The Department of Justice (DOJ) has taken aim at the National Association of Realtors(NAR) over the way that brokers representing buyers do business. The DOJ filed a civil antitrust lawsuit as well as a proposed settlement. The settlement calls for some changes to how multiple listing services (MLSs) display information on the commission that a buyer's agent will receive.
The suit centers around the confusion that many homebuyers have around how their agent is paid. Some homebuyers feel that the services of an agent are free and may not understand that their agent is paid out of the commission the seller pays. The settlement hopes to address this issue in part by changing rules that currently let MLS listings be filtered based on the buyer broker commission level. The NAR has more than 1.4 million members and 1,400 local associations organized as MLSs.
The news comes weeks after judges in Illinois decided a lawsuit around a similar complaint could go forward. Moehrl v. National Association of Realtors argues that commission splits are inherently anticompetitive. It's not clear if the DOJ suit will mean that these other lawsuits will also be settled.
"Today's settlement prevents traditional brokers from impeding competition -- including by internet-based methods of homebuying and selling -- by providing greater transparency to consumers about broker fees," said Assistant Attorney General Makan Delrahim of the Justice Department's Antitrust Division in the lawsuit announcement. The DOJ sees this move as one that will increase price competition and lead to better services for both homebuyers and sellers.
What happens next
2021 NAR President Charlie Oppler released a video statement saying that while the NAR disagrees with the DOJ's characterization of its rules and admits no wrongdoing, it will make changes to its rules.
- The amount of compensation for buyers' agents will need to be made clearly available to the public in the MLS data feeds. Although it's not clear at first glance, this could include feeds that go to sites like Zillow (NASDAQ: Z) (NASDAQ: ZG) and Redfin (NASDAQ: RDFN).
- The new rules also stress that agents must explain to buyers how they are paid and never represent that their services are free to clients. MLSs and brokerages also have to make sure consumers are provided with all properties that fit their criteria, even if the agent's potential commission will be smaller.
- Any licensed real estate agent can have access to lockboxes of properties on the MLS even if the agent does not subscribe to that MLS, as long as the seller approves.
The new rules should be approved and implemented by the first quarter of 2021, pending approval from both the DOJ and the NAR.
The Millionacres bottom line
These changes aren't monumental, but they do show the fundamental disconnect between agents and their clients when it comes to understanding commission. The fact that the DOJ needed to step in proves that agents may not be explaining commissions clearly. The move may also devalue the utility of becoming a member of an MLS in some members' eyes if they can get all of the same information and access to lockboxes without membership.
The larger question of whether the buyer's agent is still necessary for the transaction remains. It's a topic we've debated on this site before. Often seasoned investors work directly with the listing agent or negotiate the commission. One thing is clear: Both buyers and sellers are looking for more transparency with regard to what they are paying for when it comes to agent fees.