Quick Reaction to the NAR-DOJ Settlement on MLS

I’m certain that anybody reading this is already aware of the news that United States Department of Justice has filed a lawsuit against NAR alleging violation of antitrust law, and that NAR has already agreed to settle that lawsuit. Inman has the news side of things covered, so go there if you need the basics.

You come here because you need to know what this might mean.

I have to think about this more, obviously, and really tie the strands together, but my initial take is that this is the first shoe to drop, not the last. I realize that I am more paranoid than most people, and a lot of you think I’m into doom porn. Well, yeah, I am, but it likely has to do with my consulting work with 7DS Associates that involves asking, “Supposing doom happens, how do we survive and take advantage?”

Let’s get into it, quickly. I think I’ll have to write a longer more considered piece later.

The Lawsuit and Settlement

First thing to point out is that I am not licensed to practice law anywhere, and even if I were, I am not your lawyer. So consult your lawyer.

Having said that, if you’re interested, the Complaint can be found here, and the proposed Settlement can be found here.

Inman, quoting NAR, already has the things that will need to change:

1. In accordance with the MLS system’s long-standing focus on creating an efficient, transparent marketplace for home buyers and sellers, the amount of compensation offered to buyers’ agents for each MLS listing will be made publicly available. Publicly accessible MLS data feeds will include offers of compensation, and buyers’ agents will have an affirmative obligation to provide such information to their clients for homes of interest.
2. The rule changes re-affirm that MLSs and brokerages, as always, must provide consumers all properties that fit their criteria regardless of compensation offered or the name of the listing brokerage.
3. While NAR has long encouraged buyers’ agents to explain how they expect to be paid, typically through offers of cooperative compensation from sellers’ agents, there will be a rule that more definitively states that buyers’ agents cannot represent their services as free to clients.
4. With the seller’s prior approval, a licensed real estate agent will have access to the lockboxes of properties listed on an MLS even if the agent does not subscribe to the MLS.

There are some other details missing, such as the requirement that NAR appoint an Antitrust Compliance Officer within 30 days of entry of an order, but those are the big ones.

#1, 2 and 3 are all about the cooperating compensation amounts and require the rule change, which NAR will do, but more importantly, changes to the MLS software systems, training by the MLS, and so on. The logistics of that will be something MLS executives will have to deal with in the next couple of months… unless… well, we’ll turn to that ‘unless’ below.

This is Not the End

I can’t do better than the original voice of the original author of the sentiment:

Why do I say that?

The most important part of the Settlement Order, as I see it, is Paragraph XI:

XI. UNITED STATES’ RESERVATION OF RIGHTS

Nothing in this Final Judgment shall limit the right of the United States to investigate and bring actions to prevent or restrain violations of the antitrust laws concerning any Rule or practice adopted or enforced by NAR or any of its Member Boards.

See, normally, when you have a settlement, you have a settlement of everything. It’s the primary reason why people settle lawsuits, whether frivolous or not, because they don’t want to have the sword of Damocles hanging over their heads. It’s a “Fine, you win, but can we please put all this behind us?” Nobody wants to settle, then have to deal with future lawsuits on the same issues.

This paragraph says otherwise. This paragraph says that the United States DOJ is nowhere near done with NAR, its Rule or practice, or with the MLS.

I know that NAR is represented by extraordinarily competent legal counsel. There is no way in hell they agreed to a settlement like this without asking for the end of the conflict, and the DOJ essentially said GFY. And NAR gave in.

That tells me a few things.

1. NAR and its lawyers had zero confidence that they could win at trial.
2. DOJ is not finished with NAR, the MLS, and what they see as anticompetitive practices in residential real estate.
3. The lawsuit itself may have been narrowly constructed in order to get the quick victory that the DOJ wants on these four issues; there are more issues coming.

What More Issues?

What is striking about the Complaint and the Settlement is how much the language and the principles echo the Complaints of the private class action plaintiffs in Moehrl and Sitzer, the two federal civil cases making their ways through the system.

For example, ¶19 of the Complaint:

Buyer brokers may, in fact, steer potential home buyers away from properties with low commission offers by filtering out, failing to show, or denigrating homes listed for sale that offer lower commissions than other properties in the area. When buyers cannot see commission offers, they cannot detect or resist this type of steering. Steering not only results in higher prices for buyer broker services, it also reduces the quality of the services that are rendered to the potential home buyer, making it less likely that the buyer will ultimately be matched with the optimal home choice. Fear of having buyers steered away from a property is also a strong deterrent to sellers who would otherwise offer lower buyer broker commissions, which further contributes to higher prices for buyer broker services.

Well, shit, that’s basically the gravamen of the civil lawsuits: buyer brokers steering consumers. I’ve written that in previous posts on the Moehrl case. And now, here’s the United States Department of Justice coming out and agreeing with those plaintiffs, and what’s more, they got NAR to agree to settle this complaint.

Granted, the settlement specifically says NAR does not admit “liability, wrongdoing, or the truth of any allegations in the Complaint” but… c’mon now. Judges and juries are human beings. So that’s going to be a tough row to hoe for NAR in the two civil lawsuits and any future lawsuits. It’s not an admission, but… boy, that’s tough.

