By: A. Asad Imam
The National Association of Realtors (NAR) reached a nationwide settlement on claims alleging that the real estate industry had engaged in anti-competitive practices by keeping buyers’ agent’s commissions high – a per se violation of the Sherman Act (the “Act”).[1] The case, Burnett v. National Association of Realtors alleged price-fixing and resulting violations of the Act, meaning that the defendants were liable for treble damages; in exchange for a reduction in damages, the NAR gave up its right to appeal.[2] The Department of Justice (“DOJ”) investigations are continuing into other NAR databases for home listings called the multiple-listing services (“MLS”), despite the settlement.[3]
The $418 million settlement upends long-standing industry practices that allowed sellers to set buyers’ agent fees, taking the bargaining power away from these buyers and keeping commissions in the United States higher in comparison to most of the developed world.[4] This settlement has the potential of “driv[ing] down commission rates and shrink[ing] the number of real-estate agents.”[5] The settlement is pending approval by a federal court in Missouri and once finalized will impact at least 50 million people, the class of buyers who recently purchased a home.[6]
This is not the only lawsuit that the NAR is facing for industry practices.[7] Similar copycat lawsuits have been filed in other parts of the country including another Kansas City, MO suit where a jury returned a $1.8 billion verdict against NAR for artificially maintained commission rates.[8] Neighboring Illinois will host a case seeking $40 billion in damages when trial begins in Chicago later this year.[9]
According to industry insiders, NAR is a “massive hulking institution” that has engaged in anti-competitive practices for a long time; as one expert puts it, “[i]t got big, it got flabby, it got arrogant [sic] and it got complacent.”[10] NAR and its predecessors instituted mandatory fee schedules for buyer’s agents to professionalize the industry in the early part of the 20th century; however, the Supreme Court ruled that this practice was illegal as a conspiracy to fix prices and the schedule went away.[11] The newer “recommended” fee structure, instituted in the 1970s, faces the same scrutiny today.[12] In its “[o]ver its 116-year history, NAR has repeatedly fended off lawsuits and [DOJ] inquiries about industry practices” though this settlement and subsequent copycat lawsuits have been able to buck this trend.[13] NAR’s members are also the only real-estate agents who can refer to themselves as “realtors.”[14] Plaintiffs and regulators state that the commission system was written as plain as day in the NAR Handbook, highlighting that “any homes listed on the multiple listing service must advertise the compensation offered to the buyer’s agent.”[15]
There are currently 106,548 real estate brokerage companies in the United States, many of whom are dues-paying members of NAR and refer to themselves as realtors.[16] According to journalist Debra Kamin, Americans pay $100 billion in real estate commissions annually meaning that the industry will face litigation for years to come due to the sheer size of the class and amount of money in controversy.[17]
The two legal standards under which potentially anti-competitive conduct is analyzed by regulators and the courts are 1) the rule of reason, and 2) the per se standard.[18] Under the rule of reason standard, the factfinder weighs all the circumstances of the case to decide whether a practice should be prohibited as imposing an unreasonable restraint on competition against the practice’s pro-competition effects.[19] As illustrated by Socony Vacuum and U.S. v. Suntar Roofing, Inc., under the per se standard, certain specific actions constituting restraint on trade are “so likely to produce anti-competitive effects” that a rule of reason analysis is not necessary and they are considered inherently unlawful, and as a result, per se violations of the Act.[20] Acts such as price-fixing, bid-rigging, and market allocation (including no-poach agreements) are examples of per se restraints on trade and are illegal. The per se standard is used to evaluate price-fixing conduct. The court held that the per se rule was appropriate as NAR engaged in horizontal price-fixing by “inflating or stabilizing broker commission rates.”[21]
The decision comes at an opportune time given the Biden Administration’s recent aggressive, anti-monopoly bent; Federal Trade Commission Chair Lina Khan has long been a critic of Amazon and other large companies that she considers stewards of monopolistic and anti-competitive behavior.[22] As a student at Yale Law School, Khan authored a paper that criticized FTC inaction in prosecuting monopolistic behavior – noting the declining prosecution of antitrust behavior beginning during the Jimmy Carter Administration.[23] While the DOJ was not a party to the NAR lawsuit, it filed a notice of withdrawal of consent in a 2021 settlement against NAR alleging that the settlement would prevent the DOJ from further investigation into NAR’s conduct.[24] As private class-action lawsuits continue to have NAR in their sights, a successful DOJ lawsuit can be built upon similar antitrust theories as Burnett, proving to be a death knell for how the industry operates.
