NARs Fatal Flaw
The National Association of Realtors (NAR)
has a fatal flaw
Problem: A fact that can never be overcome
By Definition: NAR is Anti-Competitive.
By Charles Jones
FTC's Definition of Anticompetitive Practices:
The FTC takes action to stop and prevent unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation. Anticompetitive practices include activities like price fixing, group boycotts, and exclusionary exclusive dealing contracts or trade association rules, and are generally grouped into two types:
Agreements between competitors also referred to as horizontal conduct
Monopolization, also referred to as single-firm conduct
The National Association of Realtors (NAR) as well as the various state associations of Realtors and the local associations of Realtors are membership trade organizations made up of industry competitors. This fact cannot be denied.
And since the individual members, their brokers as well as the state and local associations are all governed in some sort of manner by the NAR both definitions of Anticompetitive Practices apply.
The NARs board is made up of the industry's major competitors who regularly meet to discuss policies and vote on proposed rules.
The NAR rules committees are made up of the industry's major competitors who meet and propose rules.
The rules mandating behavior deemed to be anti-competitive:
Clear Cooperation Rule
NAR effectively controls the most important tool of the residential real estate trade, the MLS.
NAR's new rules will also fail the test of "Agreements between competitors" that reduce quality and levels of service and stifle innovation:
These new rules are based on the settlement changes in practices in paragraph 58 are an agreement between competitors and are not based on law.
Proposed rule 58(ii) forbids sellers from voluntarily advertising and marketing seller-offered and seller-paid other broker compensation. (This meets the definition of group boycotts, exclusionary exclusive contracts, reduced quality of service, and less innovation)
Proposed rule 58(iv) mandating proposed buyers sign agreements prior to touring homes. (The fact that it is mandatory and not voluntary makes it coercive, which is exclusionary, reduced quality or service, and discriminatory)
Collusion: This refers to the cooperative practices of NAR, among its competitive members, which are aimed at manipulating the behavior of real estate agents and brokers in a way that reduces competition. Such collusion might involve setting rules or policies that control access to essential tools like the Multiple Listing Service (MLS) or agreeing on practices that limit the entry or success of independent agents and brokers.
Anti-Competition: Anticompetitive practices related to the NAR involve actions and policies that suppress competition within the real estate market. These can include monopolistic control over critical industry resources (like the MLS), creating barriers to entry for new or non-member agents and brokers, and establishing rules that limit the freedom of agents and brokers to compete on price, services, or innovation.
Coercion refers to the practice of compelling someone to act in an involuntary manner by using force, threats, or other forms of pressure or intimidation. In the context of real estate and specifically relating to NAR's proposed rule 58(iv), which mandates prospective buyers to sign agreements prior to touring homes, coercion can be understood as the undue pressure placed on buyers to enter into contractual agreements as a precondition for viewing properties. This can potentially restrict the buyers' freedom to choose their representation freely and without undue influence or pressure, which might limit their options and control over their buying decisions.
Discrimination as it pertains to Rule 58(vi) would relate to practices that unfairly inhibit certain groups from accessing real estate services or lead to unequal treatment of buyers based on demographic, economic, or other biases. This can contravene fair housing laws and principles by excluding some people from the home-buying process or imposing disproportionate burdens on them
Voluntary vs. Mandatory Agreements
Voluntary Agreement: This type of agreement is entered into freely and without coercion between a real estate agent and a client. The client has the option to choose their agent based on preference, compatibility, or reputation, without any external pressure or requirement imposed by governing bodies or real estate associations. Such agreements are typically seen as beneficial because they are based on mutual consent and understanding, allowing for flexibility and personalized service that aligns with the client's needs and interests.
Mandatory Agreement: Contrasting with the voluntary agreement, a mandatory agency agreement would be one that a buyer or seller is required to sign with a specific agent or brokerage, potentially under the direction or rules set by an association like the NAR or an MLS. This type of agreement can limit consumer choice and competition, as it forces clients to engage with agents under less flexible, predetermined conditions that may not fully align with their preferences or interests. Such agreements can be seen as coercive if they restrict the client's ability to freely select their representative in the real estate transaction.
Why did NAR lose its anti-trust case?
The plaintiff's attorney asked two simple questions to the 5 real estate CEOs for which the defense had no acceptable response:
Do you have employees on the NAR, State, and local boards? Answer: YES
Do you have employees on NAR, State, and local rules committees? Answer: YES
The plaintiff's attorney asked two simple questions to the NAR for which the defense had no acceptable response:
Did you make a rule that requires all seller’s brokers to make a blanket, unilateral and effectively non-negotiable offer of buyer-broker compensation(the “Adversary Commission Rule”) when listing a property on a MLS? Answer: YES
Are the MLSs at issue in this case controlled by local NAR associations, and access to such MLSs is conditioned on brokers agreeing to follow all mandatory rules set forth in NAR’s Handbook on Multiple Listing Policy? Answer: YES
The question to the jury: Are there agreements/rules made between competitors that mandate Sellers make an offer of compensation in order to be listed on an NAR affiliated MLS? Answer: YES
Based on the definition of collusion and anti-competitve practices did NAR and the participating Brokers conspire to fix commissions? Answer: YES
Allegations against the NAR that could not be rebutted
(Doc. #38, p. 1). Plaintiffs allege that “[t]he cornerstone of Defendants’ conspiracy is NAR’s adoption and implementation of a rule that requires all seller’s brokers to make a blanket, unilateral and effectively non-negotiable offer of buyer-broker compensation(the “Adversary Commission Rule”) when listing a property on a [MLS].”
