Analysts at investment bank Keefe, Bruyette & Woods believe that the Department of Justice will intervene in Sitzer/Burnett commission lawsuit after receiving the green light to reopen its investigation into the National Association of Realtors.
In a note published on Sunday, the analysts wrote that thanks to this “favorable judgement, the DOJ is now unconstrained from investigating NAR.”
KBW wrote that it believes the DOJ was limited in its ability to intervene in the commission lawsuits in which NAR was named in, including the Moehrl and Sitzer/Burnett suits, due to the settlement agreement it had reached with NAR in November 2020, in the twilight of the Trump administration.
This settlement agreement was at the center of the DOJ’s appeal with NAR. In 2020, the DOJ’s antitrust division agreed to a settlement after investigating the trade groups listing and agent compensation policies. However, the DOJ, under the Biden administration, withdrew the settlement in July 2021.
NAR filed a petition in September 2021 to set aside or modify the DOJ’s probes into the trade group.
In late January 2023, Judge Timothy Kelly of the U.S. District Court for the District of Columbia, a Trump appointee, ruled in favor of NAR, stating that the earlier settlement terms were still valid, and that allowing the investigation to continue would take away the benefits NAR had negotiated in the original settlement.
The DOJ appealed the ruling in March of 2024. On Friday, a three-judge panel for the U.S. Circuit Court of Appeals in D.C. ruled that the DOJ could reopen its investigation into NAR, clarifying the DOJ’s path to become involved in the Moehrl and Sitzer/Burnett lawsuits, as well as in the nationwide settlement agreements some of the nation’s largest brokerages, as well as NAR, have negotiated with the plaintiffs in these suits.
“In particular, we believe it is likely that the DOJ will now look to intervene in the recent NAR nationwide settlement agreement in order to close any loopholes/workarounds, such as off-MLS compensation offers, and ensure more impactful changes to commission policies,” the note read.
The loophole the stands out to the KBW analysts is the off-MLS compensation workaround, which has been widely discussed in the real estate industry. Under the terms of NAR’s settlement agreement, set to go into effect mid-July, real estate agents and brokers are no longer allowed to make offers of cooperative compensation on the MLS, however, they may make those offers elsewhere, including on personal agent websites.
“While there has been some debate around whether the DOJ has already signed off on the NAR settlement behind the scenes, we do not believe that the agency has given its approval, and that NAR was taking a chance in settling under the hope that the DOJ would not be permitted to intervene,” KBW wrote in its note.
The analysts believe the most likely path for the DOJ moving forward would be for it to file a statement of interest in the Sizer/Burnett suit, which they believe could occur in the next few weeks.
If the DOJ does intervene and insists on the removal of the off-MLS compensation workaround, KBW believes this would result in “the broader settlement changes being much more disruptive for the industry, including downward pressure on buyer agent commissions.”
The analysts also wrote that this outcome would be a “negative for players with revenue models directly tied to buyer agent commissions,” including residential brokerages and “first generation real estate portals.”
In late September 2023, DOJ became involved in the Nosalek commission lawsuit. The DOJ filed a motion to extend the deadline for the final approval of the settlement agreement reached between the Nosalek plaintiffs and defendant MLS Property Information Network. NAR is not a defendant in the Nosalek suit and MLS PIN is a non-Realtor association affiliated MLS. In mid-February, the DOJ filed its statement of interest in the Nosalek suit, in which it advocated for the prohibition of cooperative compensation.
While it is still unclear if the DOJ will in fact intervene in NAR’s commission lawsuit settlement agreement, the department released a statement on Friday saying that it was committed to fighting to lower the cost of buying and selling a home.
“Real-estate commissions in the United States greatly exceed those in any other developed economy, and this decision restores the Antitrust Division’s ability to investigate potentially and unlawful conduct by NAR that may be contributing to this problem,” Assistant Attorney General Jonathan Kanter wrote.