In a lengthy and methodical court filing late last night, lawyers for the Department of Justice (DOJ) excoriated a recently proposed settlement in one of the many ongoing commission lawsuits, in a move that is sure to cast doubt on other settlements agreed to by real estate companies, and foreshadows a separate push by federal regulators to enact deeper changes to commission structures.
The case, known as Nosalek v. MLS PIN, saw the Massachuesttes-based MLS agree to rule changes that have propagated across the real estate industry in recent years, including allowing compensation offers of $0 to buyer agents and proactively informing consumers that commissions are negotiable.
But the DOJ made it clear that it believes these tweaks are “largely cosmetic,” arguing that as long as commissions are paid by the seller, real estate markets are illegally constrained.
“Preventing sellers and listing agents from setting buyer-broker commissions would promote greater price competition and innovation in the market for brokers’ services,” the DOJ lawyers wrote. “And most, if not all, buyers would likely prefer a fee structure that does not reward their broker for helping them to pay more for a home.”
While big brokerages like Keller Williams have touted their settlements of some of the commission cases as a way for the industry to move on from the expense and drama of high-profile litigation, the DOJ’s long-simmering interest in real estate has lurked as a larger threat to the traditional “cooperative compensation” model of real estate—a model long championed by the National Association of REALTORS® (NAR) as positive for consumers.
Although the DOJ is currently awaiting an appellate court’s decision on whether it can reopen a civil inquiry into NAR rules, antitrust regulators appear eager to stay involved in the ongoing litigation, using powers granted by a 2005 law that allows it to intervene in settlements that are “inequitable.”
Notably, none of the settlements reached by big real estate companies have received final approval from a judge at this point.
In the MLS PIN filing—known as a “statement of interest—” the DOJ laid out a broad roadmap of complaints and allegations that stretch further than those of the class-action plaintiffs, delving deep into NAR’s history of price fixing and pointing to regions where MLS rules were tweaked but commission rates remained the same.
“There is no reason to believe that the settlement will reduce broker commissions for the class,” the DOJ wrote. “To the contrary, several current cases allege that analogous rules are anticompetitive for the same reasons that the current (buyer compensation rule) is, and analogous rule changes reflect no meaningful benefit for home sellers or buyers.”
Specifically, the DOJ cites a Seattle-area MLS, known as NWMLS, which proactively allowed offers of $0 for buyer agents back in 2019, and in 2022 tweaked another rule to provide more transparency to consumers.
“Neither revision appears to have led to a decrease in buyer-broker commissions,” the DOJ claimed, adding that it conducted its own analysis of commissions in the region following the change.
And making its own objective completely explicit, the DOJ urged that the MLS PIN settlement include a blanket injunction against offers of compensation on the MLS, moving to a “decoupled” system where buyers pay their own agents.
NAR and other real estate advocates have long argued that this move will put homeownership further out of reach, especially for historically disadvantaged groups, who will not be able to afford their own agent.
While some both inside and outside the industry have proposed that buyer commissions could be financed as part of a mortgage—a proposal NAR has so far rejected—the DOJ offered another scenario.
“While some buyers might choose to pay their buyer (agents) out of pocket, other buyers might request in an offer that the seller pay a specified amount to the buyer (agent) from the proceeds of the home sale,” the DOJ wrote.
This would essentially preserve a portion of the current system, the DOJ said, except that sellers and buyers would be the ones negotiating who pays the commission. Sellers would compare offers in which the buyer was requesting that buyer agent compensation be paid by the seller with offers where the buyer paid their own agent’s commission, and with simple math could understand which offer was higher.
“Buyers therefore would not need to come up with additional funds at closing in order to compensate their (agents),” the DOJ argued. “Instead, they and other buyers would benefit from increased competition between buyer (agents).”
It remains unclear when or if the DOJ might file similar “statements of interest” in other cases. Importantly, none of the other class-action cases that have settled involve an MLS as a defendant, as is the case in MLS PIN, although they all involve the same rules and practice of “cooperative compensation.”
Anywhere and RE/MAX have said they expect a hearing on the final approval of their settlements in the Burnett case by May.
The U.S. Court of Appeals for the D.C. Circuit heard oral arguments on the DOJ’s attempt to restart its investigation back on Dec. 1, and is expected to issue a ruling in the coming weeks.
