Achieving Transparency in The Wake of Antitrust Violations

This year marks a massive change in the real estate industry with brokerages settling antitrust class-action litigation for hundreds of millions of dollars, including the National Association of Realtors (“N.A.R.”), a trade organization with over 1.5 million members, agreeing to pay $418 million in settlement. These settlements put an end to class-action lawsuits against members across the country accused of violating antitrust laws and driving up home prices by deceptively steering homebuyers to properties offering higher commission percentages. The accusations raised in the various lawsuits, although vehemently denied, have altered the way real estate professionals do business. The most significant change brought about by these serious claims can be boiled down to one word, transparency.

California is one of several states that does not require the services of a real estate attorney in order to complete a standard residential purchase. Instead, California has the Department of Real Estate (“DRE”) which is intended to safeguard the public and controls licensure, regulation, and education in the real estate industry. Meanwhile, the California Association of Realtors (“C.A.R.”) assists real estate professionals with conducting business. More importantly, because attorneys are not involved in drafting or negotiating individual purchase agreements, C.A.R. provides real estate professionals with standardized forms in an effort to eliminate, or at least minimize, the legal complexities of buying a home or an investment property. These C.A.R. forms are drafted by committees with the assistance of counsel, to provide necessary legal assurances in each transaction, thereby legitimizing the sales process without the use of an attorney. Although C.A.R. forms are available for use, realtors must add specific information that is pertinent to the transaction and often draft addendums that become part of the transaction and carry an equal amount of legal significance.

To achieve transparency in commissions, on July 10, 2024, C.A.R. released 30 new and revised standardized forms, in addition to the semi-annual updates released in June.  Major changes center around commissions and offers of compensation.  The changes were a direct response to the intense criticism by the Department of Justice and the scrutiny from the Consumer Federation of America post-class action settlement.  C.A.R.’s official statement on the issue reads as follows: “We have made the decision to remove the listing broker’s offer of compensation from these forms. While we recognize that the offer of compensation remains legal and valid, we nonetheless believe this change is in the best interests of our members and consumers.” The DRE, C.A.R., and N.A.R. do not prevent offers of compensation from being presented privately or directly by listing brokers through individual platforms, such as websites and apps.

Some sources suggest that the DOJ believes offers of compensation should not be made anywhere and criticized the N.A.R. as not doing enough by only eliminating compensation offers on the Multiple Listing Service, (“MLS”).  With close to 1,000 MLS platforms throughout the country, the service used to be the main source used by local listing brokers to advertise residential properties to buyer’s brokers in exchange for compensation if they produced a buyer. The MLS previously advertised commission percentages a seller would pay a buyer’s broker. N.A.R. no longer allows that to be done on the MLS. Instead, brokers are allowed to delineate compensation on their own private platforms. With the proliferation of social media, apps, and websites, and despite efforts to remain relevant, it appears that the MLS may become a relic of the past.  Instead, new methods of curtailing private deals between brokers and ensuring full transparency to consumers, such as the new C.A.R. forms, may become the norm for the industry.  Whether these new C.A.R. forms will appease the DOJ, is yet to be determined.