Will the DOJ File a Statement of Interest in the NAR Settlement for Sitzer/Burnett and Moehrl?

Will the Department of Justice (DOJ) file a Statement of Interest (SOI) in the Sitzer/Burnett lawsuit in which the Missouri federal Judge has given his preliminary approval to the NAR Settlement, and if so, will there be motions for the Judge to consider regarding  briefs filed in favor or in opposition?

Why is that a relevant question today? Well,  in the Nosalek/ MLS PIN case in Massachusetts, two major organizations filed amicus curiae briefs with the court that challenge the accuracy and completeness of the DOJ’s  SOI regarding the proposed settlement.

What’s the IMPACT?

Both the brief filed by the Council of Multiple Listing Services (CMLS) and the brief filed by the Northwest (NWMLS) contain arguments that could be used in any motions if the DOJ does file a SOI to disapprove the proposed NAR Settlement.

We’ll start with highlights from the persuasive brief filed by NWMLS. In reading the following, we think  the NWMLS has, in the process, created a better path for the DOJ to achieve its stated goals.

  • The antidote to steering is transparency.
  • NWMLS is singularly well-positioned to respond to inaccuracies in DOJ’s description and analysis of NWMLS’s rules and forms changes, and thus help ensure that the Court’s decision regarding the proposed settlement in this matter is based on accurate and complete information.
  • NWMLS is an independent multiple listing service and not affiliated with the National Association of Realtors or any state or local association of REALTORS®
  • Prior to 2019, almost every multiple listing service in the country, including NWMLS, had rules (i) requiring listings to include an offer of compensation for the broker representing a buyer, and (ii) precluding publication of such offers of compensation by brokers to consumers on their websites. NWMLS recognized consumers’ need and desire for greater choice and transparency regarding broker compensation and eliminated those rules in October 2019.
  • Eliminating the mandatory compensation rule enabled greater flexibility and choice for sellers when listing a property and a related rule change gave buyers and buyers’ brokers a vehicle for negotiating for compensation when making an offer to purchase. Additionally, eliminating the restriction on publishing offers of compensation resulted in offers of compensation becoming widely available to consumers, increasing transparency and addressing concerns with the potential for brokers “steering” buyers to listings with higher commissions. DOJ’s account of these rule changes in the SOI is incomplete and inaccurate.
  • In October 2022, NWMLS again revised its rules and forms to “de-couple” listing broker and buyer broker compensation, restructure how compensation is offered and paid, and create additional transparency and opportunities for negotiation of compensation. These changes, together with the amendment of Washington’s real estate agency law, have created a new market landscape where buyers agree how much to compensate their own broker; all buyers can see how much (if anything) sellers are offering buyers to pay the buyer’s broker; and buyers can then negotiate with sellers to adjust any seller contribution toward the buyer broker’s compensation. DOJ dismissively asserts that these changes were not meaningful.
  • To argue that NWMLS’s changes were not meaningful, DOJ uses data from only one of NWMLS’s more than 2,200 member firms as evidence that the proposed settlement agreement in this case “would not limit steering or reduce buyer-broker commissions.” DOJ represents its evidence as reflective of “NWMLS’s experience,” but due to omitted critical information and deficiencies in DOJ’s analysis, DOJ’s account of NWMLS rules, forms, and data is not representative of “NWMLS’s experience.”
  • While DOJ claims to be concerned about brokers’ “steering” of buyers to higher commission listings, it ignores entirely NWMLS’s rule change that made information about sellers’ offers readily available to consumers. DOJ invokes consumers’ access to real estate information when it serves DOJ’s rhetorical purposes (see, e.g., Dkt. 290 at 3-4 (noting the popularity of real estate sites like Redfin and Zillow)), and yet it ignores NWMLS’s concrete actions putting compensation information directly into the hands of consumers.
  • Notably, DOJ, at one time, agreed with the importance of transparency for consumers and endorsed NWMLS’s rule changes. In a November 2020 proposed settlement with the National Association of Realtors, DOJ required “MLSs to repeal any Rule that prohibits, discourages, or recommends against an MLS or MLS Participant publishing or displaying to consumers any MLS database field specifying compensation offered to other MLS Participants.” United States v.Nat’l Ass’n of Realtors, No. 20-cv-3356 (D.D.C. 2020). DOJ’s apparent change of heart in its SOI in this case is striking.
  • NWMLS supported amendment of Washington’s real estate agency law (the “Agency Law”) effective January 1, 2024, to require brokers to enter written contracts to represent buyers, in addition to sellers. All such contracts must comprehensively address the brokers’ compensation and the scope of representation. The amended Agency Law also requires written disclosure of any terms of compensation offered by a party or a real estate firm to a real estate firm representing another party, to further ensure transparency.
