Jim Flynn

Jim Flynn, Money & the Law

Late last year, with great fanfare, the U.S. Department of Justice announced the settlement of a lawsuit it had brought against the National Association of Realtors (NAR).

In this lawsuit, the DOJ accused the NAR of engaging in various practices the DOJ considered anti-competitive and in violation of the Sherman Act, the federal law that prohibits monopolies and other anti-trust activities. In an unusual move, the DOJ announced the settlement of the lawsuit at the same time it announced the filing of the lawsuit — on Nov. 19.

As the DOJ noted in its complaint, the NAR is a nationwide trade association that substantially controls how residential real estate is bought and sold. It exercises this control by requiring 1,400+ local real estate broker associations that belong to it, and the individual brokers who belong to those associations, to play by its rules. Not playing by those rules risks expulsion, in which event the benefits the NAR provides to its members (for example, a malpractice insurance program) could be lost.

One focus of the DOJ’s lawsuit against the NAR came from the fact that real estate brokers representing buyers are normally paid by real estate brokers representing sellers. That’s because the seller’s broker agrees to pay a broker producing a buyer for the seller’s property a share of the commission the seller has agreed to pay the seller’s broker.

Per the DOJ’s lawsuit, this arrangement sometimes led to abuse. For example, brokers representing a buyer would tell the buyer they were working for “free,” since the buyer had no legal obligation to pay a commission. Also, per the DOJ lawsuit, brokers representing buyers would sometimes game the multi-list systems operated by local real estate broker associations (under rules established by the NAR) by only showing buyers properties having the highest commissions payable by a seller’s broker to a broker representing a buyer.

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But, in another unusual move, on July 1, the DOJ (now taking its orders from the Biden administration and not former President Donald Trump) withdrew from the settlement, which it apparently had the right to do. The DOJ’s press release announcing this new-sheriff-in-town change of direction said the settlement did not “sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR.”

The DOJ’s press release also said the department had “sought NAR’s agreement to modify the settlement to adequately protect and preserve the department’s rights to investigate and challenge additional conduct by NAR, but the department and NAR could not reach an agreement. Because the settlement resolved only some of the department’s concerns with NAR’s rules, this step ensures that the department can continue to enforce the antitrust laws in this important market.”

Not surprisingly, the NAR was unhappy with this turn of events and called the DOJ’s withdrawal from the settlement a “complete, unprecedented breach of the agreement.” The NAR went on to say: “We are confident in our pro-consumer and pro-competition policies.”

So, the DOJ’s longstanding campaign to rein in the NAR’s control over how brokers handle residential real estate transactions is back at the starting line and the DOJ’s lawyers are presumably now hard at work on a new lawsuit in pursuit of a greater victory.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. You can contact him at moneylaw@jtflynn.com.

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