DOJ Calls for “Decoupled” Commissions in Rebuke of Lawsuit Settlement


In a lengthy and methodical court filing late last night, lawyers for the Department of Justice (DOJ) excoriated a recently proposed settlement in one of the many ongoing commission lawsuits, in a move that is sure to cast doubt on other settlements agreed to by real estate companies, and foreshadows a separate push by federal regulators to enact deeper changes to commission structures.

The case, known as Nosalek v. MLS PIN, saw the Massachuesttes-based MLS agree to rule changes that have propagated across the real estate industry in recent years, including allowing compensation offers of $0 to buyer agents and proactively informing consumers that commissions are negotiable.

But the DOJ made it clear that it believes these tweaks are “largely cosmetic,” arguing that as long as commissions are paid by the seller, real estate markets are illegally constrained.

“Preventing sellers and listing agents from setting buyer-broker commissions would

promote greater price competition and innovation in the market for brokers’ services,” the DOJ lawyers wrote. “And most, if not all, buyers would likely prefer a fee structure that does not reward their broker for helping them to pay more for a home.”

While big brokerages like Keller Williams have touted their settlements of some of the commission cases as a way for the industry to move on from the expense and drama of high-profile litigation, the DOJ’s long-simmering interest in real estate has lurked as a larger threat to the traditional “cooperative compensation” model of real estate—a model long championed by the National Association of REALTORS® (NAR) as positive for consumers.

Although the DOJ is currently awaiting an appellate court’s decision on whether it can reopen a civil inquiry into NAR rules, antitrust regulators appear eager to stay involved in the ongoing litigation, using powers granted by a 2005 law that allows it to intervene in settlements that are “inequitable.”

Notably, none of the settlements reached by big real estate companies have received final approval from a judge at this point.

In the MLS PIN filing—known as a “statement of interest—” the DOJ laid out a broad roadmap of complaints and allegations that stretch further than those of the class-action plaintiffs, delving deep into NAR’s history of price fixing and pointing to regions where MLS rules were tweaked but commission rates remained the same.

“There is no reason to believe that the settlement will reduce broker commissions for the class,” the DOJ wrote. “To the contrary, several current cases allege that analogous rules are anticompetitive for the same reasons that the current (buyer compensation rule) is, and analogous rule changes reflect no meaningful benefit for home sellers or buyers.”

Specifically, the DOJ cites a Seattle-area MLS, known as NWMLS, which proactively allowed offers of $0 for buyer agents back in 2019, and in 2022 tweaked another rule to provide more transparency to consumers.

“Neither revision appears to have led to a decrease in buyer-broker commissions,” the DOJ claimed, adding that it conducted its own analysis of commissions in the region following the change.

And making its own objective completely explicit, the DOJ urged that the MLS PIN settlement include a blanket injunction against offers of compensation on the MLS, moving to a “decoupled” system where buyers pay their own agents.

NAR and other real estate advocates have long argued that this move will put homeownership further out of reach, especially for historically disadvantaged groups, who will not be able to afford their own agent.

While some both inside and outside the industry have proposed that buyer commissions could be financed as part of a mortgage—a proposal NAR has so far rejected—the DOJ offered another scenario.

“While some buyers might choose to pay their buyer (agents) out of pocket, other buyers might request in an offer that the seller pay a specified amount to the buyer (agent) from the proceeds of the home sale,” the DOJ wrote.

This would essentially preserve a portion of the current system, the DOJ said, except that sellers and buyers would be the ones negotiating who pays the commission. Sellers would compare offers in which the buyer was requesting that buyer agent compensation be paid by the seller with offers where the buyer paid their own agent’s commission, and with simple math could understand which offer was higher.

“Buyers therefore would not need to come up with additional funds at closing in order to compensate their (agents),” the DOJ argued. “Instead, they and other buyers would benefit from increased competition between buyer (agents).”

It remains unclear when or if the DOJ might file similar “statements of interest” in other cases. Importantly, none of the other class-action cases that have settled involve an MLS as a defendant, as is the case in MLS PIN, although they all involve the same rules and practice of “cooperative compensation.”

Anywhere and RE/MAX have said they expect a hearing on the final approval of their settlements in the Burnett case by May.

The U.S. Court of Appeals for the D.C. Circuit heard oral arguments on the DOJ’s attempt to restart its investigation back on Dec. 1, and is expected to issue a ruling in the coming weeks.





Source link

About The Author

Scroll to Top