In 2019, a group of home sellers in Missouri initiated a class-action lawsuit against the National Association of REALTORS® (NAR) and several other defendants. The plaintiffs alleged that real estate commissions were too high, buyer’s firms were paid too much, and NAR’s REALTOR® Code of Ethics, MLS Handbook, and the practices of the corporate defendants contributed to inflated commission rates. The trial for this case took place in October 2023, and the verdict was announced on October 31, 2023, with the plaintiffs prevailing.
The plaintiffs challenged NAR’s “participation rule,” which mandated MLS participants to offer compensation to cooperating firms. This requirement meant that when listing a property on the MLS, the listing firm had to make an offer of compensation to cooperating firms, which could be buyer’s firms or subagent firms. Previously, NAR had interpreted the offer of compensation to require offering at least one cent. Following the verdict, NAR reinterpreted this rule to allow for an offer of zero cents.
The legal analysis in this antitrust case revolved around two potential approaches: the “per se” rule and the “rule of reason.” The court instructed the jury to apply the per se rule, which presumes certain conduct to unreasonably restrain trade in violation of the Sherman Act. Per se violations are inherently anticompetitive and automatically unlawful, with no opportunity for the defendant to justify or defend their actions. The only determination left for the court is the extent of damages and attorney fees, with per se violations carrying a conclusive presumption of anticompetitive effects. The per se categories of antitrust violations include price-fixing conspiracies, specific group boycotts and tying arrangements.
In contrast, the rule of reason is a balancing test that evaluates the pro-competitive and anticompetitive aspects of a practice affecting market competition. Courts under the rule of reason assess whether a restraint on trade promotes or suppresses competition, considering factors such as the nature of the restraint, its impact on market conditions and its intended purpose. If the overall effect is anticompetitive, the restraint is deemed unreasonable and illegal.
As this case was decided under the per se rule, the jury swiftly returned a verdict favoring the plaintiffs and holding the defendants liable for $1.78 billion in damages, which is tripled to $5.4 billion in this type of lawsuit. Before trial, two brokerage defendants settled for a total of $138 million while another settled in February 2024 for $70 million. NAR agreed to a proposed settlement of $418 million in damages along with a number of practice changes. The proposed settlement was announced on March 15, 2024. Shortly after NAR agreed to the proposed settlement, another defendant agreed to settle for $57.5 million. However, as of April 2024, one defendant remains. It is important to note that all these settlements are still pending judicial approval, which has not been granted as of April 2024. The judge retains discretion in approving or rejecting the proposed settlements.
Moreover, it is essential to recognize that not all firms are part of the NAR proposed settlement, and the settlement does not affect class actions initiated by homebuyers. Further updates on the implications of the proposed settlement and real estate practice in Wisconsin will be communicated as soon as the WRA legal team obtains new information.
NAR and the DOJ: A short history
The United States Department of Justice (DOJ) and NAR have a past going back to at least 1950 when the DOJ got a favorable U.S. Supreme Court decision against the National Association of Real Estate Boards, which was the precursor to NAR. At that time, the precursor to NAR imposed mandatory fee schedules for its members and mandated specific commission rates, with deviations from these schedules deemed as violations of its Code of Ethics. The Supreme Court’s ruling characterized this practice as price-fixing, highlighting the intersections of antitrust law and brokerage services.
The DOJ has maintained an interest in NAR’s activities over the years, but more recent history demonstrates the situation with the DOJ and NAR as of April 2024. The DOJ initiated renewed investigations into NAR, leading to a settlement agreement in November 2020. As part of this settlement, NAR agreed to modify four policies: allowing disclosure of MLS offers of compensation to consumers, prohibiting misleading claims of free services unless no compensation is received, prohibiting MLS participants from filtering listings based on compensation offers, and prohibiting access restrictions to lockboxes unless instructed by the seller.
However, in July 2021, the DOJ withdrew from the settlement, prompting NAR to sue the DOJ in September 2021, arguing that a deal is a deal and the DOJ cannot unilaterally withdraw. In January 2023, NAR secured a favorable decision at the circuit court level. Subsequently, in November 2023, the DOJ appealed NAR’s victory at the circuit court, leading to oral arguments at the D.C. Court of Appeals in December 2023. In April 2024, the court found in favor of the DOJ, which means that the DOJ is able to withdraw from the settlement and reopen the investigation.
Nosalek v. MLS PIN: Yet another class action
This case was initiated on behalf of home sellers against MLS Property Information Network (PIN), which serves Massachusetts, Rhode Island and New Hampshire. The involved parties reached a settlement agreement that established a $3 million settlement fund along with implementing rule changes. These changes included shifting the responsibility of making an offer of compensation in the MLS from the listing firm to the seller and permitting the offered amount to be zero. The settlement also introduced additional language emphasizing the negotiability of the buyer’s firm commissions, although they were always negotiable.
The settlement was pending court approval until the DOJ filed a Statement of Interest on February 15, 2024. The DOJ Statement of Interest advocates for an injunction, making sellers and buyers independently responsible for their respective commissions. In essence, the DOJ wants no offer of compensation from whatever source regardless of whether it is posted on the MLS or elsewhere. While the court can potentially approve the settlement despite the DOJ’s objections, this outcome appears unlikely given NAR’s proposed settlement agreement that prohibits offers of compensation on the MLS.
It is conceivable that the parties in this case may seek to renegotiate the settlement terms to clarify that regardless of the source of the offer of compensation, it would not be displayed in the MLS. As of April 2024, the final resolution of this case remains uncertain. MLS PIN is not wholly owned by a REALTOR® association and therefore is not covered by the NAR proposed settlement agreement, but MLS Pin could opt in to the settlement agreement by following the process outlined in the proposed settlement terms.