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If the court approves the settlement reached with the National Association of Realtors, listing brokers will still be able to make offers of cooperative compensation to buyer brokers outside of the multiple listing service. Some will initially try to continue with business as usual, but the deal will eventually result in “a wave of innovation” that drives down commissions for consumers.
That’s according to Robby Braun, partner in the antitrust practice group at Cohen Milstein Sellers & Toll, one of the law firms representing plaintiffs in the Moehrl and Umpa commission suits. The firm is also co-lead counsel for the plaintiffs in the NAR settlement.
Inman interviewed Braun’s colleague at Cohen Milstein, Benjamin Brown, when the firm first filed Moehrl five years ago. Now that the case looks to be heading toward a resolution, Inman talked to Braun about what the impact of the proposed NAR settlement could be on commissions, steering and new business models, and whether the deal might meet the approval of the U.S. Department of Justice.
This interview has been edited for length and clarity.
Inman: You guys reached out and said you wanted to talk about misconceptions about how impactful the settlement will be, the extent of the changes that Realtors can expect and why Realtors should take the settlement and the changes that it will bring to the industry seriously or they’ll risk falling behind. So what misconceptions are you referring to?
Braun: There are a few of them. One of the misconceptions I’ve seen posted in some places is this idea that the settlement will result in some sort of perpetual release on a going-forward basis of Realtors who engaged in potentially anti-competitive practices. The release only goes forward up until I think preliminary approval of the settlement, backwards. So if there are further anti-competitive activities in the real estate industry, Realtors may be liable for that.
Another one has to do with this idea that people are going to be able to sidestep the practice changes reflected in the settlement simply by making offers of cooperative compensation off of the MLS.
It is true that the settlement doesn’t prohibit on a categorical, blanket basis, all off-MLS offers of cooperative compensation, but it does impose certain limitations on those offers and what can be done to facilitate those offers of cooperative compensation.
MLS data cannot be used to facilitate offers of cooperative compensation off of the MLS. If someone were to receive an MLS data feed, and they wanted to create some sort of website that hosts offers of cooperative compensation from multiple different brokers, the MLS, once it learned about that practice, would have to cut off their MLS data feed.
I’ve seen some places talk about workarounds, potentially through, for instance, Zillow, or the Zillow-owned site ShowingTime. Those practices won’t be permitted under the settlement.
Misconception No. 3 is this idea that the settlement won’t actually impact anything because brokers can continue to make offers of cooperative compensation unilaterally and not in connection with the MLS or using MLS data feeds. That’s true so far as it goes, but from our perspective, this settlement is going to really spur a new wave of innovation in the real estate industry.
You’re going to see a lot of folks who are experimenting with different types of compensation models and compensation levels. You’re going to see discount brokers. You’re going to see people who are looking to make the process more efficient. You’re going to see some consumers, including on the buyer side, experimenting with not using a broker at all to save money. You’re going to see people using other sorts of professionals, like real estate attorneys instead of brokers.
Maybe in the first year or two, there are going to be some people who ignore the new world that we think this settlement will engender, but ultimately, these innovators and discount competitors are going to increase price competition in the marketplace that’s going to drive down commissions for consumers. People who are in the industry and don’t realize it and don’t account for that are going to get left behind.
Industry consultant Rob Hahn wrote about this and his take was basically “This doesn’t eliminate steering so commissions aren’t going to go down, so basically nothing is going to change because people can still, on their broker website, list ‘this is what I’m offering on all my listings.’ So if a buyer’s agent wants to see what a certain listing is offering, all they have to do is go to the broker’s website or even just give them a call and make sure that they’re offering what the buyer’s agent wants them to be offering. So it’s not going to get rid of steering.” What is your take on that?
We think it’s going to reduce steering because you’re not going to have the entire universe of offers of cooperative compensation in a single place, made visible only to brokers.
The settlement agreement not only prohibits the use of the MLS and the re-creation of MLS-type systems that would replicate the MLS system, but it also requires increased transparency to consumers both on the listing side and on the buyer side. There are written agreements that they have to enter into that have to make detailed disclosures early on in the relationship about the compensation that’s being offered.
The combination of all of those changes together is going to work to reduce steering and, again, to increase competition and price competition in the real estate industry.
The way I understand it, it just means it’ll be slightly more difficult for a buyer’s agent to see what’s being offered on a listing. They’ll have to call more listing brokers. They’ll have to go on more listing broker websites because it won’t just be in the MLS. But they’ll still be able to find that information, and right now, consumers can see a lot of these commissions because the MLS is feeding that compensation to websites like Redfin, where they display it to everyone so everybody knows, but now consumers won’t see that information in one place because the settlement is prohibiting that. So how is it going to get rid of steering if they can still, just with a little more effort, see what these listing brokers are offering and consumers won’t [necessarily] see?
I think we may have a fundamental disagreement about aspects of what the settlement does. We don’t agree that it makes it just a little bit harder. We think that it’ll make it meaningfully more difficult for brokers to engage in steering practices.
For a long time, consumers couldn’t see offers of cooperative compensation in the MLS at all. It was expressly prohibited. That was one of the allegations in our lawsuit, and both the DOJ investigation and the pressure [from] our lawsuits changed that.
