DOJ to court: Buyers need to set their agents’ compensation 

Calling the proposed MLS PIN settlement one that only makes "cosmetic changes," the U.S. Department of Justice provided a harsh response that could have implications for the other national buyer agent class action lawsuits.

In its statement of interest, filed in the Nosalek case to the U.S. District Court in Massachusetts Thursday evening, Feb. 15, the DOJ provided some suggestions of what should be in the MLS PIN settlement with the plaintiffs, who are homeowners in the area. One proposal was an injunction "that would prohibit sellers from making commission offers to buyer brokers at all," which would completely change how commissions work.

"That injunction would promote competition by empowering buyers to negotiate directly with their own brokers," according to the documents submitted by the DOJ.

The DOJ contends that the current settlement proposal would do little to change how much is paid in commissions.

"As long as sellers can make buyer-broker commission offers, they will continue to offer 'customary' commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions," the filing reads. "When sellers make such offers, buyer brokers need not compete on price to attract buyers. The settlement does not ameliorate these dynamics."

This tone should be considered a warning shot for the National Association of Realtors. NAR is not a defendant in this case, but it is currently awaiting a ruling from the U.S. District Court of Appeals on whether the DOJ can reopen its case against the trade association.

Laying out its case

In noting that commission fees have remained in the 5-6% range for years despite the improvement in technology and the internet, the DOJ laid the blame on multiple listing services. The DOJ said MLSs have economic incentives to restrain competition, listing a variety of ways this was accomplished, including excluding listings by discount brokerages and rules permitting brokers to exclude potential homebuyers that use virtual brokers.

The DOJ also stated that recent experience confirms that these changes don't go far enough. It noted that the Northwest Multiple Listing Service in Washington state made two sets of changes that mirror the proposed MLS PIN settlement, but "neither revision appears to have led to a decrease in buyer-broker commissions."

In pushing for a prohibition of listing agents offering a commission to buyer agents, the DOJ argued that this change would promote greater price competition and innovation.

"If buyers set the compensation for their own brokers directly, some buyer brokers might choose to offer flat fees or hourly rates in lieu of percentage commissions, since the amount of time and effort required by a buyer broker has a weak correlation, if any, to the ultimate sales price of the house," according to the the DOJ filing.

The DOJ also argued that this change would not force buyers to pay those commissions out of pocket, a significant concern to the industry and particularly first-time homebuyers.

"While some buyers might choose to pay their buyer brokers out of pocket, other buyers might request in an offer that the seller pay a specified amount to the buyer broker from the proceeds of the home sale," the DOJ suggested.

The DOJ also has concerns about how the $3 million in monetary damages is structured. They argue that the settlement money to class members is not guaranteed and they cannot opt out.

DOJ's concerns with the Nosalek case

The DOJ has had issues with the MLS PIN settlement since it was announced last summer. The parties made some adjustments but the DOJ told the U.S. District Court in Massachusetts in December that it was still dissatisfied, a sign they wanted to push for further changes to compensation practices.

The initial settlement required MLS PIN to pay $3 million and change its rules surrounding buyer-broker compensation.

Specific rule changes agreed to by MLS PIN include eliminating a mandatory offer of compensation from the seller to the buyer-broker, requiring listing agents to notify their sellers that such compensation is not required, and making it clear that any compensation offered by the seller to the buyer-broker can be negotiated among all parties.

While the DOJ lays out its concerns, the legal proceedings have come to a halt. U.S. District Judge Patti Saris ordered an administrative stay to the lawsuit until it is determined whether the U.S. Multidistrict Litigation panel plans to consolidate Nosalek with several other antitrust class-action lawsuits involving buyer agent commissions.

Other defendants in the case are Anywhere Real Estate, HomeServices of America, RE/MAX and Keller Williams. All the brokerages involved except for HomeServices have agreed to nationwide settlements that are still being finalized and could include this case.

Details of Nosalek case

The lawsuit, filed in 2020, is one of several ongoing cases challenging the current system of buyer-broker commissions. MLS PIN, which serves much of Massachusetts, along with several brokerage companies, was sued by home sellers who object to rules that force them to pay buyer agent commissions. 

This case is slightly different from cases like Sitzer/Burnett in that the National Association of Realtors was not a defendant. Since MLS PIN follows many of the same rules as the national association, what happens with this case could influence the outcome for NAR in many of the other lawsuits across the country.

Before the DOJ notified the court of its continuing concerns, final approval of the MLS PIN settlement was expected this spring.