An appeals court decision has granted the US Justice Department the power to investigate the National Association of Realtors (NAR), an occurrence that is likely to invigorate the department’s effort for greater separation between buyers’ and sellers’ agents.
This scrutiny aligns with the Biden administration’s endeavors to deal with soaring housing costs, according to industry observers. The court ruling has empowered the Justice Department to investigate how NAR’s potential unlawful conduct might be contributing to inflated real estate commissions in the US.
The US Court of Appeals for the DC Circuit ruled last week that the DOJ can investigate NAR, denying a plea by the real estate trade group which sought to enforce a 2020 settlement with the Trump administration to terminate the case.
According to NAR, they believe that the government should be “held to the terms of its contracts” and are contemplating the next course of action in light of the court decision. This ruling followed a settlement of private litigation a month ago over NAR’s commission fee structure that still left open possibilities for sellers’ agents to determine commissions for buyers’ agents.
The issue in the spotlight is whether the Justice Department will be successful in modifying the close relationships between sellers’ and buyers’ agents where private litigation has previously been unsuccessful.
NAR, with over 1.5 million agents and real estate professionals as members, has been dominating the real estate industry for over a century. This intervention from the federal government to adjust the commission system marks another challenge for NAR.
With its renewed investigative powers, the DOJ will likely aim to enforce a complete separation of compensation for buyers’ agents and sellers’ agents, a point made clear by John Kwoka, an economics professor at Northeastern University and former Federal Trade Commission chief economist.
It’s worth noting that as part of NAR’s settlement last month, agents are not allowed to place compensation offers on multiple listing services. However, current provisions in the settlement could still enable brokers to continue making offers of compensation to buyers’ agents outside the listings.
Lastly, a statement of interest filed by the DOJ in February, concerning a separate private lawsuit in Massachusetts gives us a window into the government’s thoughts. The DOJ rejected a proposed settlement between former home sellers and New England’s largest MLS on the grounds that it “perpetuates the very same competitive concerns that trouble the current rule.”