It seems like the DOJ is spot on.
And the vast majority of buyer agents, who don’t have a clue how to negotiate their own fee, let alone how to negotiate a purchase on behalf of a buyer client, can either figure it out or leave the business.
That’s quite an inaccurate statement.
You think the DOJ and all the various plaintiffs are attempting to fix (repair) “the” commission structure, as if there’s only one, as if every agency must adopt one structure.
You think more involvement of the government, and the banking industry, and the lawyering industry, “regulating”, (ie conspiring) is a good thing.
When you write that you predicted buyer brokerage would make it into court, you think you’re hot shit on a popsicle stick.
You can’t possibly imagine that what the DOJ and the plaintiffs are proposing is the further elimination of any hint of fixing (price-fixing) and anti competitive conspiracy whatsoever, that will lead to free market equilibrated, fully competitive, fees across the board.
I believe the DOJ have it half right. Sellers pay their Broker, Buyers pay their Broker, simple end of story.
The NAR statement is insulting and stereotypes Buyers as quoted “….this move will put homeownership further out of reach, especially for historically disadvantaged groups, who will not be able to afford their own agent.” Home ownership is not for everyone.
If they allow a Buyer to request the Sellers to pay their agent they are changing nothing as a simple one line sentence in an addendum change having the Seller pay their Buyer agent equals the present day formula most follow. Another way to skin a cat still skins the cat.
Keep it simple each side pays for their own representation and lets move on. It can be that easy.
But dont be surprised when it does nothing to of homes prices…thats a market.
Agreed.
100% correct.
Fixing the commission structure will require a sit-down with the banking industry, real estate, legal, and government entities. Many of us knew that the birth of buyer brokerage would someday end up in the courts. What other industry allows a client to pay an opposing party a fee to work against their own best interest? Real Estate! and it was done for all the wrong reasons – greed.
You think it’s the industry that allows payment of the fee, as opposed to the greedy buyer agent demanding and receiving it, and the improperly, incompetently, represented buyer allowing their agent to receive it.
How is offering compensation to a buyer’s agent to manage their representation in the deal paying an opposing party? If the buyer wants to buy the sellers house aren’t they both working towards the same goal? And greed is not my understanding of why buyers agency exists. Protecting the consumer from having zero representation or working directly with the listing agent who isn’t looking out for the buyer’s best interest in a step in the wrong direction when it comes to consumer protection.
Totally agree Kristin!
Spot on! Most buyers can’t afford to pay their agent and be competitive in this market. I forsee most buyers will choose no representation which is going to be a disaster for buyers and sellers. Pandoras box is about to be opened!
yes, there will need to be change in several industries to accommodate this change- hope they can resolve it sooner than later and we can all move on.
Lawyers
While, in principle, I understand what the DOJ is attempting to accomplish, I don’t believe the proposed solution in the above article achieves what it set out to do. It unfairly hinders certain buyers and specifically causes increased housing prices and costs.
Let’s play out the scenario the DOJ presents in this article. $300,000 list price in a typical low inventory market, most of us experience today. Buyer A: All cash investors. Buyer B: First-time home buyer who scraped together 20% down for their first home. Each buyer works with a professional real estate agent who has shared advice, guidance, and market data and has shown multiple properties over 90 days. BTW: each agent has incurred out-of-pocket costs during those 90 days, let alone their investment in time. Buyer A makes a full-price offer and agrees to compensate their agent 3% of the purchase price outside the purchase agreement. Buyer B also wants to make a full-price offer; however, they can not afford to compensate their agent outside of the purchase agreement, so they present an offer to the seller of $309,000 with the seller compensating Buyer B’s agents from the proceeds of the sale. In the DOJ’s proposed scenario, while the seller’s net proceeds are the same in each offer and each buyer pays the exact “cost” for the property, in my view, Buyer B is disadvantaged. 1. Unless the seller creates an unfairly, biased scenario and chooses the first time home buyer simply because they want to see them get the house over an investor, of the two offers the all-cash offer is less complicated and more likely to be accepted. 2. Buyer B, while paying the same “cost” for the house at the point of sale, now has a $9000 note over 30 years to include in their monthly expenses in addition to a higher property tax basis. 3. More significant than the $9,000 penalty over 30 years (I’ll let you do that math – it’s significant), the reflected market price for the comparable sold is $309,000 vs. $300,000. This means that when Larry, down the street, decides to list his home 90 days later, the most recent comparable sale in the neighborhood is $9,000 higher than the original list price, so Larry sets his list price at $309,000. If the same scenario plays out with Larry’s sale, now the new comparable is $318,270 when Betty lists her home 90 days later rather than accurately reflecting the sale price of the original home. While I understand there are 1000 variants to this scenario, in each one of them, both buyers ends up challenged either by long-term costs or artificial increases in home values. I don’t have all the answers, but the DOJ’s scenario presented in this article is not it.
