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Real Estate

Is NAR ready to rumble with DOJ?

The Justice Dept. dropped the gloves, withdrawing from an antitrust settlement with the real estate trade group. But a “blindsided” NAR has yet to punch back.

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Lisa Dunn was on her way to the American Automobile Association headquarters in Mission Viejo, California when her phone started blowing up. It was July 1, and the U.S. Department of Justice had just fired off a press release saying it withdrew from an antitrust settlement hammered out last November with the National Association of Realtors (NAR), the trade group that represents the vast majority of U.S. real estate agents and spends more annually on lobbying the federal government than any organization in the country.

“The Department is taking this action to permit a broader investigation of NAR’s rules and conduct to proceed without restriction,” the release declared. The DOJ also repeatedly mentioned commission costs, noting Americans “paid over $85 billion in residential real estate commissions last year.”

The founder of Laurel Real Estate and a veteran Orange County agent, Dunn is also part of NAR’s board of directors.

“People thought, ‘Oh, Lisa will know what to do,’” Dunn recalled.

But Dunn didn’t know, not even after an hour-and-a-half chat on Clubhouse later that night with concerned agents. She couldn’t advise other agents because NAR was not advising her. “They were relatively tight-lipped,” Dunn said of the trade group.

Maybe understandably. The DOJ’s actions constitute a “Declaration of war with the NAR,” said Ken Johnson, a real estate economist at Florida Atlantic University. It’s a war that could be fought under the glare of public courtrooms, instead of negotiated away behind closed doors, Johnson said.

At stake are the practical rules agents must follow to do their job – and the essence of how agents earn money.

Blindsided

Since its Chicago founding in 1908, NAR is typically prepared. They were on Nov. 19 when the DOJ announced a simultaneous lawsuit and settlement with the trade group. That day, the NAR released guidelines for its members stating that the settlement requirements would not require major adjustments.  

“The rules changes re-affirm that MLSs and brokerages, as always, must provide consumers all properties that fit their criteria regardless of compensation offered or the name of the listing brokerage,” stated those November guidelines.

But when the Donald Trump administration became the Joe Biden administration, NAR found itself in a reactive role.

A key part of the Trump administration settlement is that NAR cannot prohibit Multiple Listings Services from disclosing to prospective buyers the amount of commission that the buyer’s agent will earn. Relatedly, the since-withdrawn settlement demanded that agents not misrepresent to homebuyers that their services were free, and that buyer agents must not filter listings based on the commission they stand to earn.

Since practically NAR’s founding, a sales commission has typically been split equally between a buyer’s agent and the sales agent. For example, if a home seller agreed to pay their agent a 6% cut of what the home sells for, the buyer’s agent stands to make 3%.

A hot topic for discussion among local NAR chapters became whether the Justice Department would soon require commission disclosure. Already, Redfin was posting buy-side agents’ commissions, and Zillow said it would soon as well.

But the NAR acknowledged in May that they were simply, “Waiting for feedback from the DOJ on these proposed rules.”

The normally unflappable trade group described DOJ’s settlement withdrawal like they were recalling waiting at the bus stop and getting hit by a bus.

“NAR was blindsided by and unsure of the rationale behind the DOJ’s decision to withdraw from our negotiated agreement,” NAR asserted in a statement to HousingWire. “We remain confident in the pro-consumer, pro-competitive nature of our rules and the MLS system, all of which benefit home buyers and sellers by providing a fair and level real estate marketplace.”

Beyond that, an initial statement calling the settlement withdrawal an “unprecedented breach” and a video where NAR deputy general counsel Lesley Muchow reiterates the initial statement, the trade group has been radio silent, offering none of its usual compliance guidelines.

That has left agents and MLS’s confused about what to do on commission disclosures, as well as lockboxes, Dunn said. Part of the withdrawn settlement was that access to lock box codes cannot be limited to local MLS members.

The DOJ’s move also left agents angry with the Biden administration.

“This is pure government meddling,” said Mike Napolitano, a Keller Williams agent in Burbank, California. “As a company we set our own commission rate, and how much we offer to the buyer’s agent. It’s not set by any regulator. It’s set by the marketplace.”

“Given Biden’s relatively thin win,” said J.P. Montalvan, a Compass agent in Washington D.C. “It wouldn’t seem wise to pick a fight with one million-plus realtors before 2024.”

Courting confrontation

Four days after the DOJ withdrew from its settlement with NAR, federal judge Andrea Wood issued a ruling in a proposed class action by a group of home sellers that claims NAR and top brokerages wage a “horizontal conspiracy” to fix commission prices.

Wood, who earlier denied NAR’s motion to dismiss the lawsuit, this time rejected HomeServices of America’s plea to wipe out class allegations and bring the case to private arbitration.  

“The matter is best addressed when Plaintiffs move for class certification,” the Chicago-based judge wrote. The potential class includes millions of homebuyers and sellers who used real estate agents at HomeServices, Realogy, Keller Williams, and RE/MAX.

The Chicago case is the farthest along in a handful of antitrust lawsuits concerning NAR’s commission guidelines. In other words, if the DOJ wanted to jump into an existing litigation, it has options.

But the DOJ declined to comment for this article, its aims were not spelled out in the press release, and a federal court records review indicates that the Biden administration has not taken action against NAR. In fact, the Biden administration has yet to even nominate someone to lead the Justice Department’s antitrust division.

“The withdrawal is a clear signal that DOJ is looking at taking further action against NAR, but we have no information about what that might look like,” said Laura Alexander, vice president of policy at the American Antitrust Institute.

But Alexander said that the Biden administration could have its reasons. 

“If the DOJ discovered a flaw in the settlement that put competition and consumers at risk, it’s understandable, and perhaps even commendable, that it would exercise its written rights to the fullest extent possible,” Alexander said.

If the Justice Department has identified a flaw, “There is a good chance that the DOJ will eventually seek additional limitations on the NAR’s conduct,” said Eric Hovenkamp, an antitrust professor at USC. “If its investigations do not dispel those concerns, it may very well decide to bring a new enforcement action and potentially secure a tougher settlement.”

But will NAR be willing to talk settlement after the DOJ reneged on the last one?

“Once they rescinded an agreed upon settlement, how can the NAR ever trust them again?” said Johnson of Florida Atlantic University. “I think it’s going to be a protracted battle between the two that’s going to end up in court.”

Johnson’s hypothesis is as good as anyone’s, as both the federal antitrust enforcer and powerful trade group quietly plan their next move.

“As agents we are all just frustrated,” Dunn said. “And we know NAR has their work cut out for them.”

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