The U.S. Chamber of Commerce is worried. The pro-business lobbying group filed an amicus brief in a federal appellate court supporting the National Association of Realtors (NAR) this past Friday. A federal judge’s ruling that lets hundreds of thousands of housing consumers partake in a class action lawsuit against NAR is “an issue of concern to the nation’s business community.”
It affects “countless businesses,” the Chamber of Commerce declared in the brief that supports NAR’s appeal of class certification, namely co-defendant brokerages and the independent contractor agents who act as their own entrepreneurs.
The lawyers representing NAR, and in turn their member agents, now face “crushing pressure to settle” a lawsuit that claims commission’s are “artificially inflated.” In other words, through these lawsuits, the 5-6% total commission of home sales may be drastically reduced.
“We can’t infer too much from class certification,” said Erik Hovenkamp, a University of Southern California antitrust law professor. “Of course, there are other signals the complaint may be meritorious, such as the fact that the DOJ is bringing its own antitrust case against the NAR.”
Yet, instead of using its annual legislative conference earlier this May to huddle with its members and plot a response, NAR almost entirely ignored the issue. The talk was not that hundreds of thousands of consumers in Missouri alone were now involved in a lawsuit against a trade group that is supposed to mutually benefit agents and consumers.
Instead, NAR discussed a few legislative items with little chance of passing. And it reiterated support for improved diversity, equity and inclusion in the real estate industry.
The event, combined with NAR’s recent record of courtroom losses and stymied legislation, leave some of the organization’s 1.5-million member agents puzzled about how these lawsuits affect them, and what concern they should have for the litigation.
“The things they are using their advocacy for are not the most important concerns to their members,” said Courtney Poulos, CEO of ACME Real Estate in Los Angeles.
Poulos said that she wants more guidance about how these outside threats may harm her business. For example, could consumers have the power to claw back contractually agreed upon real estate commissions?
However, she learns about NAR’s antitrust troubles through news articles, and not through her local NAR chapter, the Greater Los Angeles Realtors Association.
Other agents echoed this frustration. It’s not that they see these lawsuits as the end of the world, but they do have questions about them.
“There is not a lot of education,” said Darrell Hurdiburgh, broker at Real Estate for a Cause in Oakland, Michigan. “Some of the agents don’t even realize there’s a lawsuit.”
NAR did not make executives available for an interview. But it did make available spokesperson Mantill Williams and Ron Phipps, the trade group’s president back in 2011 and a broker at Phipps Realty in Warwick, Rhode Island, since 1978.
The pair acknowledges that NAR simultaneously faces major litigation and a historic low-inventory housing market. But Phipps and Williams also indicate the trade group’s focus on diversity coincides with their legal defense.
An alleged conspiracy and an inventory impasse
Under legal fire is NAR’s policy for agent and broker compensation. Currently, consumers sign contracts stating that a portion of the seller’s commission is split between the seller’s broker and buyer’s broker. And the consumer selling the home pays all the commission costs, which are a percentage of the home sale price.
Home sellers like Scott and Rhonda Burnett – the named plaintiffs in the Missouri lawsuit granted class action status – argue that NAR and top brokerages including Realogy (now Anywhere), RE/MAX, Berkshire Hathaway HomeServices and Keller Williams, used the buyer broker agreement to engage in price fixing.
Burnett’s arguments are replicated in a Chicago case inching through the fact-finding stage. The commission debate is also in Washington D.C. federal court, where NAR itself took legal action for DOJ withdrawal’s from an antitrust consent decree. DOJ claimed to back out in order to further investigate commission costs.
Messages left with DOJ for this article went unreturned. NAR awaits a judge’s ruling in its attempt to end the investigation, Williams said. “NAR remains confident the pro-competitive, pro-consumer local broker marketplaces serve the best interests of buyers and sellers and that we will ultimately prevail,” Williams said.
Phipps, the former NAR president, had this to say about the organization’s antitrust troubles. “Is the leadership concerned about it?” Phipps said. “Absolutely. I think they are disappointed it remains an ongoing conversation.”
One thing NAR wants to discuss instead is inventory shortfalls.
There are less than 1 million homes on the market now, according to Lawrence Yun, NAR’s chief economist, a figure that compares to 1.5 million houses at the pandemic’s start.
If NAR’s lawsuits aren’t registering with members, Phipps said, it’s because, “The majority of our members are so focused on their clients,” adding, “The number of sales will drop off this year, but not because of lack of demand.”
