The Department of Justice (DOJ) is asking the real estate industry to consider a world without the practice of cooperative compensation.
In its statement of interest relating to MLS Property Information Network’s (MLS PIN) settlement agreement with the Nosalek commission lawsuit plaintiffs, filed Thursday evening, the DOJ recommended that Judge Patti D. Saris deny preliminary approval of MLS PIN’s second amended settlement agreement.
While MLS PIN claims in its filings that the proposed settlement would “eliminate … the allegedly anticompetitive rule at the heart of this Action,” the DOJ vehemently disagrees.
In its three proposed settlement agreements, which the DOJ claims are all “essentially the same,” MLS PIN states that it will make changes to its version of the National Association of Realtors’ Participation Rule, which requires listing brokers to make a unilateral, blanket offer of compensation to buyer brokers in order to list a property on the MLS.
Currently, in order to list a property, the listing broker must make an offer of at least one cent, but under the settlement, MLS PIN would drop that to zero dollars.
In its filing, the DOJ claims that this is a “cosmetic change.”
“The modified rule still gives sellers and their listing brokers a role in setting compensation for buyers’ brokers,” the filing states.
According to the DOJ, when a seller makes an offer of compensation to the buyer broker, the buyer broker does not need to compete on their compensation price in order to attract clients. In addition, the DOJ claims that since offers of cooperative compensation are published in the MLS alongside listings, home sellers who choose to offer smaller amounts or no compensation at all will be disadvantaged, as buyer brokers will “steer” clients to properties that offer higher commissions.
“As long as sellers can make buyer-broker commission offers, they will continue to offer ‘customary’ commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions — a well-documented phenomenon known as steering,” the filing reads.
“A rule change that merely expands the theoretical range of allowable buyer-broker commission offers by one cent is unlikely to reduce broker commission rates. If virtually no sellers make one-cent offers of compensation to buyer brokers now, they are unlikely to make zero-cent offers under the new Rule.”
As an example, the DOJ cites Northwest MLS (NWMLS), which no longer requires listing agents to make offers of buyer broker compensation in order to list a property. Despite this being allowed, the practice of cooperative compensation continues and agent commissions have not changed.
“The Antitrust Division’s own analysis of buyer-broker prices in large metropolitan areas in NWMLS’s region shows that the October 2022 change likewise had no meaningful effect. If that revision promoted buyer-broker competition, buyer-broker prices in large metropolitan areas in NWMLS’s region should have declined relative to buyer-broker prices in other large metropolitan areas where there were no similar changes to MLS rules,” the filing states.
“The Antitrust Division’s analysis, however, found no meaningful difference between the change in buyer-broker prices in large metropolitan areas in NWMLS’s region and the change in buyer-broker prices in other large metropolitan areas in the period after the October 2022 rule change.”
The Real Estate Board of New York (REBNY) has recently made similar changes to its rules, but the DOJ points out that this has not released it of “claims from injured home sellers or buyers,” as REBNY is still a defendant in the March commission lawsuit.
An end to cooperative compensation
Instead of the rule changes proposed by MLS PIN in the settlement, the DOJ tells Saris that prohibiting offers of buyer broker compensation (meaning that “sellers would be responsible for determining only the compensation of their own broker in the listing contract … [and] buyers would be responsible for determining the compensation of their own broker in a buyer-broker representation contract”) would better serve consumers.
“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 wrote in the filing. “If buyers set the compensation for their own brokers directly, some buyer brokers might choose to offer flat fees or hourly rates in lieu of percentage commissions, since the amount of time and effort required by a buyer broker has a weak correlation, if any, to the ultimate sales price of the house. 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.”
Buyers’ big ask
While the industry has repeatedly voiced its concerns about forcing buyers to pay out of pocket for broker representation, the DOJ claimed in its filing that while some buyers may choose to pay out of pocket, others could still choose to “request in an offer that the seller pay a specified amount to the buyer broker from the proceeds of the home sale. Thus, the current practice could continue, where the seller factors the commissions into the offer the seller is willing to accept.”
According to the DOJ, having the buyer request that the seller cover their broker fee in the offer, similarly to how a buyer may ask a seller to cover closing costs, would make it “straightforward for a seller to compare offers that include a request for the seller to pay the buyer’s broker with offers that do not include such a request.” The DOJ also noted that this type of conditional offer is permitted under federal government lending programs, thus requiring no changes to lending regulations.
A four year saga
Originally filed in 2020 in U.S. District Court in Boston, the Nosalek suit alleges that MLS PIN, Keller Williams, RE/MAX, Anywhere and HomeServices of America colluded to artificially inflate real estate agent commissions.
All of the brokerage defendants except for HomeServices of America have settlement agreements related to the suit.
The settlement agreements reached by Anywhere and RE/MAX with the Nosalek, Sitzer/Burnett and Moehrl plaintiffs have been preliminarily approved by Judge Stephen Bough, who oversaw the Sitzer/Burnett trial, and are awaiting their final approval hearing, which is set for May 2024.
Additionally, Keller Williams announced earlier this month that it had reached a nationwide settlement with the Sitzer/Burnett and Moehrl plaintiffs. The Keller Williams settlement has yet to receive preliminary approval.
In June 2023, MLS PIN reached a settlement agreement with the Nosalek plaintiffs. But in late September of last year, the DOJ intervened, stating that it had “significant concerns” about the settlement.
On Wednesday, Saris granted the plaintiffs’ motion to stay the case, which was supported by all of the defendants except HomeServices of America. In granting the motion to stay the case, Saris closed the docket before reopening it midday on Thursday so the DOJ could file its statement of interest.
HomeServices of America, Anywhere, RE/MAX and MLS PIN declined to comment on the DOJ’s filing, while Keller Williams noted that it was not a party to the settlement between the plaintiffs and MLS PIN.
The agent has to “compete” in retaining the buyer client in the first place.
I really wish the DOJ would spend about 1 month in the brokers chair to hear the antics we go thorugh in a day.
Yes, there are bad actors but do not punish the onces that work hard…..the top 20%.
Work on getting the other 80% out by allowing tougher guidelines to obtain a license in the first place.
I agree with Nan 100%!