National Association of Realtors Spars with Justice Over Unapproved Settlement in Battle Over Commission-Related Policies

Last month, the National Association of Realtors (“NAR”), the largest real estate industry trade association in the United States, filed suit against the U.S. Department of Justice (“DOJ”), seeking to end an investigation into policies governing multiple listing services (“MLSs”) that reduce competition among real estate brokers.

The petition, filed in federal court in Washington D.C., claims that the DOJ wrongfully withdrew from a settlement agreement with the NAR, negotiated in the closing months of the Trump administration.  The NAR asserts that it agreed to the settlement in exchange for the DOJ’s promise to close certain investigations into NAR rules and policies that, among other things, restrict the way that home sellers and their listing agents disclose commissions to buyer’s agents.  The petition seeks to quash the DOJ’s new civil investigative demand (“CID”) into those same policies.

In an aggressive move, the NAR’s petition asserts that the DOJ, as part of the settlement and proposed consent judgment with the NAR, promised to close its long-running investigations and therefore cannot issue new investigative demands regarding the same conduct.  The NAR claims that DOJ’s agreement is a binding contract, even though DOJ withdrew from the agreement prior to  court approval and the agreement included a reservation of rights that it would not limit DOJ’s ability to investigate any NAR rule or practice.

The NAR’s petition relies on the Antitrust Civil Process Act, which grants broad investigative authority to the DOJ, but also allows the recipient of a CID to move to quash in certain circumstances.  CID recipients have typically invoked this provision when a claimed exemption protects the conduct at issue or when a demand is overbroad or burdensome.  Framing the dispute in implied political terms, the NAR’s petition (before a Trump-appointed district court judge) asserts that DOJ should be held to the terms of the agreement it reached with the NAR despite the change in administrations.

While the petition discusses several cases in which the DOJ was compelled to stick to the terms of a negotiated settlement, none of those cases discuss either a court’s enforcement of a DOJ promise to cease investigations into ongoing conduct, or a situation, like this, where a settlement was required to be approved under the Tunney Act but had not yet received the court’s sign-off.  The NAR’s submission notes that its attorneys admitted to the DOJ, in the course of settlement negotiations, that the NAR does not contend it has immunity from future investigations by the DOJ.

The DOJ and NAR’s proposed consent judgment included proposed reforms to NAR rules designed to increase price competition for commissions paid to real estate agents.  Significantly, the settlement would have required the NAR to forego efforts to prevent the disclosure of buyer’s agent commissions, by barring the NAR from enforcing any rule that “prohibits, discourages, or recommends against an MLS or MLS participant publishing or displaying to consumers any MLS database field specifying the compensation offered to other MLS Participants.”  The settlement also would have prohibited the NAR from allowing buyer agents to represent their services as “free.”  Although the NAR has permitted such representations, in reality, sellers and buyers effectively share in the payment of both buying and selling agents’ commissions, which are deducted from the final agreed-upon price of the property.

Although some commentators, most notably the Consumer Federation of America, have argued that these reforms would do little to increase price competition, the DOJ’s settlement with the NAR would have been a step towards potentially reducing real estate commissions in the United States, which far outpace commissions in most other developed countries.

This skirmish has played out across a backdrop of increasing scrutiny of the NAR’s practices and influence over rules governing MLSs around the country.  Several proposed class action lawsuits are pending in federal courts, which seek to upend MLS rules controlling how commissions are determined.  In particular, these suits challenge the NAR’s Buyer Broker Commission Rule, which mandates that listing agents make a “blanket unilateral offer” of commission in an MLS listing.  In addition, one real estate brokerage that operates outsides the NAR paradigm, REX Homes, has brought suit against the NAR and Zillow for segregating and disadvantaging its listings on Zillow’s popular and dominant website, a common gateway for buyers.  REX’s case and two of the proposed class actions have each survived a motion to dismiss.

Whether the NAR’s petition to quash the DOJ’s investigative demands is successful—or more likely, backfires, by increasing attention to the NAR’s practices—remains to be seen.  Either way, a microscope is on real estate commissions in the United States, and the NAR’s attempt to shut down the DOJ’s investigation will not stop that scrutiny.

Edited by Gary J. Malone

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