Less than two weeks after the U.S. Department of Justice pulled out of a proposed settlement with the National Association of REALTORS® (NAR) to broaden its investigation into the trade group’s rules, the agency has provided a big clue as to one of the rules it will be digging into: the Clear Cooperation Policy.
In May 2020, The PLS (pocket listing service) filed a federal antitrust lawsuit against NAR and two large multiple listing services over the controversial policy, saying violated federal antitrust law by discouraging listings on its service, which focused on pocket listings (listings not on the MLS).
However, the judge ruling in the case said that antitrust laws were enacted to protect competition, not competitors. Holcomb said that PLS failed to allege any plausible facts showing consumers were harmed. (Clear Cooperation Policy requires listing brokers to submit a listing to their MLS within one business day of marketing a property to the public, in an effort to curb pocket listings.)
The case was dismissed in February and The PLS appealed. On June 2, the DOJ Antitrust Division filed an amicus brief in support of neither party, but echoing the arguments in The PLS’s appeal.
Why the DOJ Withdrew From Agreement
The amicus brief also notified the court that the DOJ had a then-pending consent judgment with NAR. But on July 1, the DOJ withdrew from that agreement, saying NAR refused to modify the settlement to protect the agency’s ability to investigate other NAR conduct that could impact competition in the real estate market.
At the time, the DOJ did not say which other NAR conduct it hoped to address. But in a legal filing July 7, the agency filed a letter in the PLS case updating the court. The letter noted that the DOJ had said in its amicus brief that the pending consent order against NAR didn’t have anything to do with the Clear Cooperation Policy, which the DOJ had investigated until Nov. 19.
“On the same day the United States filed the proposed consent judgment, it closed an investigation into the Policy,” the brief said. “‘No inference should be drawn, however, from the Division’s decision to close its investigation into these rules, policies or practices not addressed by the consent decree.’”
But the letter continued to point out that the DOJ had withdrawn from that proposed settlement because the agency “determined that the settlement will not adequately protect the department’s rights to investigate other conduct by NAR that could impact competition in the real estate market and may harm home sellers and home buyers. The department is taking this action to permit a broader investigation of NAR’s rules and conduct to proceed without restriction.”
The agency did not elaborate further. The letter may be the latest indication that antitrust enforcement under the Biden administration will be tougher on the real estate industry than under the Trump administration.
Future Antitrust Enforcement
Last month, Lina Khan, a champion of antitrust reform, was appointed chair of the Federal Trade Commission, which, along with the DOJ, is in charge of antitrust enforcement. The move signaled that greater scrutiny of competition in the real estate industry is at hand. And last week, the Consumer Federation of America suggested that career DOJ officials may have been unhappy with the proposed settlement with NAR — a deal struck when Trump appointees were in charge — and that contributed to the DOJ’s withdrawal.
Asked whether NAR read the DOJ’s letter to indicate that the agency had re-opened its investigation into the Clear Cooperation Policy and whether the DOJ had contacted NAR about an investigation into the policy, NAR spokesperson Troy Green told Inman via email, “We can’t speak for the DOJ.”
“NAR is confident in its policies and continues to believe that this [PLS] lawsuit has no legal merit and will continue to vigorously contest it,” Green said. “After originally dismissing this case in February 2021, a federal judge noted in his opinion that the Clear Cooperation Policy (CCP) provides consumers with ‘access to more information regarding market conditions, enabling them to make better informed choices about the bundle of real estate brokerage services that will best serve their needs.’”
“As a leading advocate for homeownership, in November 2019, NAR determined that CCP was needed as a crucial protection for consumers and it was overwhelmingly adopted. It ensures that publicly marketed property listings are widely available and accessible to all consumers,” Green continued.
“CCP also ensures that a broker receives the seller’s consent when they choose to keep their property off the MLS and therefore waive the benefits of the MLS. While NAR believes that marketing a property on the MLS serves the best interests of the vast majority of sellers and buyers, CCP still allows for flexibility for those with privacy concerns. We regularly review our rules and policies to protect consumers and provide transparency as well as address new information and developments and will continue to do so.”
Judge Faults NAR for Being ‘Slow to Innovate’
Regarding the PLS case, the DOJ said in its amicus brief that it took no position on the merits of the case or the truth of its allegations, “but file this brief because the district court appears to have committed several errors of law that could adversely affect antitrust enforcement well beyond the instant context.”
In its amicus brief, the DOJ stressed that, contrary to what the lower court seemed to indicate, reduced prices or fewer services are not the only recognized anticompetitive effects.
“That proposition is legally incorrect because there are more types of cognizable anticompetitive effects, including reductions in quality, consumer choice, innovation, and harm to the competitive process,” the amicus brief said.
The DOJ said PLS had plausibly alleged each of those effects. For instance, PLS’ allegation that NAR-affiliated MLSs have been “slow to innovate and unresponsive to consumer demand,” with “obsolete” software and “outdated technology.”
“PLS attributes this inefficiency in part to the regionally-fragmented nature of the NAR-MLS system,” the amicus brief said. “NAR’s Policy, by impeding the growth of national listing networks like PLS, perpetuates the fragmented and inefficient status quo.”
For the DOJ, the office exclusives exception of the Clear Cooperation Policy, which some real estate brokers have threatened mutiny over, has an impact on consumer choice.
“The upshot of the Policy, as the district court recognized … is that sellers wanting to market their homes through agents but off the MLS system must either (1) use the ‘office listing,’ which in practice means hiring a large brokerage that the seller may not prefer, or that may not include the agent that the seller prefers, or (2) hire one of the minority of brokers and agents who are not NAR members,” the amicus brief said.
In other NAR legal news….
Real estate giants Zillow and NAR are attempting to get an antitrust lawsuit filed by REX Real Estate tossed, hitting back against the discount brokerage’s allegations that it is the target of an illegal boycott.
REX sued Zillow and NAR in March, alleging antitrust violations for an NAR rule that prompted Zillow to segregate non-multiple listing service listings from MLS listings on its website, including listings from REX, which largely operates outside of MLSs because of the firm’s belief that they inflate real estate commissions.
In a motion to dismiss the case, Zillow said REX’s basic objection was simply that it doesn’t like how its properties appear on Zillow’s online platforms — a reason that doesn’t give rise to a legal claim.
Watch for updates in CVAR Connect!
Source: NAR, Inman