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Government Intervention: Competitive Real Estate Policy and Practice by Breck Gallini

Government Intervention: Competitive Real Estate Policy & Practice

by Breck Gallini

The U.S. real estate industry currently faces a shakedown by federal regulatory agencies, along with complaints from brokerages and consumers. Perhaps the most important story involves the Department of Justice’s (DOJ) ongoing investigation of the National Association of Realtors (NAR), whose policies and practices are alleged to violate federal antitrust laws as unreasonable restraints of trade. The NAR is America’s largest trade association, representing more than 1.5 million members in the real estate business, including residential and commercial brokers,1 while there are approximately three million total real estate licensees in the United States.2 NAR’s policies govern and affect the entire national real estate industry—even those who are not members to a significant degree. Members of NAR enjoy what many consider baseline requirements of a successful real estate business, such as access to the local Market Listing Service (MLS) or lockboxes at those listings, to the exclusion of non-members.3 NAR advocates on behalf of its members, effecting policies that are carried out through local associations.4 In 2020, the Department of Justice (DOJ) opened an investigation into NAR’s policies, alleging they violate antitrust law, as they lessen “competition among real estate brokers to the detriment of American home buyers.”5 Other recent developments contribute to the general impression that this industry is desperate for significant reform.

The regulatory drama takes us back a few years. In June of 2018, together with the Federal Trade Commission (FTC), the DOJ hosted a “workshop” with real estate industry leaders, who discussed a myriad of industry talking points, including NAR’s commission policy requiring all MLS listings to offer compensation to buyer brokers.6 In April 2019, to follow up that discussion, the DOJ sent civil investigative demands to NAR, seeking documents related to practices by certain brokerages of concealing commission amounts offered by listing brokers to buyer brokers, preventing negotiation of those commissions, and permitting filtration of MLS searches by compensation amount offered.7

Also during the 2018 workshop, industry leaders discussed the potential regulation of “pocket” listings. 8 A pocket listing is one not advertised in the MLS, usually at the behest of a seller who is concerned with privacy. Most MLS’s are hosted by a local NAR-affiliated association, and thus regulated by NAR. In late 2019, NAR effected their controversial “Clear Cooperation Policy,” which requires all members to enter any listing into the MLS within twenty-four hours of advertising it to the public. 9 This expanded NAR’s grip on the market because it all but eliminated pocket listings, with an exception for “office-exclusive” listings only advertised within one brokerage firm.10 Again, choosing to forego NAR membership to avoid this degree of regulation is not a popular choice among active agents and brokers, who heavily rely on the MLS as a market resource and need access to lockboxes at the risk of their business reputation (without self-access, showing agents must usually ask the listing agent to meet them at the property to provide access).

In November 2020, the DOJ filed a civil complaint in federal court alleging the NAR was in violation of §1 of the Sherman Act, a pillar of United States antitrust law prohibiting unreasonable restraints of trade. 11 Antitrust laws broadly protect competition among businesses because competition promotes quality of services, fair pricing, and consumer choice.12 The DOJ simultaneously filed a proposed settlement which would require NAR to repeal and modify several policies.13 These filings set crosshairs on several policies, including one that enables a buyer broker to conceal from their client the percentage commission they would receive at closing on any MLS listing.14 This practice allegedly facilitates unlawful steering by helping the broker disregard any property listing that offers lower commissions. The complaint also attacked the aforementioned policy that limits access to lockboxes only to members of an NAR-affiliated MLS.15 The DOJ alleges this policy deprives non-members the ability to show listings to their clients, because lockoxes are commonplace in the industry and alternative methods of access (such as requesting to meet the listing broker at the property) are cumbersome. The filings also requested NAR be made to stop buyer brokers from representing or suggesting their services to clients are free.16 Although currently a permitted practice, it is allegedly misleading because sellers generally account for buyer broker commissions when pricing their home.

