Last year the Department of Justice and the National Association of Realtors reached a historic pact to clear up any antitrust issues and provide greater transparency to consumers about commissions and increase competition among brokers. Everyone thought the deal was done, then the Biden DOJ quickly nixed the agreement.  What does this mean for realtors?  Why is the DOJ reopening the agreement?

 

Why did the Department of Justice Nix the agreement?

Here is the press release from the Department of Justice

Today the Justice Department’s Antitrust Division filed a notice of withdrawal of consent to a proposed settlement with the National Association of Realtors (NAR). The department has also filed to voluntarily dismiss its complaint without prejudice. The department determined that the settlement will not adequately protect the department’s rights to investigate other conduct by NAR that could impact competition in the real estate market and may harm home sellers and home buyers. The department is taking this action to permit a broader investigation of NAR’s rules and conduct to proceed without restriction. 

“The proposed settlement will not sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR,” said Acting Assistant Attorney General Richard A. Powers of the Justice Department’s Antitrust Division. “Real estate is central to the American economy and consumers pay billions of dollars in real estate commissions every year. We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.”

Under a stipulation signed by the parties and entered by the court, the department has sole discretion to withdraw its consent to the proposed settlement. The proposed settlement may also be modified with consent from the department and from NAR. The department sought NAR’s agreement to modify the settlement to adequately protect and preserve the department’s rights to investigate and challenge additional conduct by NAR, but the department and NAR could not reach an agreement. Because the settlement resolved only some of the department’s concerns with NAR’s rules, this step ensures that the department can continue to enforce the antitrust laws in this important market. 

Where does the Department of Justice go from here?

The original suit focused on greater transparency for pricing along with access to MLS data.  The DOJ clearly wants to go farther than that with their continuation of charges against the National Association of Realtors.

It is very clear from the DOJ that they have a bigger target in mind.  “As the real estate industry’s leading trade association, NAR has rules and policies that affect millions of real estate brokers and agents and, in turn, impact millions of American home buyers and sellers, who, according to reported industry data, paid over $85 billion in residential real estate commissions last year.” (DOJ press release)

In other words, The DOJ is looking to upset the current model of commissions to drastically lower the transaction costs for consumers.  It is unclear how the DOJ would accomplish a change to commissions.  Does the DOJ expect realtors to work for free?

 

Summary

I was a bit confused by the sudden about face by the DOJ.  The market already has thousands of competitors offering low-cost/discount commission structures for listings including for sale by owner.   The prior agreement enhanced competition by making local multiple listing services more open thereby promoting additional competition.  If everyone wanted the lowest commission then there would be no full service realtors.  This has not been the case as most buyers and sellers still stick with a traditional realtor for a reason.  This means that the real estate market is comfortable with the current structure and is voting with their wallet.   The DOJ is embarking on a dangerous journey trying to dictate economic actions by two willing parties.  What is next?  Bankers charging origination fees?  Full service barbers that charge more than great clips?

The National Association of Realtors is a formidable competitor to the Department of Justice not just due to its membership but large lobbying arm.  The recent withdrawal of the prior settlement by the DOJ is just the opening bid of a lengthy battle within the industry on commissions and the various players that stand to gain or lose depending on the outcome.  Although, I’m doubtful the DOJ will be successful in changing the current model as it is so deeply entrenched, hoow this case is ultimately resolved could have profound implications on realtors and everyone in the real estate industry.  It is definitely worth watching.

 

Additional Reading/Resources:

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors MagazineThe Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

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