  • NWMLS’s changes, together with the revised Agency Law, have created a new market landscape where buyers agree how to compensate their own broker from the beginning of their relationship, and buyers can then negotiate with the seller to help cover that cost as part of the purchase. Likewise, sellers decide how much to compensate their broker and also decide how much, if any, compensation to offer the buyer to pay the buyer’s broker.  In addition, all of NWMLS’s listing agreements and buyer representation agreement forms make clear that broker compensation is negotiable and the seller is not required to offer compensation to the buyer’s broker.
  • DOJ also cynically mischaracterizes NWMLS’s description of its rule changes to eliminate mandatory compensation and permit publication of offers of compensation. In an eight-minute video describing the 2019 rule changes, NWMLS reassured members that their business providing brokerage services will continue as usual. DOJ takes this comment out of context, without acknowledging the balance of the video explaining the purpose and significance of the rule changes for brokers and consumers alike, including greater flexibility, transparency, and innovation.
  • DOJ ignores that a de-coupled compensation system, in which buyers agree at the outset of the brokerage relationship how their broker will be compensated, eliminates the concerns for steering and buyers’ ability to reduce buyer broker commissions that animate its SOI. In fact, DOJ’s preferred system, in which there is literally no opportunity for compensation transparency in the MLS, invites brokers to make deals in secret, creating opportunities for deceptive practices, discrimination, and unfair housing.
  • Depriving buyers of information also risks harming buyers who are already financially disadvantaged. This especially includes some first-time homebuyers and veteran buyers using VA financing, which precludes the use of loan proceeds to pay brokerage fees. A buyer whose loan proceeds may not be used for brokerage fees and who lacks independent resources to pay their broker therefore relies heavily on offers of buyer broker compensation from sellers. DOJ’s preferred system would harm such buyers by requiring them to enter the home buying process lacking critical information, or encourage them to engage in the biggest financial event of their lives without a broker who is tasked with representing the buyer’s interests.
  • DOJ claims that NWMLS’s “[r]ecent experience confirms” that the proposed settlement will not limit steering or reduce buyer broker compensation. DOJ derives “confirmation” from the Declaration of Erik A. Schmalbach , a data scientist employed by DOJ. Schmalbach analyzed data of an undisclosed national real estate firm operating in NWMLS’s service area and concludes that, after the rule revisions, buyer broker compensation rates did not decrease faster within NWMLS’s service area than they did outside the area. DOJ urges a conclusion that the rule revisions were ineffective because buyer broker compensation did not decrease at a faster rate but provides no support for such conclusion. DOJ assumes that the compensation rates Schmalbach observed are not in line with the market, but DOJ fails to provide any evidence for this. Further, for reasons never stated, Schmalbach ignores plentiful data that was available to him. Compounding that omission, critical aspects of Schmalbach’s methodology are undefined and unexplained.
  • Further rebuttals of DOJ claims
    • Critical Terms Are Undefined, and Modes of Analysis Are Unexplained.
    • DOJ’s Entire Analysis Is Based on a Single Anonymous Source.
    • DOJ’s Data Analysis Covers Too Short a Period of Time
  • Any “analysis” of the limited data reviewed by these entities would only include the amount offered by the seller and not the amount actually paid to the buyer brokerage firm, thus ignoring the consequences of the negotiation process now integral to NWMLS’s system of rules and forms. Simply put, the amount offered by the seller is not necessarily the amount paid to the buyer brokerage firm.

Conclusion

As the Consumer Federation of America observed regarding the recent settlement by the National Association of Realtors of claims similar to this case, the impact of significant rule changes takes time, “perhaps several years,” to be processed, but over time, innovation of compensation models and a more transparent marketplace will greatly benefit consumers.  One of the plaintiffs’ lawyers involved in that settlement agrees that change will not be immediate, stating this week that “it’s going to take some time for the market to shift after the settlement and that’s to be expected.”

NWMLS’s changes are significant advancements for a transparent and consumer-friendly marketplace. As a dynamic multiple listing service, NWMLS has, and will continue, to take every opportunity to enhance the quality of real estate brokerage services in the Northwest.

