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We recently wrote about the class action lawsuit against the National Association of Realtors. Two different lawsuits allege that NAR has engaged in anti competitive practices. Specifically, by not allowing buyers to negotiate the amount of commission their agents receive.
In the past month, the suit has heated up.
Combined Class Action Lawsuits
First, the two plaintiffs have combined their lawsuits.
The new combined suit states that per NAR and MLS rules, “the exact same compensation terms must be simultaneously offered to every buyer-broker without regard to their experience, the services they are providing to the buyer, or the financial arrangement they have made with the buyer.”
The combined suit goes on to say this rule, “encourages and facilitates anticompetitive ‘steering’ by buyer-brokers because it allows them to compare the terms offered for buyer-broker compensation and steer their clients to properties where the seller-broker is offering higher commissions.”
Department of Justice Gets Involved
A little explanation is needed here regarding Core Logic. Core Logic is a data warehouse company that receives data from each of the MLS vendors in America. This data contains detailed information about the transaction information for the sale of every home in the MLS. The data includes the the amount of commission the buying and selling agents receive, as well as concessions and private agent remarks. It also includes the queries agents make of the MLS. When the data is aggregated, it provides significant insights into the real estate sector.
However, much of the data is confidential and not shared outside of the Core Logic, or the various MLS service providers.
DOJ Wants the Hidden Data
Realtors® have been able to see this data readily, and have been able to query for houses that pay higher commissions. However, their clients have not. The crux of the lawsuit is the belief that buyer’s agents avoid showing houses that pay less commissions.
It is the plaintiffs’ position that this rigs the system and forces sellers to pay a higher commission to buyer’s agents. They contend that with the advent of the Internet, the role of the buyer’s agent has been significantly reduced. Unlike the past, today’s buyers do most of their looking at homes online, before ever making an offer.
What the DOJ wants now, is the complete set of data the Core Logic has from every MLS. The DOJ’s intent is to search for the frequency and percentage of queries by agents. In particular, the DOJ is looking for queries regarding the amount and type of commission the buyer’s agent would receive. What if the data reveal that agents do in fact query for the amount of commission? It will be evidence to support the plaintiff’s suit.
DOJ Wants Copies of Policies and Procedures
The second set of information the DOJ is seeking is, evidence of anti competitive procedures. This includes any policies, criteria, guidelines or practices that prevent the Core Logic from sharing data with non MLS parties. The potential here is that the DOJ will deem NAR’s privacy policies, as being anti-competitive and a violation of the Sherman Anti Trust Act.
It’s unknown what the ultimate outcome will be. Undoubtedly NAR will likely defend themselves all the way to the Supreme Court. If so, the government may take their cues from a similar case in Canada. The case against the Toronto Real Estate Board that wound it’s way through the Canadian court for seven years, before the Real Estate Board lost their case.
It will be interesting to watch how this case changes the real estate industry.