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| Stephen Brobeck |
Washington, DC. – Last week, the U.S. Department of Justice’s Antitrust Division announced that it was withdrawing from the proposed settlement with the National Association of Realtors (NAR) “to permit a broader investigation of NAR’s rules and conduct.”
“This withdrawal by the Department of
Justice is good news for consumers for two reasons," stated Stephen
Brobeck, a senior fellow at the Consumer Federation of America (CFA).
·
"First, the proposed settlement would not
have significantly advanced price competition in a marketplace with high,
fairly uniform commissions;
·
"Second, the settlement threatened to
undercut several class action lawsuits that seek to remove the most important
barrier to price competition.”
The key elements of the proposed settlement were:
(1)
brokers were to make the commission offered to
buyer agents on multiple listing services (MLS) publicly available, and
(2)
buyer agents were prohibited from representing
their services as free to consumers.
“Although the proposed
settlement would have given buyers more information about buy-side commissions,
it would not have given these home purchasers adequate opportunity to negotiate
these fees,” noted Brobeck.
“This opportunity would
only occur if buyer and seller commissions were uncoupled, the main goal of
class action lawsuits that have advanced in the courts,” he added.
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| President Joseph R. (Joe) Biden |
Proposed Settlement Would Not Have
Created Price Competition
The key barrier to price competition is the NAR’s buyer broker commission rule
that requires all brokers to make a blanket, non-negotiable offer of buyer
broker compensation to participants in the MLS.
This rule institutionalizes
a very strange and anti-competitive method of broker compensation.
·
Sellers and their listing agents decide the
commission to be paid to the buyer broker working with the home
purchaser.
· · Buyers not only cannot negotiate this commission but usually are not aware of its level because buyer brokers either do not discuss it with them or inform them that it is paid by the seller.
On the other hand, sellers have little ability to negotiate the commission rate
down.
If asked, their agents will correctly inform sellers that
if they offer a low buyer broker commission, buyer agents may steer prospective
buyers away from their property.
While sellers ostensibly have the ability to negotiate the
commission they pay to their own agent, research by CFA shows that
when home sellers ask agents whether they would lower this commission,
three-quarters refused to do so.
“Real estate agents compete vigorously for clients but not by offering lower
commissions,” said Brobeck.
“As a result, commissions remain high and fairly uniform,” he
added. A large majority of commissions range from five to six percent and
are the same in a particular area.
"Listing agents,
though, will sometimes cut one-half or one percent off their commission if the
home is expensive, they are the sole agent involved in the sale, or if they
help a consumer sell their home and purchase a new one.
"Even then, the agent usually receives at least $20,000 in
commission on the sale of a $400,000 home.
"In England, by comparison, real estate agents
typically receive less than two percent for facilitating the sale of a
home."
The proposed settlement would, depending on the effectiveness of the buyer
agent commission disclosures, have discouraged steering.
But it would not have given buyers the ability to negotiate these
commissions.
A CFA analysis of the
proposed settlement noted several ways that agents could easily thwart the
intention of the fee disclosure.
Proposed Settlement Would Have Undercut
Class Action Antitrust Lawsuits
Several class action lawsuits seek remedies for lack of price competition by
requiring an uncoupling of listing broker and buyer broker commissions.
·
Both buyers and sellers would negotiate and pay
their own commissions.
·
Buyers would then have the ability to negotiate
down buyer agent commissions that are usually 2.5 to 3 percent.
·
More sellers would be likely to seek a lower
commission from their listing agent.
·
Discount brokers using MLSs, now hamstrung by
coupled commissions forcing them to offer buyer brokers the going commission
rate, would be free to offer real discounts.
·
The practice of newly licensed, unskilled agents
charging the same commission as highly competent, experienced agents would no
longer be supported by industry rules.
In the first two lawsuits – Moehrl v. NAR and Sitzer v. NAR – the courts
have already rejected the request of the NAR for dismissal of the cases.
The 25-page decision of the court hearing on Moehrl
found:
“In sum Plaintiffs allegations plausibly show that the
Buyer-Broker Commission Rules prevent effective negotiation over commission
rates and cause an artificial inflation of buyer-broker commission
rates.”
The court noted that it’s decision was “in accord with conclusions
reached by a district court addressing the same issues in Sitzer v. NAR.”
The proposed settlement would have undercut these class action lawsuits.
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| Michael Lissack |
An opinion piece written by a real estate broker and published in Inman News (Michael Lissack, November 23, 2020) asserted that “the Moehrl lawsuit has thus been rendered moot.
"The DOJ has taken action on the two claims at issue, and it
disagreed with Moehrl’s proposed remedy.”
The author added: “The DOJ-NAR settlement works to pre-empt
alternative resolutions of the issues common to all three lawsuits: disclosure
and rules.”
Noted CFA’s Brobeck: “While it may be an exaggeration to say that
the lawsuit was ‘rendered moot,’ the proposed settlement would certainly have
been used by the NAR in its defense and possibly to great effect.”
Did the NAR Cut a Deal with Trump
Officials to Undermine the Lawsuits?
There is no disputing that the proposed settlement would have posed challenges to plaintiffs in the class action lawsuits. And there is some circumstantial evidence to suggest that the NAR cut a deal with Trump officials to undermine the lawsuit.
· As noted above,
the proposed settlement would have weakened and possibly devastated the claims
of plaintiffs in the class action lawsuits against the NAR and other industry
groups.
· The settlement
would have limited DOJ’s pursuit of other antitrust claims against the NAR.
· The NAR appears
to have readily assented to the proposed settlement even though it had
previously defended NAR Rules that forbid MLSs from making buyer broker
commissions public.
· The proposed
settlement was announced in November 2020 just after the election.
· The Assistant
Attorney-General heading the Antitrust Division and the Division Deputy
Assistant Attorney-General who signed the original complaint both joined the
Department of Justice and received these appointments during the Trump
Administration. Both left DOJ after the election in early 2021.
· The Biden administration
appointed a career DOJ official to the position of Assistant Attorney-General
heading antitrust. The Deputy Assistant-General position is now vacant.
· It is very
unusual for DOJ to withdraw a proposed antitrust settlement. The NAR
called it a “complete, unprecedented breach of agreement.”
Noted CFA’s Brobeck: “One can speculate that the proposed settlement
received strong pushback from some career officials strongly committed to
impartial antitrust enforcement.
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| Donald J. Trump |
"After the election, these officials were able to delay a final settlement until after the departure of the Trump appointees and their replacement by career officials.
"There ensued a months-long negotiation with the NAR to give
the DOJ greater ability to continue pursuing anti-competitive practices by the
industry.
"When the NAR refused to budge, or budged only a little, the
DOJ decided to withdraw the proposed settlement.”
The Consumer
Federation of America is a national
organization of more than 250 nonprofit consumer groups that was founded in
1968 to advance the consumer interest through research, advocacy, and
education.
Contact:
Stephen
Brobeck
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