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The U.S. Department of Justice told the judge in a major commission antitrust lawsuit known as Nosalek late Thursday to deny a proposed settlement between the plaintiffs and real estate defendants and called for rules that require buyers to negotiate broker compensation on their own.
The plaintiffs and defendants, which include Anywhere, RE/MAX, Keller Williams and HomeServices of America, had said the proposed changes would eliminate “the allegedly anticompetitive rule at the heart” of the lawsuit.
“That is not accurate,” DOJ attorney Jessica Leal wrote in the legal filing, known as an amicus brief. “Far from curing the rule’s defects, the proposed settlement perpetuates the very same competitive concerns that trouble the current rule.”
Leal wrote that the changes under the proposed settlement “would not create competition or reduce commissions,” and that it would provide “no meaningful benefit” to sellers or buyers. Further, Leal wrote, the proposed changes could themselves violate federal law.
Allowing sellers and listing brokers to set the commission that buyer brokers would receive would still lead buyers’ agents to steer clients away from listings with low commissions, Leal wrote.
Instead, buyers should negotiate directly with their buyer broker, Leal wrote, which could include them paying out of pocket or negotiating with the seller.
“While some buyers might choose to pay their buyer brokers out of pocket, other buyers might request in an offer that the seller pay a specified amount to the buyer broker from the proceeds of the home sale,” Leal wrote. “Thus, the current practice could continue, where the seller factors the commissions into the offer the seller is willing to accept.”
To address the anti-competitive landscape that would still exist if the proposed settlement was approved, Leal suggested a settlement that prohibits offers of compensation to buyer brokers by listing brokers.
“If MLS PIN rules prohibited sellers and listing brokers from deciding what buyer brokers would be paid, sellers would be responsible for determining only the compensation of their own broker in the listing contract, while buyers would be responsible for determining the compensation of their own broker in a buyer-broker representation contract,” Leal wrote.
Background on the case
The Nosalek case centers on the so-called “Buyer Broker Commission Rule.” Plaintiffs alleged that the broker-owned MLS Property Information Network (MLS PIN) required sellers’ brokers to offer compensation to buyers’ brokers in order to submit a listing to the service.
Judge Patti Saris asked for the DOJ to spell out its specific concerns before the court decides whether to preliminarily approve the settlement in the case, which was filed in 2020.
As part of the original deal, MLS PIN agreed to overhaul its commission policies, pay $3 million, and “cooperate” in the litigation against the remaining defendants named in the suit: Real estate franchisors Anywhere (formerly Realogy), RE/MAX, Keller Williams and HomeServices of America. In October, Anywhere and RE/MAX agreed to proposed settlements in the case and Keller Williams did the same earlier this month.
Like federal commission suits Moehrl and Sitzer | Burnett, it seeks class-action status and alleges that the sharing of commissions between listing and buyer brokers inflates seller costs and is a conspiracy in restraint of trade, a violation of the Sherman Antitrust Act.
However, Nosalek differs in one important respect from the other suits: The National Association of Realtors is not named as a defendant, while MLS PIN is. The MLS, which has a full-time staff of 60 employees, boasts approximately 46,000 subscribers in six New England states and New York.
The settlement class is made up of sellers who paid, or on whose behalf sellers’ brokers paid, buyer broker commissions starting Dec. 17, 2016, in connection with the sale of residential real estate listed on Pinergy, MLS PIN’s multiple listing service system.
Under the original proposed settlement, MLS PIN would have removed a requirement that homesellers must offer compensation to buyer brokers; would have required listing brokers to notify sellers that they’re not required to offer compensation to buyer brokers and that they can decline if a buyer broker requests compensation; and would have clarified that if the seller makes an offer to a buyer broker and the buyer makes a counteroffer, commissions would be negotiated among the seller, the buyer, the seller broker, and the buyer broker.
The DOJ’s letter came in just before its deadline late Thursday night. The antitrust enforcer had signaled in December that it believed the proposed commission rule changes for MLS PIN might not go far enough. In its amicus brief, it laid out what it would like to see in a settlement.
What the DOJ wants
In her brief, Leal pointed to multiple similar reforms across the country that haven’t driven down real estate commissions, including changes that were made voluntarily by the Northwest MLS in 2019 and 2022 that are similar to the changes proposed in the Nosalek settlement.
The DOJ called for an outcome that completely separates the seller from offering compensation to the buyer broker, a concept known as “decoupling.” That, Leal wrote, would create a competitive landscape in real estate.
“The critical issue is not how much a seller should offer a buyer broker, but whether a seller should set buyer-broker compensation at all,” Leal wrote.
She said federal law already allows buyers to make conditional offers around compensation.
As an example, Leal said a buyer could offer to pay $700,000 for a home on the condition that the seller pays $14,000 to the buyer’s broker, which would result in a net price of $686,000.
Another buyer for the same home could offer $680,000 and not ask the seller to pay the buyer’s broker.
Such a scenario would allow a seller who is considering multiple offers to compare the net price after factoring in any possible requests to pay a buyer broker.
“Those programs do not require buyers to come up with additional funds at closing in order to compensate their brokers in these types of ‘conditional’ offers,” Leal wrote. “Buyers therefore would not need to come up with additional funds at closing in order to compensate their brokers. Instead, they and other buyers would benefit from increased competition between buyer brokers.
The DOJ also suggested some buyer brokers might begin offering hourly rates or a flat fee structure under such a scenario, tailoring their services to meet a given buyer’s wants and needs.
Leal also took issue with the fact that there’s no guarantee that class members would be paid from the $3 million proposed settlement amount. The DOJ said plaintiffs’ attorneys estimated class members would be paid $3 to $5 each, which would be difficult to distribute. Leal said other class action lawsuits have shown that it’s possible to pay class members small amounts of money.
NAR’s view
Earlier this month, NAR President Kevin Sears told hundreds of agents at a real estate conference that NAR is appealing a multibillion-dollar verdict in Sitzer | Burnett, but “the bigger problem” for the industry is the DOJ.
“We’ve been in their crosshairs for as long as I’ve been involved at the National Association of Realtors,” Sears said.
“We had a settlement with them in 2020. In 2021, they reneged on the deal. We sued them and we won in court. So they’re pissed off at us, I mean, just candidly.”
An appellate court in Washington, D.C., is currently weighing whether or not, over NAR’s objections, the DOJ will be able to reopen an investigation into the commission rule at issue in Sitzer | Burnett and in ever-multiplying lawsuits across the country.
Notably, the DOJ has not intervened, at least so far, in proposed settlements by Anywhere, RE/MAX and Keller Williams in the Sitzer | Burnett case and other commission cases nationwide. Unlike NAR and MLS PIN, the franchisors are not the parties responsible for any potential changes to the rules at issue.
Sears mentioned the DOJ’s review of the proposed Nosalek settlement and said, “The reason I’ve spoken so much about this is because the way that we operate our business is going to change. It is going to change whether we embrace it and adapt, or it’s going to be forced down our throats.”
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