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The U.S. Department of Justice has a proposed settlement between the largest multiple listing service in New England and homeseller plaintiffs in its crosshairs, suggesting the commission rule changes in the deal may not go far enough.
On Friday, attorneys for the DOJ’s Antitrust Division asked Judge Patti Saris of the U.S. District Court in Massachusetts to extend by two months the upcoming deadlines for reviewing the agreement between the plaintiffs and broker-owned multiple listing service MLS Property Information Network (MLS PIN).
As part of the 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.
“The United States has significant concerns with the planned rule changes under the Proposed Settlement,” the DOJ’s Sept. 28 filing reads.
“Evidence from other multiple listing services suggests that merely tweaking a buyer-broker commission rule to allow zero-percent commissions does little to ‘unfetter a market from anti-competitive conduct…’”
The case, known as Nosalek after its lead homeseller plaintiff (previously Bauman), was filed in Dec. 2020. 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, although 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.
If the court ultimately approves the settlement as-is, MLS PIN will remove a requirement that homesellers must offer compensation to buyer brokers; will require 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 will clarify that if the seller makes an offer to a buyer broker and the buyer makes a counteroffer, “then any commission to be paid is negotiated among the seller, the buyer, the seller broker, and the buyer broker,” according to the notices set to be provided to settlement class members.
But rather than open up competition, the DOJ’s attorneys wrote, “Rules such as those presented may merely perpetuate an antitrust violation through slightly modified means: MLS PIN’s proposed rule changes still establish an elaborate protocol (under penalty of sanction) regulating buyer-broker commissions, including requiring the listing broker to initially set the ‘total amount of compensation offered’ (including the number zero) in the listing.
“Thus, MLS PIN would continue to organize and facilitate brokers’ blanket, unilateral offers of compensation to buyer brokers.”
The antitrust enforcer noted that broker-owned Northwest MLS had implemented similar changes making the offering of compensation to buyer brokers optional, but that virtually all sellers continue to offer it and almost all at a commission rate above 2 percent.
The DOJ pointed to an order from the judge in the Sitzer/Burnett case finding that “Plaintiffs have also produced evidence that … [the buyer-broker commission rule] creates a system that rewards all Buyer-Brokers similarly, despite their skill as a broker or the amount of effort expended in procuring the Buyer.”
The agency asked Saris to extend deadlines for review of the settlement by two months — moving the date that the parties must start notifying settlement class members about the deal from Oct. 17 to Dec. 15, for instance — so that the Antitrust Division could “assess the competitive impact of the Proposed Settlement.”
Multiple listing service buyer-broker commission rules “may ‘curtail price competition among buyer-brokers’ by ‘effectively affording sellers’ brokers control over what buyers pay their brokers,” the DOJ’s attorneys wrote.
“‘Potentially exacerbating these effects, buyer-brokers could steer customers to higher-commission listings — or discourage sellers’ agents from offering lower commissions.’ Inflated real-estate commissions harm both homesellers and homebuyers, which is particularly concerning given that buying a house is often the most expensive transaction of many Americans’ lives.”
“Promoting competition for the steep fees that sellers and buyers face can help return billions of dollars to the American people,” the filing added.
But on Saturday, attorneys for the plaintiffs fired back, telling Saris that the Justice Department had had access to the full terms of the settlement for more than three months and had failed to articulate — either in calls with the plaintiffs’ attorneys or in its request to Saris — what the department’s specific concerns were. Moreover, the deadline to file objections to the settlement with the court under the current schedule is Dec. 7, more than two months away, they argued.
“Plaintiffs respectfully submit that the Department has provided no good reason for this delay,” the plaintiffs’ attorneys wrote in a Sept. 29 opposition filing.
“The Department had (and still has) ample time to investigate and file an objection. Should the Department approach Plaintiffs before (or after) the December 7 objection deadline with specific concerns that Plaintiffs’ Counsel agree need to be addressed and that require an extension, Plaintiffs will seek an appropriate extension from the Court at that time.
“But under the present circumstances, Plaintiffs respectfully request that this Court maintain the current schedule and deny the Department’s motion.”
The plaintiffs’ attorneys objected to the requested extension on the grounds that the delay “would prolong the life of the Rule that Plaintiffs managed to eliminate, and subject additional homebuyers in Massachusetts to its anticompetitive effect.”
They suggested that the DOJ may not understand the rule change included in the deal, considering the agency called it a “tweak.”
“But this is not a “tweak;” the elimination of the requirement that sellers offer commissions to the buyer’s broker, combined with the new requirement that seller brokers give express notice of that fact to sellers, fundamentally removes the alleged anticompetitive restriction,” plaintiffs’ attorneys wrote.
“Moreover, the Rule change completely eliminates the prohibition on the seller from negotiating the amount of the commission once an offer was made by the buyer.”
If the DOJ is worried about “other anticompetitive elements of the residential real estate market,” then those concerns are outside the scope of this litigation and its settlement and therefore “the Department can file a separate case to address those elements,” they added.
This is the second time this particular settlement has faced a stumbling block. At an August hearing, Saris balked at the structure of the original settlement agreement, but ended up later preliminarily approving the deal after the plaintiffs and MLS PIN restructured how the deal’s funds would be paid out. At that same hearing, Saris said she “love[d]” the proposed rule changes in the settlement, but it’s unclear how she will respond to the DOJ’s request.
In its filing, the DOJ said this may not be the last time the court hears from the agency.
“If the Antitrust Division continues to have concerns about the competitive effects of the Proposed Settlement at the time the Court intends to issue a final decision, the United States may consider other filings as helpful to the Court and consistent with its statutory obligation to safeguard the economic interests of the American people,” the filing said.
MLS PIN declined to comment for this story, citing pending litigation. The DOJ’s Antitrust Division did not respond to a request for comment.