of compensation in the MLS is gone, I have long believed the end game for the DPJ/FTC has been to prevent listing brokerages from sharing compensation with cooperating firms. Time will determine if that is true. Thank you for your continued diligence is connecting all of the dots for us.
And thank you, Adorna. You’re the best. I’ve learned so much from you and your Dynamic Directions talented team over the years. Lots of hugs.
Mr. Reilly, thank you for laying out such a great collection of information. After teaching thousands of agents about buyer broker representation I am of the opinion that the underlying problem is the lack of required education prior to being licensed and the lack of regulation & oversight. Negligent and incompetent agents are a much larger problem (in my humble opinion) that negatively impact the industry. Yes, we need to stop steering, and other shenanigans, but those could also be accomplished with education, regulation & oversight. I do not believe that the DOJ’s efforts to reduce commissions, thereby theoretically reducing the cost of buying or selling a home and increasing home affordability is logical. The economy and politicians alone have the greatest affect on affordability. If agents are not providing the required level of fiduciary duty at the current commission rates what do we expect they will provide at lower commission rates? The math doesn’t add up. If I am missing a piece of this mathematical formula please inform me. Thank you!
Karen, thank you for the meaningful response. Yes, education is a critical component.
Thank you Karen for highlighting the importance of education and training, not just pre-licensure, but post licensure and continuing ed. It is not given the emphasis it needs. From my experience with many agents, you assess the problem correctly.
This is so well catalogued, helpful and accurate. It is helpful to have all of this info in one place to keep track of the history and the timeline. Thank you John Reilly!
Mr. Reilly,
Thank you for your thorough analysis. As a broker-owner and educator of many agents, I believe the core issue lies in inadequate education and oversight before licensing. The real estate industry suffers more from incompetent agents than from high commission rates. Addressing steering and unethical practices can be achieved through better education and regulation, not by slashing commissions.
At Global Property Systems, we use blockchain to ensure transparency and accountability, tackling the very issues that led to this lawsuit. If agents struggle with fiduciary duties at current rates, lower rates will not improve service quality. If there’s something I’m missing here, please enlighten me.
Thank you!
Thanks Vanessa. No doubt about it. “You Get It!” One of the favorable goals of the DOJ/FTC is to drive out the number of unserious/unskilled real estate agents. I was impressed by your use of blockchain at GPS — https://behindthescenesat.gpsnewyork.com/
BTW, I grew up in Ossining NY, the home of Sing Sing prison (sorry, no listings!!).
Incidentally — Saul, Terri and I are involved with supporting the evolving global MLS marketplace through RealtyNA and the MLS Forum (hosted by CEPI and RESO with Title Sponsor Stellar MLS) coming up October in Milan, Italy at http://www.mlsforum.org
Ciao, John
John,
Thank you for your kind words! It’s encouraging to know that the DOJ/FTC aims to elevate industry standards by addressing the unskilled segment of our profession. I’m glad you appreciate our use of blockchain at GPS to enhance transparency and accountability.
How interesting that you’re from Ossining! Your support for the global MLS marketplace through RealtyNA and the MLS Forum is impressive. I have partner offices in Alessi, Tuscany, and Milan—maybe I’ll tag along to the event in Milan.
Ciao,
Vanessa
Vanessa,
What a great thought for you to combine a business trip to your GPS affiliate partner offices in Alessi, Tuscany, and Milan with tagging along to the MLS event –
They’d love to hear what’s working in your New York circles. I’d be happy to digitally introduce you to some of the key players at the event being hosted by CEPI and RESO with the Title Sponsor StellarMLS –
Some of those key players include RESO’s CEO Sam DeBord, here being interviewed by Terri Murphy –
RealtyNA’s Co-founders’ CEO Ali Attar and CTO Giselle Abadi, creators of MLS Router and MLS On The Fly, as well as the concept of Inverse Commission(tm) for buyer agents.
And, of course, an introduction to my business partner for 30 years, Saul Klein CEO of the San Diego MLS, a keynote speaker in Paris and soon Milan’s MLS Forum, and the co-founder of The Data Advocate (along with myself and Terri Murphy), but perhaps Saul is most known as the Chief Advocate for where to find the Best Bagels In The World – New York City!
Hope you make it to Milan in October!
Ciao
John
Venessa,
This is Ali Attar, from Organization team of International MLS Forum!
We will be honored to have you with such expertise attending the forum! If you decided to join us, please drop us a message on our website, and we add your company’s logo in the supporters of the forum, and create a special page for you!
Best,
Hi Vanessa!
Your post and comments with my colleagues, John Reilly and Ali Attar led me to your website and it appears your expertise would be a great contribution to our TDA interview and article posting.
If you have interest, thank you for contacting me to schedule a pre-interview.
Terri@TerriMurphy.com
Thank you. I’ve already reached out to Terri to schedule a convenient time for both of us. Looking forward to our continued progress and collaboration.