But the litigation also requires transparency to sellers and buyers about the compensation that their brokers are being offered and are receiving.
Do you see this settlement as decoupling commissions?
I’m not sure how that word is being used, so I don’t know how to answer it on that basis. What I do see is this settlement leading to more innovation in the industry, and also giving both sellers and buyers more choices about whether they want to retain a real estate broker or agent, how they want to compensate that real estate broker or an agent, and in addition, it also empowers their ability to negotiate.
When I say decoupling I mean, right now, what the buyer broker gets paid is dependent on what the listing broker is offering them. It seems that the settlement is prohibiting that through the MLS, but not prohibiting that entirely. Is that accurate?
I don’t mean to be evasive in any way. My previous response is how I feel about the settlement. I think that opening up the industry to competition benefits consumers.
The DOJ, in their Nosalek statement of interest, said they wanted a prohibition on the seller deciding compensation for the buyer broker. This particular settlement seems to do that via the MLS only and not an actual prohibition altogether. So that’s why I’m trying to, first, ascertain that that is actually the case because I want to be accurate for my readers, and also think about what does this mean in terms of whether the settlement could potentially be approved or not, or if the DOJ is going to weigh in at some point. That’s why I’m asking.
We appreciate the administration’s support thus far for the settlement. President Biden earlier this week had positive things to say in a public speech about the settlement and encouraged Realtors to work to improve competition in the real estate industry and lower prices. We’re optimistic that the settlement will be approved. We think it’s a good thing for the industry and it’s a good thing for consumers.
With respect to the DOJ statement in Nosalek, we may have to respectfully disagree with the interpretation of the statement you included in your question. In the body of the statement, on page 20, DOJ said it would support “an injunction that prohibits offers of buyer-broker compensation by MLS PIN participants.” We think that this settlement is consistent with what [the] DOJ, in the MLS PIN case, indicated it would support.
Because it’s not happening via the MLS even though it can happen elsewhere?
The practice changes that are requested are an injunction that prohibits offers of buyer broker compensation by MLS participants, as well as many other practice changes.
Was the DOJ involved in crafting the NAR settlement?
I can’t answer that question.
Do you know if they’ll file a statement of interest?
I can’t answer that question.
To go back to the the steering aspect of this, Rob Hahn suggests that a listing broker can put a form in front of a seller, like a listing agreement, saying, “You are going to offer 3% of the sales price to any agent who brings the buyer” and that would be totally okay under this settlement agreement.
The focus on what someone could do in Year One of the settlement ignores the fact that the settlement will result in increased competition and innovation. Listing brokers who try to continue the same practices that they’ve been engaging in now are going to get undercut by other innovative brokers and professionals in the real estate area who are willing to offer lower prices to their clients. This changes the incentives in the industry.
I think part of the reason why he’s really focused on steering is because the reason [commissions] haven’t dropped so far is because of steering — that’s what your lawsuits [and] all these lawsuits are arguing, right? There have been plenty of discount brokerages or brokerages taking less than 5% to 6% that have tried to find success, and they have not been able to because of this fear of steering. If the steering is not going to go away in the first year or two, then how will these competitors find success?
I agree that steering has been a major problem in the real estate industry. I have been one of the people who’ve been critiquing steering in the real estate industry and explaining why steering is bad for consumers.
I also agree that it’s going to take some time for the market to shift after the settlement and that’s to be expected. I don’t think I dispute the fact that early on, there will be people who will close their eyes and try to ignore the fact that the system is changing and will continue to try to charge higher prices.
But the changes to the system that will result from the settlement will enhance the ability of discounters and innovators to compete and help drive lower prices for consumers.
Could you specify which changes you think will make it easier for these innovators to compete?
All of them. The changes that require increased transparency, both for buyers and sellers. The changes that prohibit offers of cooperative compensation on MLSs. The changes that prevent people from sidestepping the prohibition on offers of cooperative compensation on the MLS by, for instance, making it so that MLS data can’t be used to facilitate brokers from getting together and exchanging offers of cooperative compensation on some other site.
The fact that the settlement itself has become big news [means] consumers are becoming more educated about real estate broker compensation and how the system works overall.
Why allow brokers to post commission offers on their own websites?
I don’t think we’re allowing or disallowing anything. The settlement doesn’t endorse that practice. Antitrust law is focused on monopolists, and it’s focused on competitors getting together and coordinating things like pricing or output. The settlement prohibits that. It does not allow competitors in the real estate industry to create some sort of coordinated system to offer cooperative compensation.
Who counts as an aggregator and will they be allowed to post commission offers to buyer brokers?
A lot of the aggregators are getting their commission data from MLSs. If they allow offers of cooperative compensation from multiple different brokerages to be posted on their portals, then they risk having the MLSs cut their data off because that’s what the settlement would require.
If you’ve got a portal that’s basically trying to replicate the offer of compensation system on the MLS, those portals are really sticking their necks out and risking a potential antitrust lawsuit. I’ve got to think that for both of those reasons, you’re not going to see the MLS cooperative compensation system that existed prior to this settlement replicated.
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