‘The DOJ is coming for NAR’: What’s next after the $418M settlement?

As the saying goes, when one door closes, another opens. For the U.S. Department of Justice (DOJ), that door very well may be the now-mandatory buyer representation agreements, a provision in the National Association of Realtors’ (NAR) commission lawsuit settlement agreement that was granted final approval on Tuesday.

In a statement of interest filed less than 48 hours before the settlement received final approval, the DOJ claimed that the buyer representation “provision itself raises independent concerns under the antitrust laws,” and that the agreements have the potential to “limit how brokers compete for clients.”

“It bears a close resemblance to prior restrictions among competitors that courts have found to violate the antitrust laws in other proceedings and could limit — rather than enhance — competition for buyers among buyer brokers,” the DOJ wrote.

NAR fired back against these concerns in a reply brief filed late on Monday. The trade group called these concerns “unfounded” and claimed they are “based on a misreading of Paragraph 58(vi)” of the settlement.

According to NAR, the paragraph referenced by the DOJ makes the requirement for mandatory buyer representation agreements contingent on all state and federal laws and regulations. Due to this, NAR wrote that “there is no need for the parties to ‘eliminate the provision,’ as the Antitrust Division requests — as written, it already is expressly subject to state and federal law and regulation.”

Additionally, NAR wrote that the provision does not at all resemble any of the practices that were contested in the Sitzer/Burnett suit.

Even as the settlement has obtained final approval from Judge Stephen Bough — and regardless of whether the buyer representation agreements represent an antitrust issue — industry experts say the DOJ’s filing is not good news for the real estate industry.

Analysts at Keefe, Bruyette & Woods believe the statement indicates that the DOJ “is not satisfied with the scope of remedies in the proposed settlement with private plaintiffs and continues to pursue its own independent investigation of NAR, which may result in enforcement actions with more aggressive changes to industry practices.”

Attorney and industry expert Rob Hahn shared a similar view in the Nov. 25 edition of his Substack newsletter, Notorious ROB. “The DOJ is coming for NAR. Only total surrender or total regime change can stop it,” he wrote.

Hahn notes that in its statement, the DOJ told the court to tell NAR “that this Settlement doesn’t do squat to protect them from the fury of the DOJ.”

“First and most important is the fact that the DOJ goes out of its way to tell the Court (and therefore the world) that the Court’s final approval of the Settlement does not mean that any of the practice changes agreed to comply with the antitrust laws,” Hahn wrote.

Marx Sterbcow, managing attorney of Sterbcow Law Group, believes the next issue the DOJ will take up with NAR is cooperative compensation. This is still allowed under the terms of the settlement — just not on the MLS.

“The DOJ wants a complete decoupling from the seller’s broker paying any commission to the buyside agent,” Sterbcow said. “And if I am a publicly traded company that just had to write a check for tens of millions in a settlement, I don’t think my shareholders would be too happy if I continued doing something the DOJ doesn’t want.

“The first big brokerage to do this will take some heat, but others are going to follow along very quickly, because everybody with a brain knows that the DOJ is a bowling ball rolling downhill at warp speed on this and it is going for the strike.”

Additionally, based on the DOJ’s statement of interest, Sterbcow feels that buyer representation agreements have now been added to the DOJ’s hit list. He also thinks that the agency makes some good points in its argument.

“I don’t disagree with them. Have you seen some of these agreements? If I had a Ph.D. in rocket science and a master’s in real estate law, I still don’t think I could figure out some of these contracts. They were put in place with no real thought about the consumer whatsoever,” Sterbcow said.

“It is clear that the DOJ doesn’t like them and wants the industry to do away with them, but with the settlement, you don’t really have a lot of options. You’re damned if you do and damned if you don’t.”

While NextHome CEO James Dwiggins does not dispute the notion that the DOJ is not done with NAR, he doesn’t believe buyer representation agreements will be the industry’s next battleground.

In a post on LinkedIn, Dwiggins pointed out that prior to the settlement terms going into effect nationwide, 16 states already required buyer representation agreements.

“The DOJ can have fun trying to override state rights,” Dwiggins wrote. “I don’t think politically that’s something they want to get involved in.”

But while there may be something to the “states’ rights” argument, Sterbcow is not convinced it will hold up to the DOJ.

“There are a lot of people who say that the state law trumps the federal law, and that is true, but the DOJ can assert its authority by saying that those states with mandatory buyer representation agreement weren’t adequately monitoring and doing their research to ensure that their procuring cause rules, along with the buyer broker agreements, weren’t causing consumer harm,” Sterbcow said.

“The reality is that none of those states have done any research or any work to study this and look at consumer harm, so I think that the DOJ could easily overturn the states’ rights issue on this.”

But no matter what the nuances are, industry experts agree that the real estate industry’s antitrust issues are far from over.

“Long and short, we appear to be at the end of the beginning as to the remaining unsettled lawsuits and potential DOJ anti-trust action,” Chuck Cain, an attorney and the president of Alliance Solutions, wrote in an email to HousingWire.

“Whether the new attorney general changes that focus remains to be seen but the DOJ has been scrutinizing NAR’s business practices for 30 years through both Democratic and Republican administrations,“ he added. “It will also be interesting to see if the DOJ moves against parties that won dismissal with prejudice in their civil antitrust litigation such as Howard Hanna, Inc. recently did in the Moratis case in federal court in western Pennsylvania.”