For the real estate industry, the past eight months of work culminated on Tuesday when Judge Stephen R. Bough granted final approval of the National Association of Realtors‘ (NAR) commission lawsuit settlement agreement.
Although many in the industry had their concerns heading into the Nov. 26 hearing, others were quite confident that this would be the outcome.
“That settlement is going through,” Marx Sterbcow, the managing attorney at Sterbcow Law Group, told HousingWire earlier this month.
Based on Bough’s ruling, which was filed Wednesday, he too felt strongly about granting final approval to the NAR settlement.
“In light of the many uncertainties of continued litigation, a significant and certain recovery weighs in favor of approving the proposed Settlements,” Bough wrote. “As discussed above, the litigation has been complex and expensive, and if it were to proceed without settlement would remain so. If they did not settle, the Settling Defendants would likely raise numerous challenges on appeal. The Court has observed first-hand the complexity and expense of the litigation.”
Additionally, Bough did not find that there was strong enough opposition to the settlement to consider another option than to approve it. According to his ruling, more than 491,000 class members have submitted claims, while 36 objected and 39 opted out.
In the ruling, Bough said he had made the decision to overrule all objections, but he did address some common concerns among the filings. In defending his decision to certify a nationwide class, he wrote that it was warranted “because Plaintiffs have conducted extensive discovery into the alleged nationwide conspiracy and have thoroughly litigated the claims, providing a robust factual record on which to assess the claims and base negotiations.“
“A nationwide settlement was a necessary condition of obtaining any settlement for the benefit of the class, a nationwide settlement will conserve judicial and private resources, and Class members were fully apprised of the settlement class definition through the notice process,” Bough added.
He also addressed criticisms over the monetary damages to be paid by NAR and HomeServices of America, whose settlement he also approved.
“The NAR and HomeServices Settlements also account for only part of the recovery that the Class has obtained, or could obtain, in connection with the claims arising from the alleged conspiracy,” he wrote. ”Specifically, Class Counsel obtained other settlements with other defendants that this Court previously finally approved, and have ongoing litigation against additional defendants. Although some Class members have objected that they may not recover every dollar they paid to real estate agents, that is the nature of settlements, which necessarily reflect a compromise.”
The ruling also highlighted that the monetary amount was not the only thing included in the settlement. NAR has also agreed to “substantial practice changes.”
Bough’s decisive ruling on the settlement came despite a last-minute filing from the Department of Justice (DOJ). In a statement of interest filed on Sunday evening, less than 48 hours before the final approval hearing was set to begin, the DOJ took issue with the settlement provision that requires buyers to sign a broker representation agreement prior to touring a house with an agent. The DOJ believes buyer broker agreements have the potential to “limit how brokers compete for clients.”
“It bears a close resemblance to prior restrictions among competitors that courts have found to violate the antitrust laws in other proceedings and could limit — rather than enhance — competition for buyers among buyer brokers,” the DOJ wrote.
The DOJ also noted that the approval of the settlement “does not preclude any future enforcement actions by the United States, and compliance with the proposed settlement or new NAR rules implementing that settlement affords no defense to any such enforcement actions.”
Although Bough did not explicitly address the DOJ’s filing, he did write that “the NAR Settlement’s practice changes were developed in consultation with economic and real estate industry experts. Co-Lead Counsel too have extensive antitrust expertise and have developed knowledge of the real estate industry based on a half-decade’s worth of detailed factual and expert discovery and research.”
Murky future
Due to the DOJ’s statement of interest, real estate industry veteran and San Diego MLS CEO Saul Klein has some mixed feelings about Bough’s ruling.
“The finalization of the proposed settlement is a good thing because you get closure on one side,” Klein said. “But is it good news? I think it is interesting news and it leaves people with a lot of questions.”
For Klein, most of these questions relate to the buyer representation agreements that the DOJ has now made clear are in its sights.
“As Realtors, we have been deathly afraid of antitrust for years. We knew talking about commissions was not a good thing, but now with these agreements and what the DOJ wrote, it is so vague that it’s hard to tell what is or isn’t a violation,” Klein said.
“I’m glad I don’t have to make the decision as to whether or not to comply with this civil litigation settlement, which the DOJ has very clearly stated they are not bound by and have concerns about.”
In an ideal world, Klein would love to find out more about how the DOJ views buyer representation agreements as an antitrust issue. There is a chance, he said, that only certain types of agreements (such as exclusive ones or ones that last multiple months) present problems in the eyes of the DOJ. But he isn’t hopeful, especially considering such clarity may only come after the DOJ files a suit against NAR.
Unfortunately for the industry, he sees this as a real possibility.
“I wouldn’t be surprised if the DOJ didn’t act within the next 60 days in some way,” Klein said. “In 2018, as soon as the 2008 consent decree expired, they were holding hearings, so I would expect something similar. I think the next shoe to drop will be something coming from the government — the DOJ or the Federal Trade Commission.”
Klein is not alone in his beliefs.
“Now one is really wondering whether the DOJ will appeal the approval to a federal appellate court,” said Steve Murray, the co-founder of RealTrends Consulting “That is definitely a potential option.”
Despite this ominous warning, Murray is of the belief that the installation of the second Trump administration will lead to a softening of the DOJ’s approach to NAR. But because the DOJ’s most recent investigation into NAR began under the first Trump administration, others are not as optimistic.
While the future continues to remain unknown, even with NAR’s settlement being approved, industry experts agree that the ongoing antitrust saga is far from over. “I’m one who thinks it is not over till it’s over — and this is definitely not over,” Murray said.