Indeed, more agents are likely concerned with today’s inventory than tomorrow’s possible lawsuit outcome. Ken Johnson, a real estate professor at Florida International University, held a question-and-answer session this week with the Greater Tampa Association of Realtors. Nobody mentioned the antitrust actions, Johnson said, but instead asked about inventory and what is going to happen now with the housing market.
NAR’s record on improving inventory is mixed.
The Realtor’s association has a web page “advocacy successes,” chronicling “legislative, executive and judiciary branch wins.”
There are a few notable items from 2021 and this year, including passage last February of the Equality Act, a prohibition on sexual orientation and gender identity discrimination that extends into housing. The American Rescue Plan, meanwhile, provided $10 billion in homeowner assistance. And, last August, the U.S. Supreme Court took the position of NAR and landlord groups in tossing out the Center for Disease Control’s eviction moratorium.
But most other items that NAR counts as “wins” — from real estate provisions in the failed Build Back Better infrastructure measure to a bevy of bills pushing for developer and community homebuilding tax credits — are stalled in Congress.
At the legislative conference, NAR policy and legislative analyst Bryan Greene noted the struggle of working with a Congress passing few laws. For NAR’s dues-paying agents and brokerages, it’s a pricey struggle. NAR spent $44 million on lobbying Congress in 2021, according to OpenSecrets, and $12 million for the first quarter of 2022.
One whisper at the conference is whether DOJ’s investigation of NAR diminishes the trade group’s clout on Capitol Hill. Phipps dismissed the chatter.
“Legislators are concerned about what the consumers are focused on,” Phipps said, adding, “Equity and fair housing are what the consumer is focused on.”
Equity, fair housing… and antitrust
It was in November 2020, a year marked by the death of George Floyd and growth of the Black Lives Matter movement, that NAR apologized for its prior support of redlining.
“What Realtors did was an outrage to our morals and our ideals,” NAR’s then-president Charlie Oppler declared at a virtual fair housing summit. “We can’t go back to fix the mistakes of the past, but we can look at this problem squarely in the eye.”
Since Oppler’s remarks, NAR has publicly focused upon diversity, with at least two concrete goals. One, Phipps noted, is boosting the number of non-white agents and brokers.
Another goal is closing the gap between white and non-white homeownership. The 2020 homeownership rate for Black Americans was 43%, according to a NAR analysis, one percentage point less than in 2010, and far less than the 2020 white homeownership rate of 72%.
The idea that the American dream of homeownership should be available to all — along with the agent and brokerage commissions that come along with it — is good business for NAR. It also meshes with NAR’s legal defense for the current commission structure.
NAR is “raising awareness of how local broker marketplaces ensure equity, transparency and market-driven pricing options for the benefits of home buyers and sellers,” the organization wrote in a statement for this article. “Listing brokers making offers of compensation to buyer brokers gives first-time, low-to-middle income buyers a better shot at affording a home and personal representation.”
NAR is arguing that the buyer broker arrangement — ironically a policy that NAR devised a century ago when it often supported housing segregation and discrimination — today boosts first-time homeownership, including first-time minority homeownership, since there is no buyer’s commission. “The pay structure we have incentivizes buyer’s agents,” Phipps said.
Phipps was asked if NAR promotes its diversity commitment because it can double as a legal defense in the Missouri case and other antitrust actions.
“No, it is unrelated to the lawsuits, investigations, or whatever,” he said. “We are committed to DEI. If that all stops now, the commitment to DEI does not stop.”
Williams added that the American real estate market, “Really does favor low-to-middle income buyers,” and that the U.S. is “one of the few places where you can start with lint in your pocket and become Serena Williams or Oprah Winfrey.”
A couple of agents interviewed contended the focus on diversity is disingenuous, noting NAR donates to office seekers such as Texas governor Greg Abbott or former U.S. senator from Georgia David Perdue, who arguably do not prioritize inclusion, particularly based on sexual identity.
“NAR wants to look progressive and woke, while working in the background to keep the social and economic order in place,” said one Texas real estate agent who requested anonymity so as to, “not upset NAR further.”
Other agents are taking a more supportive stance.
“I do feel that NAR’s stated interests do reflect my interests most of the time,” said Chey Tor, a RE/MAX agent based in Scottsdale, Arizona. “Generally, we all share the same goals of getting as many individuals as possible to become homeowners to build their own wealth and achieve the American dream.”
“We may disagree on how to get there,” Tor added, “And that’s okay.”