The Department of Justice secured a green light to reopen its own probe into real estate’s most powerful trade group.
A federal appeals court ruled last week the Department of Justice could renew its investigation into the organization and its policies, reversing a lower court’s decision on a 2020 settlement between the National Association of Realtors and the agency.
At the time, the department agreed to drop its probe into the 1.4 million-member organization in exchange for a handful of rule changes. But the DOJ backed out of the settlement less than a year later, saying it was interested in a “broader investigation” into the trade group’s policies.
The reversal is a win for the agency, and comes at a fraught time for NAR. The group already agreed to change or eliminate several of the rules targeted by the DOJ’s initial inquiry as part of a $418 million proposed settlement in the landmark class-action lawsuit known as Sitzer/Burnett.
Now it’s up to the department to decide whether to continue investigating the trade group while it faces a looming presidential election, the results of which could impede its progress, in the name of making its mark on a first-of-its-kind shift for key functions in the real estate industry.
Years in the making
At the heart of the issue is the wording in a 2020 agreement that marked the end of the department’s last probe — but didn’t close the door on future investigations into the trade group’s practices. The same policies are now in a renewed spotlight, thanks to a wave of class-action lawsuits that secured a historic settlement from NAR.
But the DOJ has a history of pursuing its own actions even if private courts have already intervened on a particular issue, said antitrust attorney Dylan Carson.
“DOJ likes to not rely on private practice to resolve competition concerns,” Carson said. “The government may want its own stamp on what the rules of the road for the real estate industry are.”
The DOJ had several of NAR’s policies in its crosshairs when it set its sights on the trade group in 2018, including the Participation Rule. The policy requiring listing brokers to offer compensation to buyers’ agents on NAR-controlled multiple listing services, is at the heart of the lawsuits that culminated in a key rule change by the trade group.
After two years, the agency agreed to halt its inquiry into that rule and its Clear Cooperation Policy, which requires brokers to list properties on the MLS within one day of the start of marketing.
In exchange, NAR agreed to change four other policies, including barring agents using affiliated MLSs from concealing compensation offers from consumers and from filtering or distributing listings based on the amount of commission offered. The agreement also forbade the organization from allowing buyers’ agents to represent their services as free and restricting access to lockboxes.
But eight months after settling the probe, the department — then under the Biden Administration — reneged on the deal and issued a new set of subpoenas targeting the Participation Rule, Clear Cooperation Policy and others outlined in the proposed deal.
In the years-long court battles that followed, NAR argued that, according to language in the closing letter issued by the agency to the trade group along with the settlement, the agency had agreed not to pursue further investigation. But the appellate court’s latest decision rejected that argument.
“As articulated by [the dissenting judge], NAR believes that the government should be held to the terms of its contracts,” a spokesperson for the group said in an emailed statement. “We are reviewing [Friday’s] decision and evaluating next steps.”
Next Steps
The DOJ now has the green light to move forward with its probe, which would require NAR to turn over documents and submit to depositions, among other actions.
A reopened antitrust probe could further complicate NAR’s claim that it does not engage in anti-competitive practices, even after a jury found in October that the trade group and two brokerages colluded to inflate commissions.
But whether the agency continues to investigate depends largely on the time and resources it wants to dedicate, especially with a presidential election on the horizon and other high-profile antitrust issues on the docket, said Stephen Calkins, an antitrust law professor at Wayne State University Law School.
With a private settlement agreement on the table, the department may decide to forego further action until after it has time to evaluate how the agreed upon changes affect the market.
The department is likely “embarrassed institutionally,” he said, after spending years of resources on building and litigating its case, only to be upstaged by Sitzer/Burnett without a resolution.
“[There’s] this fascinating dynamic of an arrangement people have criticized for a very long time, and it’s private class-action attorneys that brought change and not the [DOJ],” Calkins said.
The DOJ has notably not weighed in on Sitzer/Burnett, though it did intervene in a similar antitrust lawsuit against an MLS in the Northeast. The agency twice pushed back against proposed settlements in the lawsuit, which does not name NAR as a defendant, arguing the terms “merely prescribe cosmetic changes” rather than overhauling the alleged anti-competitive policies.
Under the proposed settlement, the defendant, MLS PIN, said it would allow listing brokers to offer $0 as compensation for buyer’s agents, but the agency argued the rule didn’t go far enough. It instead recommended the defendants decouple MLS access from commissions entirely, which NAR has also agreed to in its proposed agreement.
But if the DOJ holds off on pursuing the investigation, Calkins said it could risk losing the institutional knowledge it’s built up over several years.
“If you wait five years, the people who know about the business might be gone,” Calkins said. Without them, “it might be like starting all over again.”
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