What’s more is that this lawsuit and settlement puts a bullet in the head of one of NAR’s big defenses in the civil lawsuits, which was already hurting badly. Back in October of last year, I wrote about the DOJ’s intervention in the civil lawsuit:

The big takeaway, of course, is that the DOJ really took NAR to the woodshed for its argument that the United States thinks the MLS is pro-competitive.

…

The DOJ flat out says that NAR “inaccurately portrays the 2008 consent decree.” Its point is that the 2008 consent decree is limited and narrow and dealt only with discrimination against online brokerages. In fact, the DOJ sounds kind of pissed off as it more or less accuses NAR of manipulating language to give the impression that the DOJ blessed the MLS system.

Well, it’s pretty hard to maintain that the DOJ thinks the MLS system is pro-competitive when the DOJ sued you for your antitrust-y behavior with the MLS… and you settled.

But consider the first three changes in the settlement: they all related to information disclosure about the cooperating compensation. The idea appears to be that this will inform consumers about how buyer agents get paid, and that transparency will lead to more competition.

Isn’t it just a short step from there to ask, “Why is the seller paying for the buyer’s rep anyhow?” That’s basically what Moehrl and Sitzer are asking.

The Lockbox and REALTOR Membership

It is #4, however, that was surprising… and it signals where the DOJ might go next. First, the Complaint says:

NAR and its members have also adopted a policy and practice that limits access to lockboxes to only those real estate brokers who are members of a NAR-affiliated MLS. Lockboxes hold the keys to a house to allow brokers and potential buyers to access homes for sale, with permission from the selling home owner, while continuing to keep the homes secure. Such lockboxes are accessed by a real estate broker using a numerical code or digital Bluetooth® ‘key’ enabling the real estate broker to show buyers homes that are listed for sale.

NAR and its affiliated MLSs have adopted a series of rules (set forth in the NAR Handbook, Policy Statement 7.31) that limit access to lockboxes only to those real estate brokers that are members of NAR and subscribe to the NAR-affiliated MLS. Licensed, but non-NAR affiliated brokers are not allowed to access the lockboxes, thereby depriving those brokers the ability to show homes listed for sale. This policy and practice effectively deprives licensed real estate brokers that are not members of NAR from accessing properties for sale to show potential home buyers, thereby lessening competition for buyer broker services.

First of all, this chops out one of the legs of the value proposition of MLS membership. Brokers and agents belong to the MLS for three main things: all the listings, cooperation and compensation, and lockbox access. (In some cases, the MLS also provides forms, but those are mostly Association-provided.)

But second, and more important, the DOJ had a problem with NAR “limiting access to lockboxes only to those real estate brokers that are members of NAR.” Is it me or does it not seem like a big leap of logic to then ask why the DOJ would be fine with NAR limiting access to the MLS itself only to those real estate brokers that are members of NAR.

After all, in the Thompson jurisdictions and in California, the law already prohibits tying REALTOR membership to MLS access. So that’s not exactly a new idea in the law. And now, here’s the United States looking skeptically at limiting access to a key service only to REALTORS.

I’m not sure if there’s a bigger zombie apocalypse situation for the REALTOR Association than the forced unraveling of the MLS and the Association. I don’t want to say I told you this could be a problem… but, I told you this could be a problem for years.

And I really, really hate to have to bring this up… but I can’t see how I could be intellectually honest and not bring it up: NAR just passed a series of Code of Ethics changes that are going to be hugely unpopular with roughly half of the membership. I wrote this post proposing an alternative, precisely because I was concerned about the brewing civil war within REALTOR ranks.

Based on emails and texts and personal messages I’ve gotten, as well as conversations I’ve had with brokers and agents from red states, I have to tell you that a lot of people are giving serious thought to how they could keep MLS access while dropping REALTOR membership… because they no longer wish to be REALTORS.

And now, we get this from the United States Department of Justice.

This is not the end. It is not even the beginning of the end. It is, however, perhaps the end of the beginning. What comes next will be the real hot and heavy.

You Have Been Prepping, Right?

When I wrote my initial take on Moehrl v. NAR, I titled the post Gotterdammerung. The twilight of the gods is the end of the world in Norse mythology. Quite a few people said I was overreacting. “This won’t go anywhere!” was the common response.

You tell me if I was overreacting then, or overreacting now. Because I do feel that many MLS executives, MLS Boards, and REALTOR leaders were underreacting to the lawsuits and the weaknesses they revealed, and they might be underreacting now to what this lawsuit-settlement reveals.

If you are a 7DS client or past client, or just someone who has been following my work, I sincerely hope you’ve been thinking about contingencies and have been drawing up contingency plans. God only knows how much I’ve preached the idea of thinking like a prepper: hope for the best, but prepare for the worst.

Well, it’s time to break out your contingency plans and see if they’re still relevant. If you don’t have a contingency plan, it’s time to call your favorite consultant whether me or anybody else, and start working on one pronto. You probably have enough time to get one together before the next shoe drops.

For those of us who have been prepping, well… it’s the end of the world as we know it, and we feel fine.

-rsh