Additional Declaration of NWMLS CEO Justin D Haag – March 26, 2024

  • In August 2019, after announcing its 2019 rules changes, NWMLS received a Civil Investigative Demand (“CID”) from the Department of Justice (“DOJ”). NWMLS cooperated with DOJ’s request for information, produced documents, and engaged in several lengthy conversations with multiple DOJ attorneys. After responding to the CID, NWMLS continued to cooperate with DOJ’s verbal and written inquiries and provided additional information as requested over the next year.
  • In October 2022, after announcing its 2022 rules and forms changes, NWMLS received an informal request from DOJ to provide information about those changes. NWMLS again cooperated, provided information to DOJ, produced documents, and engaged in several lengthy conversations with multiple DOJ attorneys and DOJ economists to explain the changes.
  • Any “analysis” of the limited data reviewed by these entities would only include the amount offered by the seller and not the amount actually paid to the buyer brokerage firm, thus ignoring the consequences of the negotiation process now integral to NWMLS’s system of rules and forms. Simply put, the amount offered by the seller is not necessarily the amount paid to the buyer brokerage firm.
  • Broker compensation was “de-coupled,” and NWMLS rules and forms eliminated the notion of “commission sharing” between the listing broker and the buyer’s broker. Any offer of compensation to the buyer’s broker is determined by the seller and offered directly from the seller and not the listing broker. NWMLS’s listing agreement clearly separated the seller’s compensation of the listing broker from compensation the seller might choose to offer to the buyer’s broker. The listing agreement also included various compensation options a seller might consider, including options for adjusting compensation if the buyer is unrepresented or if the listing broker serves as a dual agent.
  • The offer of compensation from the seller to a buyer’s broker was converted from a unilateral offer, accepted by the performance by the buyer’s broker, into a bilateral contract. The compensation the seller offers to the buyer’s broker, if any, must be prominently stated on the first page of the NWMLS form purchase and sale agreement, with an opportunity for the compensation to be accepted by the buyer on behalf of the buyer’s broker or negotiated by the parties in an addendum to the agreement, just like any other contract term. An addendum to the purchase and sale agreement published by NWMLS was revised to include various options for the negotiation of buyer broker compensation, including options for credits to the buyer, a reduction in compensation paid by the seller, and other options for the parties.
  • In 2023, NWMLS supported the legislature’s revisions to Washington’s real estate brokerage “Agency Law” that require brokers to enter into a written contract to represent either a buyer or a seller. All agreements must comprehensively address the broker’s compensation and the scope of representation. The changes to the law also require the written disclosure of any terms of compensation offered by a party or a real estate firm to a real estate firm representing another party (which was already accommodated by NWMLS’s rules and forms changes). The revisions to the law were effective January 1, 2024. Similar state law changes are progressing in Oregon and being contemplated by other states.
  • With the revised Agency Law and NWMLS’s system of rules and forms, buyers agree on the compensation for their own brokers from the beginning of their relationship in a written agreement, and buyers can then negotiate with the seller to help cover that cost as part of the purchase. For their part, sellers negotiate how much to compensate the listing firm and also decide whether to offer compensation to the buyer’s broker and the amount of any such offer. Both the NWMLS listing and buyer representation forms make clear that there are no standard compensation rates, compensation is fully negotiable and not set by law, and that the seller is not required to offer compensation to the buyer’s broker.
  • NWMLS’s objective in making these changes was to enhance consumer and broker choice, provide greater flexibility  for  consumers  and  brokers  when  selling  and  purchasing property, ensure complete transparency with regard to buyer broker compensation, and promote innovation and competition in the marketplace. NWMLS chose not to limit either consumer or broker choice by prohibiting compensation options, making broker compensation less transparent, or dictating compensation models or rates. By creating an open and transparent process through the multiple listing service with opportunities for consumers and brokers to negotiate, along with enhancing consumer and broker choice, the marketplace controls compensation in each transaction. NWMLS has no interest in the compensation rates paid to brokers; its only interest is in a fair and open marketplace. NWMLS does not analyze compensation offered by sellers or amounts of compensation actually received by buyers’ brokers after negotiations between the parties.