In July 2021, before the two parties reached a settlement with regards to the foregoing civil complaints, the DOJ withdrew its consent to a finely-wrought settlement agreement and re-opened their investigation, stating that the agreement didn’t adequately protect its right to investigate other conduct by NAR that could restrain competition, harming buyers and sellers.17 An executive order issued by President Biden requesting the FTC adopt rules to address anticompetitive practices in the real estate industry likely influenced the DOJ’s decision to back out, since the DOJ and FTC are the only two agencies with power to enforce federal antitrust laws.18 On November 15th, 2021, four months after the settlement fallout, NAR voluntarily rolled back some of the policies complained of.19 Local marketplace participants can no longer advertise their services as free, buyer agents must now disclose the compensation offered them for any listing they bring to their client’s attention, and MLS systems cannot provide search filters based on the amount of compensation offered to buyer agents.20

In sum, the DOJ has successfully pressured NAR to effect change in the market to promote competition, but have not commented on the status of their re-opened investigation of the massive trade organization. Will they ferrett out more policies and practices which allegedly harm consumers? What about the FTC—will they take action in response to President Biden’s order? For further consideration, private plaintiffs increasingly take shots at NAR’s Clear Cooperation Policy (explained above) also alleging antitrust violations.21 The traditional five and six percent commission-based model also faces heightened criticism from consumer advocates, resulting in yet more civil suits against NAR, whose policy requires sellers to offer commission to buyer brokers.22 All in all, much of the public yearns for momentous changes in the real estate industry, and the DOJ’s recent spat with America’s largest trade association could just be the first wrangle.

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1 Who We Are: About NAR, Nat’l Ass’n of Realtors, https://www.nar.realtor/about-nar, (last visited Nov. 3rd, 2021).

2 Quick Real Estate Statistics, Nat’l Ass’n of Realtors, https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics, (last visited Nov. 2nd, 2021).

3 Handbook on Multiple Listing Policy, Nat’l Ass’n of Realtors (Jan. 1, 2021), https://www.nar.realtor/handbook-on-multiple-listing-policy/lock-box/key-repositories-section-1-lock-box-security-requirements-mls-policy-statement-7-31.

4 Nat’l Ass’n of Realtors, supra note 1.

5 Complaint at 1, DOJ v. NAR, No. 1:20-cv-03356 (D.D.C. Nov. 19, 2020).

6 Patrick Kearns, Redfin CEO tangles with Zillow and realtor.com at D.C. competition workshop, Inman (June 5th, 2018), https://www.inman.com/2018/06/05/redfin-ceo-tangles-with-zillow-and-realtor-dot-com-at-competition-workshop/.

7 Andrea V. Brambila, NAR vs. DOJ: A timeline of the battle as it stretches into 4th year, Inman (Sept. 16th, 2021), https://www.inman.com/2021/09/16/nar-versus-doj-a-timeline-of-the-battle-as-it-stretches-into-fourth-year/.

8 Patrick Kearns, supra note 5.

9 MLS Clear Cooperation Policy, Nat’l Ass’n of Realtors, https://www.nar.realtor/about-nar/policies/mls-clear-cooperation-policy, (last visited Nov. 3rd, 2021).

10 MLS Clear Cooperation Policy: FAQ, Okla. City. Metro. Ass’n of Realtors, https://okcmar.org/mls-clear-cooperation-policy-faq/, (last visited Nov. 3rd, 2021).

11 supra note 4 at 2.

12 Id.

13 Just. Dep’t Files Antitrust Case and Simultaneous Settlement…, Dep’t of Just. Off. of Pub. Affairs (November 19th, 2020), https://www.justice.gov/opa/pr/justice-department-withdraws-settlement-national-association-realtors.

14 supra note 4 at 2.

15 Id.

16 [Proposed] Final Judgment at 4, DOJ v. NAR, No. 1:20-cv-03356 (D.D.C. Nov. 19, 2020).

17 Dep’t of Just. Off. of Pub. Affairs, supra note 11.

18 John D. McKinnon, Real-Estate Agents Gear Up for Fight to Save Their Commissions, The Wall St. J. (Sept. 20th, 2021) https://www.wsj.com/articles/realtors-face-federal-scrutiny-of-broker-commissions-11632135601.

19 Shaw, Wesley, NAR Announces New Guidance that Reinforces Greater Transparency for Consumers, Nat’l Ass’n of Realtors (November 15, 2021), https://www.nar.realtor/newsroom/nar-announces-new-guidance-that-reinforces-greater-transparency-for-consumers.

20 Id.

21 Carson, Dillon and Batts, Alicia, Location, location, location: Real estate will continue to be an antitrust hotspot in 2022, Inman (Feb. 2, 2022), https://www.inman.com/2022/02/02/location-location-location-real-estate-will-continue-to-be-an-antitrust-hotspot-in-2022/.

22 John D. McKinnon, supra note 18.