Unfortunately, the allegation is TRUE:
NAR's rules did require all sellers to make an offer when listing on a NAR-MLS
(Doc. #38, p. 3).Plaintiffs allege “[t]he MLSs at issue in this case are controlled by local NAR associations, and access to such MLSs is conditioned on brokers agreeing to follow all mandatory rules set forth in NAR’s Handbook on Multiple Listing Policy.”
Unfortunately, this allegation is also TRUE:
Agents may not access the NAR controlled MLSs unless they agree to follow NAR rules.
The settlement does nothing to address this accusation. Therefore it will be continued grounds for others to bring suit against NAR and its members.
Solutions:
1. Decouple NAR from listing services
Decoupling the Multiple Listing Services (MLS) from the National Association of Realtors (NAR) and other "associations of competitors" could significantly benefit the real estate industry, by enhancing competition, by reducing conflicts of interest, by promoting transparency, by encouraging technological innovation, by providing fairer access to data, and lowering the cost of services.
2. Stop making mandatory industry-wide rules
A compelling reason for NAR to cease creating mandatory industry-wide rules is the substantial reduction in legal liability. By stepping away from issuing regulations that bind all real estate professionals under its umbrella, NAR would minimize its exposure to antitrust litigation and governmental investigations, particularly those scrutinizing anti-competitive practices.
3. Decouple compensation: No more sharing of compensation
The Real Estate Board of New York (REBNY) has come up with a solution that should be adopted: unfortunately for REBNY, it has agreed to the settlement and now cannot allow the advertisement of Seller-paid compensation, as REBNY has the same fatal flaw all broker-owned MLSs share.... They are owned and controlled by competitors, therefore they are by definition anti-competitive.
REBNYs new rules:
Brokers can no longer offer to share their compensation.
But, Sellers shall have the right to voluntarily contractually offer seller-paid other agent compensation directly.
This is a change in the mechanics, and better reflects the true nature of the role of other agents in the marketing for buyers and the value the marketing from other real estate agents in the market bring to the seller.
The other agent can either accept, reject or negotiate that offer. This reflects that an agent does not have to accept the offer from the seller, if it is not enough money to cover the cost of time and marketing.
Benefits for NAR in No Longer Controlling the MLS and Reduced Industry Rule Making
The National Association of Realtors (NAR) has historically maintained significant influence over the Multiple Listing Service (MLS). However, stepping away from controlling the MLS could yield strategic long-term benefits, including reducing legal liabilities and refocusing NAR on its core advocacy mission.
Reducing Legal Risks and Liabilities
Mitigating Antitrust and Regulatory Exposure: With control over the MLS, NAR faces increased scrutiny for potential antitrust violations, which have led to costly class-action lawsuits and Department of Justice (DOJ) investigations. By relinquishing its direct influence over the MLS, NAR could minimize its exposure to these legal challenges, effectively reducing financial liabilities and reputational damage.
Disengaging from Industry Rule-Making and Policing: NAR's role in rule-making and overseeing agent conduct has placed it under intense scrutiny and has been a significant factor in triggering class action lawsuits and DOJ actions. Stepping away from these functions would allow NAR to avoid contentious regulatory disputes and focus instead on advocacy.
Refocusing on Core Advocacy Mission
Advocating for Homeownership and Property Rights: Without the operational burden of managing the MLS, NAR can direct its attention more effectively to advocating for homeownership, private property rights, and beneficial regulations. This shift would enable NAR to enhance its engagement with lawmakers, ensuring better protection for real estate professionals and homeowners.
Enhancing Member Support and Services: By eliminating its rule-making and policing responsibilities, NAR would be able to provide superior educational programs, legal support, and business development tools for its members, helping them navigate a changing market with increased compliance.
Strengthening Industry Influence and Reputation
Promoting Neutral Leadership: Without direct control of the MLS, NAR would position itself as a neutral entity that fosters fair competition and transparency. This move would enhance its credibility and influence as a leader that advocates for positive industry standards.
Encouraging Innovation and Fair Competition: An independent MLS, unencumbered by internal biases, could foster a more open and competitive market. NAR members would benefit from innovative tools and technology-driven solutions that arise in a more dynamic market environment.