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CMLS Brief

 The  second amicus brief in response to the DOJ’s SOI was filed by the Council Of Multiple Listing Services (CMLS). Because of its length and extensive footnotes, we’ll introduce it here and highly encourage you to read the entire document. The brief is well-written and to the point from two attorneys are the most knowledgeable and respected on MLS legal issues – namely, Mitchell A. Skinner and Brian N. Larson, of the St. Paul, MN firm of Larson Skinner, PLLC; Counsel for Non-party Council of Multiple Listing Services

MOTION_for_Leave_to_File_Amicus_Brief_by_Council_of_MLSs_03272024

[PROPOSED] MEMORANDUM OF AMICUS CURIAE COUNCIL OF MULTIPLE LISTING SERVICES IN RESPONSE TO THE STATEMENT OF INTEREST OF THE UNITED STATES

 The Statement of Interest of the United States (SOI) proposes that the settlement between the parties to this dispute should include “an injunction that prohibits offers of buyer- broker compensation by MLS PIN participants.” The Council of Multiple Listing Services (CMLS) takes the extraordinary step of filing an amicus curiae brief before this Court to oppose this effort of the Antitrust Division (DOJ) to impose a policy preference on the U.S. residential real estate market that lacks empirical support, conflicts with principles of the Sherman Act, and has negative practical implications for consumers which DOJ has not taken into account.

First, the timing of those (previously noted) NWMLS rule changes exposes the inability of DOJ’s empirical evidence to evaluate the changes. Instead, data that is or could have been readily available to DOJ show that the NWMLS 2019 rule change caused commission offers in NWMLS to decrease faster than they had in the prior two decades.

Second, though DOJ rejects the Proposed Settlement Policies, its own policy preference would undermine the competition-enhancing principles of the Sherman Act. The SOI proposes that MLS PIN should prohibit a wide swath of brokerage business practices—offers of compensation from sellers and brokers to buyer brokers—that are lawful throughout the MLS PIN service area. MLSs have historically faced antitrust litigation when they have adopted restrictions on lawful brokerage practices.

Third, DOJ’s policy preference will potentially create significant negative effects for tens of thousands of consumer transactions just in the MLS PIN service area, and on millions of transactions in the nationally critical residential real estate industry, because it assumes a smooth transition to the model the SOI proposes among the many thousands of third-party businesses and entities involved in real estate in transactions. DOJ incorrectly predicts a glitchless transition without accounting for the complexity of the real estate transaction (and without  citing any sources).

For these reasons, the Court should evaluate the Proposed Settlement based on its merits, not DOJ’s unsupported arguments and its incongruous recommendation from a federal antitrust enforcement agency that an MLS impose restrictions which could be held to violate the antitrust laws. The balance of this argument explores each of the three flaws in turn.

 

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8 Responses

  1. Hi John,

    Great article, and even better conclusion. I have preparing a “Call to Action” regarding the NAR settlement should my colleagues decide to officially launch it… It can be viewed at royremick.com
    703-232-6460

  2. Great job summarizing the latest available documentation, John. The DOJ has an agenda, and it is being exposed by NWMLS and CMLS. Hopefully, the judge is not in the DOJ’s pocket.

  3. Interesting question: Can a LB refuse to show a property to a buyer broker who does not have a written BRA (Buyer Representation Agreement) whether or not they are a Realtor? Will BA need to carry a license with them for proof prior to showing? What’s the best practice to handle an unrepresented buyer?
    The Settlement will require proper training. This would include a re-evaluation of office policy manual, something to work on soon..

  4. The more I read the NWMLS amicus brief, the more impressed I am with their forward-thinking compensation policy first adopted in 2019 – – “Since 2019, Northwest MLS (NWMLS) has spearheaded initiatives that afford buyers and sellers more information about broker compensation in their transaction and clear opportunities to negotiate their broker’s compensation. Those initiatives also serve to promote innovation and competition among brokers.”
    Interesting to note that the “Settlement Class” as defined in the proposed NAR Settlement Agreement for those states not named specifically, like WA and OR, are Sellers who sold during the period from “October 31, 2019 to date of Class Notice.”
    See https://www.nwmls.com/northwest-mlss-members-provide-buyers-and-sellers-with-choices-control-and-complete-transparency/

  5. Great questions John…which leads me to thoughts of enforcing a civil settlement. How will the enforcement of this settlement be accomplished, and by what entity? Real estate is controlled by states. Will states pass legislation to support this settlement?

      1. Hey Saul, I’m a checkers kind of guy, but I’m starting to see some chess moves by the federal guys (DOJ/FTC) to cooperate with plaintiff attorneys to disrupt the residential marketplace, as has been the Fed goal for decades. Perhaps cooperate is not a strong enough word — maybe the word should be conspire? Checkmate…

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