You’ve laid it out perfectly Gavin! This scenario is what I’ve been discussing with people outside of the industry who want clarity on how the lawsuits and DOJ proposal can impact the entire market. The issue is far more complicated than “who pays the buyer agent”, it’s multilayered and complex, and it impacts home prices, tax assessments, home valuations, perceived home values, AND a buyer’s ability to get an offer accepted.
You think fairness is the primary concern on the table.
You can’t possibly imagine that incompetent buyer agents who think they are entitled to three percent without having to negotiate for it, and agency managers who require listing agents to offer three percent to buyer agents, are at all responsible for inflated housing prices.
If you read the DOJ’s position on the matter, fairness is exactly their primary concern. Fairness is what antitrust is about.
You make several assumptions in your comment; Buyers agents are incompetent, lack the skill to articulate, negotiate and provide value and agency managers require listing agents offer compensation to buyer agents. Even in a general sense none of those assumptions are accurate.
Why do you automatically assume the buyer agent is incompetent? That’s certainly not a fair categorization, no one wants an incompetent agent on either end. Its sales- the seller offers compensation to the buyer agent or the sub-agent. In the first scenario, the buyer gets representation, in the second they don’t. I don’t see why you think that makes things more fair for the buyer. Further, why do they worry about antitrust for Real Estate, but not media, banks, medical practice, and corporations? Just another case of the small independent worker getting screwed by the big players and yet another opportunity to push home ownership out of reach and allow corporations to buy it all up and rent instead. Get the government OUT of commerce, all they do is screw it up.
Agree 1000%!!!
100% incorrect
I am a broker in CT and NY; I have to say that the gentleman that goes by Martin seems supremely disgusted with buyer agents and that is very disappointing. I’m not sure if he had a bad experience with one, but we are not all evil, we certainly are not all incompetent and many of us do in fact take pride in and uphold our fiduciary obligations to our clients – whether they are buyers, sellers, renters or investors. In my business model, I have very open, honest conversations with my sellers about commissions and they get to choose what they pay out as a cooperating broker fee. I provide guidance and advice and math – black and white math that shows what they could walk away with under different commission scenarios. I negotiate commissions all the time with my clients. There is no “standard” commission in CT or NY. There is a “typical” or “customary” but there is no standard issued by any governing body and here is a prime example… A couple years ago I worked with an heir to sell an inherited home. The heir just so happened to be a longtime realtor from another state and he said he would pay out 10% to a buyers agent. 10%!!! I received calls left and I right that I made a mistake and I’d get complaints filed against me with my board, etc., etc. but I didn’t. What I did was lawful and that’s what my client wanted to offer and that’s what they paid. I think it’s important for my clients to have a say in the amount of money they are paying out. I also have commission conversations with my buyers – we’ve been signing buyer agency agreements for so many years here in the Northeast that it’s a non-issue and the buyers understand that they could potentially be financially responsible for a commission depending on the situation. There will always be “greedy” people as Martin described it – in EVERY INDUSTRY – no matter what. That is unfortunately a downside of many humans and no bill or law or regulation from the DOJ or anyone is ever going to fix that because it will only be a matter of time before the next greedy human figures out a way to take advantage of that too. I for one plan on keeping my conversations open and transparent with all of my clients. Is the current system perfect? nope – not at all. Is there a guarantee the new system will be perfect? nope – not at all. We should all continue to work with integrity and honesty, keeping our clients financial investment(s) a top priority and working within the laws of real estate that are in place for our respective states. And let’s try to be nice to one another 🙂
Couldn’t have said it better, Diana. As a long-time practitioner in several states – now NC – I have ALWAYS had those conversations with my clients and customers up front; it’s the ethical thing to do! I have never had a problem with either a buyer or seller because I am transparent and honest from the outset, with my clients’ best interests top of mind.
