Like a lot of real estate professionals, California broker John Diaz is used to doing things on his own. When he decided to sue the National Association of REALTORS® (NAR) and local REALTOR® associations last year, he represented himself in a short-lived case accusing the defendants of violating antitrust laws through multi-level membership fees and MLS access restrictions.
Six months after the case was dismissed (due to technical deficiencies, including a missing signature), Diaz is back, with professional representation, joining at least two other brokerages who have hired lawyers as they accuse NAR and REALTOR® associations of creating an unfair system that forces agents to pay excessive membership fees.
“There is no procompetitive justify cation (sic) for Defendants’ conduct. The restraint has the effect of substantially lessening competition, excluding lawful professionals from the market, and increasing costs for brokers and ultimately consumers,” the new lawsuit reads.
Notably, Diaz’s lawyer, Chuck Hamm, is a former real estate broker himself, according to his website, who is still licensed in the state.
Diaz’s lawsuit closely mirrors his previous allegations, and also somewhat echoes the claims of brokers in Michigan, Pennsylvania, Georgia, Texas and Louisiana, who have sued their own local associations and NAR. Some have explicitly cited the NAR settlement as precipitating their lawsuits, with many representing themselves as Diaz initially did.
The plaintiffs in Georgia and Michigan, however, also have legal representation, with the Michigan case currently awaiting a key ruling by the judge on whether the lawsuit can proceed. Self-represented (also known as pro se) plaintiffs are almost universally unsuccessful, with only 3% of those litigants winning a final judgment in federal civil cases, according to Cornell Law School research.
In a statement provided via email, an NAR spokesperson wrote that the organization “will respond to the plaintiff’s claims in court.”
Speaking to RISMedia earlier this year regarding his original lawsuit, Diaz said he tried to get around the membership requirement within the existing rules, but was frustrated as the system confounded him at every turn.
“All I really wanted was for them to decouple and allow us to make a choice of which association we want to be a part of,” he said.
After using MyStateMLS, a service which does not require MLS membership, Diaz claimed he was initially successful in securing business and offers for clients. But eventually it became difficult to secure ancillary services, and he claimed he eventually ran into a lockbox company who would not work with him unless he joined the local MLS.
Diaz told RISMedia that he believes this and other barriers were created to maintain a financial hold on agents and discourage real estate professionals from seeking alternative business methods. He added that NAR’s legal setbacks at the national level also contributed to his frustration.
“I didn’t feel like they were giving us proper representation during the lawsuit to start with,” he says. “I wanted to have a choice as to which associations I wanted to be a part of or not a part of.”
Brokers vs. “the three-way agreement”
In his updated lawsuit, Diaz goes into the details of how associations and fees work in his local market in Modesto, California. Total fees to join all the required REALTOR® organizations total over $1,000 a year, which he calls a “significant barrier” to agents seeking to practice, or brokers who want to work with agents who don’t need MLS access.
“While some larger brokerages may find it feasible or beneficial to require uniform association membership among their affiliated licensees, smaller brokerages like Plaintiff’s—particularly those serving rural or underserved communities—are disproportionately burdened,” Diaz wrote.
At least two states also tried (and failed) to pass laws this year that would have banned brokers from enacting REALTOR® membership requirements, facing stiff opposition from state REALTOR® associations.
Brokers like himself, who want to work with non-REALTOR® members, are still forced to pay the associations for MLS access, Diaz complains. Because NAR and local associations control an overwhelming share of the market, he argues this becomes an antitrust violation.
Courts have historically affirmed the right of REALTOR® associations to control access to the MLS or charge fees for these services.
While much of his lawsuit focuses on the non-member fees, Diaz also points to the fact that REALTOR® membership necessitates joining multiple associations—the “three-way agreement.” Diaz claims his local association (the Central Valley Association of REALTORS®, who he is also suing in the lawsuit) does not provide a breakdown of the total fees.
NAR, for its part, has continued to defend the so-called three-way agreement, which does not allow agents to join any single level of REALTOR® organization without joining all of them (national, state and one or more local associations).
The NAR spokesperson in an email to RISMedia added that, “(t)he unified REALTOR® Code of Ethics enhances consumer trust, the best-in-class advocacy improves members’ ability to execute their next transaction, and our resources and professional development ensure members are always on the cutting edge of the industry.”
At NAR’s Midyear Legislative Meeting earlier this month, NAR SVP of Industry Relations Jarrod Grasso took the stage during an opening keynote to specifically highlight the three-way agreement.
“The first thing that I wanted to do is I wanted to make sure that we showed the true partnership, the true value of the three-way agreement,” he said. “It’s a unique value that no other industry truly has. We are in this together.”
Grasso said that NAR is creating new resources to try and highlight the advocacy, education, communication and partnerships through all levels of the local associations.
In response to other lawsuits by brokers, NAR has previously called rules around REALTOR® membership and MLS access “pro-competitive” and “pro-consumer.” The “integrated model” is necessary to protect REALTOR® brand value and a “unified advocacy platform,” NAR also previously said.
Notably, California legally requires that associations allow non-members access to the MLS, unlike most other states (most other broker lawsuits have centered on this MLS access, and not fees specifically).
But in California, like most states, agents have to find a broker who has one of these memberships, and in his lawsuit, Diaz notes that these brokers don’t have access to forms, market data and other services provided by REALTOR® associations. Pricing for these services outside of a membership is “clearly inflated” and intended to push agents and brokers to join REALTOR® associations while suppressing competition.
Diaz acknowledges that there are non-member “dues exceptions” in the state, but claims this is only to “remove the appearance of antitrust conduct,” as these exceptions require licensees to only perform referral services.
“This policy has the effect of coercing agents into abandoning lawful real estate activity in order to avoid financial penalties imposed on their broker, and serves as a form of economic pressure that disincentivizes brokerage models which seek to employ nonmember agents for legitimate real estate purposes outside the narrow scope of referral-only activity,” the lawsuit reads.
Jordan Grice contributed to this reporting.
Editor’s note: this story was updated on June 13 at 10:45 a.m. eastern time with comments from NAR.
