In the September NATIONAL ASSOCIATION of REALTORS® (NAR) Emerging issues Committee meeting, they heard from brokers about their concern over the Clear Cooperation Policy. The committee did not take action during the September meeting, but committed to investigating the concern in cooperation with the NAR Executive Committee. They suggested that the issue would be continued in the October meeting–which is this Friday (10/25).
The DOJ is coming after NAR again, and again. Currently, they are submitting interest in the settlement of the buyer commission litigation. They are also investigating the Clear Cooperation Policy (CCP). Real estate publications, conferences, social media influencers, blogs, and podcasts have been discussing clear cooperation every day.
Brokers have both picked sides on the issue–most saying that it should be removed from NAR policy to duck the DOJ’s concerns, but a large number suggesting that it remains in place to provide equal footing to all brokers and consumers in the marketplace. Others suggest that the rule simply become optional, therefore shifting the burden to local MLSs to defend their policies–rather than NAR. MLS vendors offer some technology solutions that are a middle ground, too.
With the help of Saul Klein, John Riley, Lennox Scott, and Brian Larson (off the record) I have been traveling back in time to relive the birth of IDX in 2002, and watch its development over the years.
I am trying to understand if IDX created the CCP problem, or if it creates the CCP solution.
I remain undecided.
One prompt offered by Klein (YouTube video below) was a quote from Alex Rampell of Andreessen Horwitz made in a video published in the Business Insider in 2018. This post isolates Rampell’s view of the world of real estate. I think that it is a timely perspective to review because we often find ourselves swimming around in our fishbowl without appreciating the perspective from the outside.
Rampell describes the broken process of buying a home –and mainly focuses on the 6% real estate broker fee; that was the basis of how they were investing at the time. In many respects, Rampell got it wrong and they made many investments that did not pan out (iBuyer). But the thinking behind the investments was pretty sound, and might make even more sense today. His view is that companies will buy and sell homes, and replace the consignment system of today’s real estate brokerage.
Please watch the video. It’s worth the 26 min investment in your time.
Key Points
- You are going to buy your house or sell your house to a company – reasons why:
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- 45 days to get a mortgage
- House takes too long to sell
- Buying agent get compensated more if you spend more
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- Too many unsuccessful agents – like failed actors – why that’s bad:
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- 2 million agents
- Most agents sell zero homes
- 6% transaction fees
- 67% of homes occupied by owner
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- The market size is $100 Billion in annual commissions! It’s worth disrupting
He quotes George Bernard Shaw, “All professions are conspiracies against the laity.”
Laity refers to people who are not members of the clergy – or more broadly – not professionals or experts in a field. The quote suggests that professional groups often create barriers to maintain control over knowledge, expertise and power, therefore preventing outsiders (the laity) from fully understanding or participating.
Shaw implies that professions such as real estate, deliberately use complex jargon, rigid qualifications, and closed systems to preserve their authority and exclusivity. (Think “mandatory submission” to the MLS within one day of marketing a home for sale). This is the cornerstone of the antitrust complaint by TAN and PLS that blocks those new MLS models from operating.
Does CCP ensure that those outside the profession remain dependent on them, reinforcing a hierarchical structure where professionals hold the upper hand? The quote is a critique of institutionalized systems that guard their knowledge to benefit themselves, rather than serving the public transparently. (I studied philosophy, religion, and psychology in college at St. Olaf – glad that I had the rare opportunity to use my education).
Rampell goes on to reference the legal environment (long before the buyer-agent commissions antitrust or CCP charges from the DOJ). He references Minimum Service laws in 12 states. In those states, real estate agents cannot cut their fees. There is a ban on commission rebates in 10 states, and United States of America vs. NAR in 2008. This case was about NAR’s policies regarding the sharing of real estate listing data through the MLS; restricting property listings to online brokers and discount brokers who used the internet to provide lower-cost services, thus harming consumers.
NAR ducked a bunch of antitrust litigation many years go by making the rule requiring Association membership to access the MLS an optional policy as a result of complaints against the policy in Florida and California. Most MLSs removed the requirement, but plenty have upheld it. That issue of tying Association membership to MLS access is coming back again – not only tying it to MLS access, but probably requiring membership to access forms and lockboxes, too.
In May of 1950, the United States won a lawsuit against the National Association of Real Estate Boards (Pre-NAR) that called the 6% commission split antitrust. The Supreme Court ruled that competitors getting together to set commissions is akin to airlines getting together and setting prices. The reason why real estate commissions – which have always been negotiable – have remained largely unchanged is the same reason why airline fares are largely similar. Airlines simply look up what other airlines are charging to set their rates. Rampell points to the MLS as a similar type of conspiracy imagined in the quote by George Bernard Shaw.
If you want to understand the perspective of the DOJ so that you can understand the stakes on the table at this Friday’s Emerging Issues Committee– just do a Google search for “Department of Justice Real Estate Competition.”
Friday’s meeting of the Emerging Issues committee may be the most important meeting of the year. We all wait, and hope (some praying) that our industry leaders arrive at the best path forward for everyone concerned.
This was published in RIS Media today – comments are credited to Brian Schneider – who is representing MLSs in multiple lawsuits
And it is not the DOJ, but the judge—Stephen R. Bough, who presided over the Burnett trial in the Western District of Missouri—who has the final say on whether the deal becomes finalized. Schneider says that real estate professionals should generally feel comfortable accepting that the current rules banning compensation from the MLS and requiring buyer agreements with every client are here to stay.
But there are many more uncertainties around the DOJ’s push against real estate policy and beyond, many of which could easily create more issues outside the current paradigm.
According to Schneider, the DOJ is currently issuing CIDs—essentially subpoenas but in a civil rather than criminal investigation—to various “industry stakeholders around the country,” despite having partially paused its investigation into NAR pending a Supreme Court petition.
“We don’t know exactly what they have gathered,” he says. “We have some suspicions that they’re gathering a broader set of MLS data around the country, a broader set of information about what the industry has done in response to the proposed settlement. We know that they have issued CIDs to a broad swath of different types of companies in the industry, whether it be associations or MLSs or brokerages.”
While that is a frightening prospect, and could be interpreted as the beginning of some larger pressure campaign against the industry, that is not necessarily the case. Schneider says that one purpose of these CIDs is simply to bolster the likely intervention in the settlement with data that could support an argument that more restrictions are needed.