I agree fairness is what antitrust is about. I’m a buyers agent and I work my tail off to negotiate a fair offer for my buyer. Not just showing them houses but running comps on any house they show interest. I also show comps to the seller agents and appraisers when their comps are way off. My first time buyers have very little information about the buying experience so I also provide information and guidance. These are just a few task many buyer agents do!
the way all is being handle is to give more advantage to investors ,developers etc., and will put in a great disadvantage to hard working families to buy their first home, all this theatrical law suits is a manipulation for the benefit of the rich and powerful , the commissions for decades never have been fixed , in the Listing contracts specifically said that they are not fixed .
can someone explain how the commissions inflate the housing prices? they are a lot of other players that they really contribute to the inflated housing prices and nobody is mentioning them, why?
Yeah I love it good job way to go
I totally welcome the changes as Buyer Agency fees are wholly unacceptable in many cases. When you hire a professional, you generally balance their skill against the fee requested. Those who want skill will pay for it and as long as there is no prohibition to negotiate Seller payment of those fees, then the free market will settle the rest. What I find laughable is the belief that this will lower housing prices. Realtors on average make pretty paltry earnings. Yes, the stars excel, but that goes for any profession. Maybe we can ask the DOJ to do something about the pay Congress receives for their good work?
For those of us who have been in the Real Estate Industry as long as I have (1977) the Federal Government has Always been scrutinizing the Realtors and Commission arrangements in MLS Boards, going after Brokers for Price Fixing if they talked about what fee they charged. Then in 1991 there was a case in Colorado about Sub Agency, Buyer Agency, etc. The Court Ruled the Seller and Buyer ‘Equally’ share in paying the Real Estate Brokers commission in the agreed upon Sales Price, Each Party Agreeing to the Terms of the Contract without Duress!
What Happened? Maybe they forgot about that Court Case and Should be reminded about the Outcome as a result of the Court’s Decision! If a seller agrees to the Terms in a Listing Contract and Agrees to terms presented by the Buyer which includes paying their agent a commission what’s wrong with that? Seller’s can always ask ‘what’s your fee, do you coop with the real estate community and how do you split the commission?’ Most Seller’s only care about one thing, their bottom line, what are they walking away with!
Should the DOJ investigate the Trial Lawyers and the percentages they charge for their representation? WE’re Bombarded on TV, Radio and Billboards from Law Firms saying they win Millions for their clients, does that lead to higher settlements and therefore higher insurance premiums that We All Contribute to? Just Maybe…..I don’t hear about too many attorney’s being sued for any Price Fixing measures, Maybe it’s because They’re All Attorneys as Members of the Bar Association!
Maybe the Answer is to do away with Buyer’s Agents and we all become Marketing Agents whereby we allow buyers through our listing, we don’t show someone else’s listing and the Buyers attorney writes the Contract that we present to our Client for either approval or counter proposal, the Buyers can pay their attorney the fee agreed upon and we eliminated two problems at one time!
Remember All the Seller Cares About is their walk away bottom line!
Buyers are indirectly paying for their agent’s commission. The home loans if financed do not allow buyers to pay commission. The current structure allows more buyers to purchase homes. The buyers are indirectly paying the commission just as much as the seller is indirectly paying the buyers agent (contract wise it is the listing agent who compensates the cooperating broker a share of their commission). Without this system you will see less first time homebuyers and disparity will increase. The rich will get richer. Protected classes of people will be affected disproportionately. Home sales are a large driver of the economy. People who buy homes often buy new appliances, furniture, furnishings, etc. It is unfortunate that those who do not see and understand these points on a daily basis are making decisions about it.
The solution is sooo much more simple than the DOJ realizes. Just make everything transparent… the total commission, the commission paid to the listing agent, the commission paid to the buyers agent and if there is a different total commission if the buyer is unrepresented. Then publish the listing agent phone number as the first characters in the listing description.
It’s almost funny how little these government lawyers understand about buying or selling a home.