While many had hoped the Department of Justice’s interest in the real estate industry would wane with the business practice changes outlined in the National Association of Realtors’ commission lawsuit settlement agreement, that is clearly not the case.
In a message on Realtor Hub, a forum for NAR members, trade group president Kevin Sears told members that the DOJ is keeping “a close eye” on the industry, as first reported by Inman News. This came after a closed-door meeting with federal regulators late last week, led by Assistant Attorney General Jonathan Kanter.
Specifically, the DOJ told NAR executives and Sears that it is closely watching updated forms that are coming out of the state and local Realtor associations, as well as brokerages and MLS, and any potential “loopholes” or “work arounds” agents or firms are exploring to circumvent the business practice changes outlined in NAR’s settlement.
In his message on Realtor Hub, Sears wrote that the “DOJ seems particularly focused on whether the form agreements are tools for,” circumventing the business practice changes.
“To be clear, NAR — and I personally — oppose any attempts to circumvent the settlement,” Sears wrote. “The practice changes should be implemented fully and in good faith, in the service of promoting consumer empowerment, consumer choice, and healthy competition.”
Although open communication between the DOJ and NAR is a positive sign, Sears noted that the meeting was not an indication that the DOJ would drop its inquiries into NAR and the industry.
Even without Sears’ message, based on recent actions taken by the DOJ there remains little doubt that regulators are keeping tabs on the industry.
Last week, the DOJ filed an amicus brief in REX’s appeal of its lawsuit against NAR and Zillow. The suit centers around NAR’s optional “no commingling rule” which prevents MLSs and listing portals from mixing MLS and non-MLS listings, such as the homes listed by REX, a now defunct discount brokerage. In its brief, the DOJ claims that despite being optional, NAR’s rule may still support anticompetitive behavior — which is the main focus of the commission lawsuits — something it claims the district court did not fully examine in its ruling.
“The district court applied an incomplete legal framework in evaluating whether REX had presented a genuine dispute of material fact on concerted action in this case,” the filing states.
The department also argues that the court’s ruling did not look into the risks of trade groups like NAR avoiding antitrust oversight through optional regulations.
“The judge’s decision created a loophole that could allow associations to sidestep antitrust scrutiny by cloaking restrictive rules as optional,” the DOJ stated in its filing.
The DOJ’s action in the REX suit came just days after the California Association of Realtors (CAR) informed members that the DOJ had launched a formal inquiry into some of the trade association’s forms related to the business practice changes outlined in NAR’s settlement.
The DOJ’s formal inquiry came after the Consumer Federation of America sent a report to the DOJ, in which it said a proposed draft of CAR’s buyer representation and broker compensation agreement was “virtually unreadable.” The analysis was done by Tanya Monestier, a law professor at the University of Buffalo.
On Tuesday, the CFA announced it had also sent an analysis of CAR’s seller agreement to the DOJ. In her report, Montestier wrote that, “No seller will read this monster of a document – much less be able to understand it.”
Responding to the latest critique, CAR General Counsel Brian Manson said in a statement, “Similar to the CFA’s report on CAR’s buyer representation agreement, this commentary is on an earlier draft of the agreement that was still a work in progress, and spends an inordinate amount of time examining grammar, formatting, and design in an early draft of the form.
“Moreover, the report contains wild speculations that brokers using C.A.R. forms will try to get around the NAR settlement. CAR supports the goals of the settlement and is working to help members have clear conversations with their sellers around compensation options,” Manson said. “The report also says that the draft form has too much information about what sellers can expect regarding marketing their home. Instead, we think information about the MLS and the offer process helps educate the seller and makes the form more consumer friendly.
“The assertion that the agreement is overwhelming and unlikely to be read or understood by the average seller underestimates the capabilities and responsibilities of both sellers and their real estate agents. The complexity of the agreement reflects the complexity of California real estate transactions. The agreement is designed to cover various scenarios and provide clear guidelines, which ultimately benefit the seller by ensuring that all potential issues are addressed upfront.
“Sellers are not left to navigate these complexities alone; their real estate professional is there to guide them through each provision, ensuring they fully understand the terms before agreeing to them,” Manson said.
For many in the industry, these recent actions by the DOJ, which has made it clear that it would like cooperative compensation to be banned, feel as if regulators are circling even tighter around NAR’s settlement agreement.
“The DOJ is not done rattling cages in this industry,” Steve Murray, the co-founder of RealTrends Consulting, said. “They’ve got the real estate industry on the ropes. They have had their say in Nosalek and Sitzer/Burnett — they had their chance to give input into the settlements, which the judge granted preliminary approval of, and everyone is getting geared up for those changes — but now their whole intent seems to be to bully the industry. The DOJ bigfooting on top of CARs forms, or forms written by anyone else, is overreach.”
Since a Missouri jury found NAR and some of the nation’s largest brokerage firms liable for colluding to artificially inflate real estate agent commissions in the Sitzer/Burnett trial, industry analysts have speculated about possible DOJ involvement in the suit. This suspicion was only heightened by an appeals court’s ruling that the DOJ could reopen its investigation into the trade group.
With the deadline for the implementation of the business practice changes outlined in NAR’s settlement fast approaching, and the settlement’s final approval hearing slated for late-November, industry analysts believe that the DOJ’s recent actions are good indications that some type of involvement is bound to happen.
Ryan Tomasello, an analyst at KBW, sees a few possible avenues for potential DOJ involvement.
“One would be formal involvement by the DOJ through the NAR settlement approval process, which could hold up the approval process of that settlement and elongate the period of uncertainty for the industry,” Tomasello said. “Another route would be for the DOJ to take enforcement actions in a more piecemeal fashion, similar to what we saw with them issuing a formal inquiring into the CAR forms. It is possible that they are out doing that now and we just aren’t aware.
“It is also possible that the DOJ could essentially puppeteer additional changes from behind the scenes by putting pressure on different large groups to send the signal of what the DOJ does and does not like. Whether or not the industry will then agree with the DOJ is a question of whether they want to run the risk of not listening to those signals and risking additional legal action or more formal scrutiny by the DOJ. And then of course the DOJ could relaunch a full blown investigations into NAR, that results in another legal battle,” Tomasello said.
As the industry waits for potential actions from the DOJ, Tomasello said many major players are struggling with the uncertain environment this has created.
“It is unclear for the industry what the final changes may exactly be and what the new way of doing business is going to look like going forward. It is putting a cloud over the industry,” Tomasello said. “I think it is just a period of time where the industry is going through this transition, and no one really knows how long it is going to take and what the end game looks like.”
