What's Next After The DOJ's Withdrawal From NAR Settlement?

Gavel in front of open books

LEGAL UPDATE

The U.S. Department of Justice’s recent withdrawal from an antitrust agreement with the National Association of Realtors raises questions about the future of MLS and real estate commission structures. For now, though, there are no concrete answers to those questions — only speculation about what might happen next.

This speculation ranges from the possibility that the industry will tweak MLS and commissions on its own to the potential that the legal system will force such changes. Real estate broker Marian Benton believes Realtors have no issue with any MLS or commission adjustments that improve consumer protection, “because they work to get the best deal for their clients, both on the selling side and on the buying side.”

“So if the DOJ is going to come up with something which is going to help us to do that, then rock on,” said Benton, regional operating principal for Keller Williams Realty in Southern California’s Inland Empire region and operating principal for Keller Williams in the Ann Arbor, Michigan, market.

Benton stressed that she was speaking in her personal capacity and not on behalf of Keller Williams.

The agreement, announced last November, was aimed at resolving issues raised by the DOJ surrounding the MLS and broker real estate commissions. Among other things, the pact called for supplying more information to consumers about broker commissions and opening up lockbox access to agents who don’t participate in the MLS. But on July 1, DOJ pulled out of the agreement, citing the restraints it placed on a wider investigation of NAR’s rules and practices.

In a statement, NAR objected to the DOJ’s action. The group said the MLS is designed to incentivize cooperation among brokers who share information on the platform. Meanwhile, NAR added, the complementary commission arrangement — where the seller’s broker shares commission with the buyer’s broker in exchange for bringing a buyer to the table — “ensures greater equity for first-time, low-income and countless other home buyers who otherwise wouldn’t be able to afford a home and professional representation.”

NAR warned that if the DOJ doesn’t uphold its end of the deal, the group will “aggressively protect and defend any challenge to the rights of consumers to have access to a system that is pro-consumer, pro-competitive and creates a highly efficient market for the benefit of home buyers and sellers.”

A Series Of Assaults?

Steve Murray, senior adviser at RealTrends, said the now-revoked settlement between DOJ and NAR is a continuation of “a series of assaults” by the likes of discount brokerage REX, the nonprofit Consumer Federation of America and others against a system that works the way it was meant to. Murray insists that those who’ve launched these assaults have, thus far, failed to prove their case.

“It looks like we’re going to go through another whole round of court cases to prove what?” said Murray, adding that REX, the Consumer Federation of America and others keep “smearing” Realtors in this ongoing battle. “They haven’t proven anything — not yet.”

In a salvo directed at REX, the Consumer Federation of America and others in their camp, Murray said: “Well, let’s go ahead. Let’s get into the courtroom and prove your case. Show that consumers have been harmed.”

The Other Side

In a news release, REX co-founder and CEO Jack Ryan praised the DOJ’s decision to pull out of the NAR settlement. Ryan called it “a sign of hope for home consumers that the federal government is standing up to finally hold the real estate cartel accountable for overcharging home sellers and buyers tens of thousands of dollars on every transaction and steering consumers to line their own pockets.”

In a separate news release, Stephen Brobeck, a senior fellow at the Consumer Federation of America, also applauded the DOJ’s move. He said the settlement would not have meaningfully altered “a marketplace with high, fairly uniform commissions” and would have undercut several class-action lawsuits seeking to boost price competition.

Brobeck told RealTrends that he thinks Realtors will strive to hang on to current real estate commission levels and will likely succeed in the absence of intervention by the DOJ, the courts or both.

Murray said he thought the settlement between DOJ and NAR would have led to changes along the lines of those enacted two years ago by the Seattle area’s Northwest MLS. In October 2019, new Northwest MLS rules took effect that:

  • Let real estate firms publish online the amount of real estate commissions the seller is offering to pay a broker representing the buyer (known as the “selling office commission,” or SOC).
  • Lifted the requirement that a seller offer a SOC when listing a property for sale and, if there is no SOC offered, enabling the buyer and buyer’s broker to negotiate compensation for the buyer’s broker.

But, for now, any changes that might have arisen from the settlement are in limbo. In the meantime, real estate professionals wonder what the future holds.

What does the future hold?

Daryl Fairweather, chief economist at real estate brokerage Redfin, said she worries about the MLS model potentially fracturing to that point where only Compass listings would appear on the Compass website and only Redfin listings would appear on the Redfin website.

“I don’t think that would be good. It would end up adding more work for consumers to find homes,” Fairweather said. “I think the MLS is useful for having everything in one centralized location.”

The fracturing of MLS, she added, would “mean that the consumer will have a harder time knowing that they are seeing all the listings that are actually available because they’d have to work to find where those listings are advertised if they weren’t all in one central location.”

Meanwhile, Fairweather believes the crumbling of MLS would encourage more agents to embrace so-called “office exclusives.” In these situations, listings are marketed throughout a brokerage but not within MLS.

Furthermore, a breakdown of the MLS model would consolidate power among large brokerages and make it tougher for smaller independent brokerages to compete, said Alina Ptaszynski, corporate communications manager at Redfin. She noted that the sharing of listings through MLS benefits Redfin’s business model.

“The MLS is kind of a unique marketplace that you don’t see in a lot of other industries,” Ptaszynski said. “There’s certain things about the MLS that can likely be improved to encourage more innovation.”

One of those improvements, she said, would be letting agents do business across state lines without paying for access to several MLS setups.

Pressure On Commissions

As it relates to commissions, Frank Spencer, operating principal and broker at Keller Williams College Park in Upland, California, said he believes dissolution of the agreement between DOJ and NAR will pressure the industry to examine whether a buyer should cover compensation for the buyer’s broker and the seller should cover compensation for the seller’s broker. Spencer stressed that he was speaking in his personal capacity and not on behalf of Keller Williams.

He noted that this possible shift would come amid increasing compression of commission rates, with the previous “gold standard” of 6% for both sides having been whittled in many instances to 5% or less.

According to RealTrends data, the average national commission rate has been consistently falling for years, and it has nothing to do with a “new era of transparency,” says Murray. According to RealTrends data, we’ve set a new, low average national commission rate, in the range of 4.9 to 4.94 percent, down from 5.40% in 2012.

Transparency about compensation helps, rather than hurts, real estate agents and actually bolsters the value that agents bring to the table, according to Spencer. How so? The more real estate data that home buyers and sellers consume, he said, the more they need real estate professionals to help interpret it.

“I’m not concerned that we might lose our secret sauce if data and data protection go away and it becomes open-source,” Spencer said.

Changes on the horizon related to MLS and real estate commissions ultimately offer a chance to “simply and perfect our craft,” he said.

“I tend to be a believer that transparency is a good thing, and that our core value isn’t showing houses. Our core value is in negotiating the transactions and protecting the consumer,” Spencer said.

Benton, the California and Michigan broker, said: “The National Association of Realtors has got ample information and evidence to show that people who buy from for-sale-by-owners usually end up paying more money than they would if they had a Realtor negotiating the deal for them, and people who go out and find houses on their own invariably get ripped off.”


John Egan is a freelance writer for RealTrends.

This article is from the August 2021 issue of REAL Trends. It is reprinted with permission of HWMedia. Copyright © 2021.


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