[1] See Laura Kusisto & Nicole Friedman, Realtors Reach Settlement That Will Change How Americans Buy and Sell Homes, Wall Street J. (Mar. 15, 2024, 4:36 PM), https://www.wsj.com/real-estate/realtors-settlement-change-buy-sell-homes-da45eb23; 15 U.S.C. § 1.
[2] Burnett v. Nat’l Ass’n of Realtors, No. 4:19-cv-00332-SRB, 2022 WL 17741708, at *9 (W.D. Mo. Dec. 16, 2022); Settlement Agreement, Burnett v. Nat’l Ass’n of Realtors.
[3] See Debra Kamin, Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits, N. Y. Times (Mar. 15, 2024), https://www.nytimes.com/2024/03/15/realestate/national-association-realtors-commission-settlement.html.
[4] Kusisto & Friedman, supra note 1.
[5] Id.
[6] Id.
[7] The Truth About the NAR Settlement Agreement, Nat’l Ass’n of Realtors (Mar. 22, 2024), https://www.nar.realtor/magazine/real-estate-news/law-and-ethics/the-truth-about-the-nar-settlement-agreement (last visited Apr. 5, 2024).
[8] See Laura Kusisto & Nicole Friedman, Realtors Are in Crisis—and Home Buyers Could Be the Winners, Wall Street J. (Feb. 16, 2024, 5:30 AM), https://www.wsj.com/real-estate/national-association-realtors-crisis-lawsuits-home-buyers-6030e372.
[9] Kusisto & Friedman, supra note 1.
[10] Kusisto & Friedman, supra note 8.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] See Laura Kusisto, How the $1.8 Billion Real-Estate Commissions Lawsuit Came to Be, Wall Street J. (Nov. 26, 2023, 5:30 AM), https://www.wsj.com/real-estate/how-the-1-8-billion-real-estate-commissions-lawsuit-came-to-be-106433d1.
[16] Quick Real Estate Statistics, Nat’l Ass’n of Realtors (Mar. 21, 2024), https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics#:~:text=86%25%20of%20buyers%20purchased%20their,real%20estate%20agent%20or%20broker (last visited Mar. 24, 2024).
[17] Kamin, supra note 3.
[18] The Antitrust Laws, Fed. Trade Comm’n (last visited Apr. 5, 2024).
[19] Id.
[20] United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 222 (1940); United States v. Suntar Roofing, Inc., 709 F. Supp. 1526, 1536-39 (D. Kan. 1989).
[21] Burnett v. Nat’l Ass’n of Realtors, No. 4:19-cv-00332-SRB, 2022 WL 17741708, at *9 (W.D. Mo. Dec. 16, 2022); Def.’s Mot. Summ. J., at 20-21 (Dec. 16, 2022) (Case No. 4:19-cv-00332-SRB).
[22] See Dave Michaels, et al., FTC Sues Amazon, Alleging Illegal Online-Marketplace Monopoly, Wall St. J., (Sept. 26, 2023), https://www.wsj.com/tech/ftc-sues-amazon-alleging-illegal-online-marketplace-monopoly-6bd9af23?mod=business_lead_story.
[23] See David McCabe, U.S. Accuses Amazon of Illegally Protecting Monopoly in Online Retail, N.Y. Times, (Sept. 26, 2023), https://www.nytimes.com/2023/09/26/technology/ftc-amazon.html; see also Cory Doctorow, Amazon is the Apex Predator of Our Platform Era, N.Y. Times, (Sept. 27, 2023), https://www.nytimes.com/2023/09/27/opinion/amazon-ftc-antitrust-monopoly.html?searchResultPosition=5.
[24] See Justice Department Withdraws from Settlement with the National Association of Realtors, Dep’t of Justice,(July 1, 2021), https://www.justice.gov/opa/pr/justice-department-withdraws-settlement-national-association-realtors.
