NAR commissioned the report for the trade group’s Strategic Thinking Advisory Committee. Among the top 10 dangers noted were “commissions spiral downward.”
A federal court in Missouri has refused to toss an antitrust lawsuit against several real estate powerhouses, just as the plaintiffs’ attorneys filed subpoenas against Realtor associations, multiple listing services, MLS system vendor CoreLogic and, in a new twist, consulting firm T3 Sixty.
On Oct. 16, U.S. District Judge Stephen R. Bough denied motions to dismiss the smaller of two bombshell commission lawsuits filed against the National Association of Realtors and real estate franchisors Realogy, Keller Williams, RE/MAX, HomeServices of America and HomeServices subsidiaries BHH Affiliates and HSF Affiliates.
The suit, filed on behalf of homeseller Joshua Sitzer and other plaintiffs in the Western District of Missouri, alleges that the sharing of commissions between listing and buyer brokers inflate seller costs and thereby violate the Sherman Antitrust Act, the Missouri Antitrust Law and the Missouri Merchandising Practices Act.
This and a bigger, related suit in Illinois on behalf of seller Christopher Moehrl seek to have homebuyers pay their broker directly, rather than having listing brokers pay buyer brokers from what the seller pays the listing broker. Such a change could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated. Both suits seek class-action status.
The cases have attracted the interest of the U.S. Department of Justice (DOJ), which admitted earlier this month that it sent a civil investigative demand to CoreLogic relating to a probe on real estate commissions and told the federal courts NAR had inaccurately portrayed a 2008 consent decree between the trade group and the DOJ. The DOJ said, contrary to NAR’s suggestions in legal filings, the decree did not approve any NAR rule or policy as pro-competitive.
NAR and its fellow defendants sought to have the suits thrown out, arguing, in part, that a NAR rule requiring all listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers when entering a listing in a Realtor-affiliated MLS does not require a minimum amount or rate.
They also said MLSs are pro-competitive and whether to join an MLS and enforce its policies is an independent business decision, not an agreement between the defendants.
While the court has yet to make a decision regarding Moehrl, in the Sitzer case Judge Bough found that the plaintiffs had shown “the challenged conduct plausibly exerts an unreasonable restraint on trade.”
“Given the sheer market power possessed by the Subject MLS and few available listing alternatives, combined with the fact that each MLS participant must adhere to NAR listing rules or face professional sanctions and/or repercussions, Plaintiffs demonstrate the significant influence exerted by Defendants and their listing policies in the Subject MLS,” Bough wrote in an order denying the motions.
NAR not happy
In an emailed statement, NAR spokesperson Mantill Williams told Inman the trade group was disappointed in the ruling.
“However, this is only the first round,” Williams said. “As the case moves forward, we intend to demonstrate how the MLS system creates competitive, efficient markets that benefit home buyers and sellers as well as small business brokerages.”
Regarding the DOJ’s allegations that NAR had inaccurately portrayed the consent decree, Williams said, “We believe we have always accurately described the implications of the consent decree we agreed to in 2008. Regardless, the MLS system creates competitive, efficient markets that benefit home buyers and sellers as well as small business brokerages.”
NAR declined to comment on its next steps in the case or whether NAR will provide legal advice or assistance to any of its affiliated associations and MLSs receiving subpoenas.
The Sitzer complaint is on behalf of sellers who listed their homes in four MLSs in Missouri: MARIS, Heartland MLS (owned by the Kansas City Regional Association of Realtors), Southern Missouri Regional MLS (SOMO MLS) and the Columbia Board of Realtors (CBOR) MLS. These MLSs have some 30,000 subscribers combined.
On Oct. 10, the two law firms representing the plaintiffs — Williams Dirks Dameron LLC and Boulware Law LLC — filed subpoenas demanding MARIS, KCRAR, SOMO MLS, CBOR, the Missouri Association of Realtors, CoreLogic and T3 Sixty produce documents related to the case (click on each recipient’s name to view the individual subpoenas).
Danger report comes back to bite NAR
The T3 Sixty subpoena is different than the others in that it mainly concerns the DANGER Report, a report released in May 2015 detailing 50 threats, risks and challenges the real estate industry was facing at the time and would face in the near future. NAR commissioned the report from Stefan Swanepoel, chairman and CEO of T3 Sixty, for the trade group’s Strategic Thinking Advisory Committee. Among the top 10 dangers noted by the report were “Commissions spiral downward.”
The subpoena asks T3 Sixty for documents related to the firm’s communications with any of the defendants regarding the DANGER Report and to contracts or agreements with any of the defendants, including the commission of the DANGER Report. T3 Sixty must also produce the interview notes, transcripts and survey results it used when drafting the report.
More broadly, the subpoena asks T3 Sixty for all documents relating to any financial or other material support received from defendants or their franchisees or from local Realtor boards in the subject MLSs. It also asks for any publications or articles published or made available by T3 Sixty or in its possession relating to the challenged rules and/or to commission prices or levels in the United States and/or in any other country.
In an emailed statement, Swanepoel told Inman, “T3 Sixty has not received a subpoena, CID from the DOJ or any other federal agency and has nothing to do with the Moehrl or Sitzer suits. As a leading research and management consulting company in the real estate industry we will, when subpoenaed, provide information or insights based on our industry research and knowledge.”
The other subpoenas cover a lot of territory, too. Those subpoenaed must produce documents and communications from Jan. 1, 2007 to the present regarding the aforementioned NAR rule as well as another NAR rule that MLSs not publish listings that don’t include offers of compensation to buyer brokers or that include a general invitation from listing brokers to discuss terms of cooperation.
Litigants ask for everything
The subpoenas ask for extensive documentation on the inner workings of MLSs and associations as well as on the specific challenged rules. The MLS and association recipients must produce at least 40 categories of documents, including those related to:
- The recipient’s corporate structure or organization
- Any material or financial support received from the defendants or their franchisees
- Brokers or real estate services being free for buyers
- NAR’s Strategic Thinking Advisory Committee
- Any civil investigative demands, lawsuits, regulatory proceedings or investigations that concern the challenged rules
- Any communications between defendants, between defendants and the subject MLSs, and between different brokers concerning the rules
- Trade associations, including any meetings or events where the challenged rules were discussed
- Enforcement of the challenged rules
- The development or use of standardized listings agreements
- Evaluating, commenting on, or analyzing the level of buyer and/or seller commissions in the real estate industry
- Buyer steering toward or away from properties based on the compensation offered
- Standard, fixed, traditional, or market commissions for real estate services
- Complaints from consumers, agents or brokers regarding the challenged rules or the terms of a sale
- Restrictions on the disclosure of MLS data reflecting offered or received broker compensation
- The role of MLSs in the market for real estate services, and any actual or potential competitors of or alternatives to MLSs
- The types and format of data they retain concerning commissions
- Disaggregated data on each actual or potential purchase or sale of residential real estate
Recipients must also produce, from 2010 onwards, documents showing their organization’s committees, subcommittees, task forces and all of the organization’s members.
Similar documents are demanded of CoreLogic, though the tech firm is not being asked to produce documents about its corporate structure, trade associations or buyer steering.
The subpoenas are in the process of being served and the recipients must produce the requested documents by Nov. 15, though they may choose to challenge the subpoenas in court.
Keller Williams, RE/MAX and HomeServices, on behalf of itself and its subsidiaries, declined to comment for this story. Realogy and CoreLogic did not respond to requests for comment.