July 14, 2024
Justice Department might pursue additional changes to the costs associated with buying and selling a home
With the real-estate industry poised to abandon its longstanding commission structure next month, the Justice Department is signaling it isn’t done scrutinizing how real-estate agents get paid.
The industry has battled many lawsuits alleging that the system for compensating agents keeps costs artificially high. It largely resolved these lawsuits in March with a sweeping settlement that will make it easier for home buyers to negotiate fees with their own agents and could lead more buyers to forgo agents altogether.
But federal enforcers’ recent actions indicate they are still weighing whether the settlement goes far enough. If they decide it doesn’t, they could pursue more substantial changes to the costs associated with buying and selling a home.
The Justice Department has intervened in two industry lawsuits and sent a formal inquiry to the California Association of Realtors, a large state trade association, about some legal forms it provides for agents to use during the home-sale process. It has also asked some real-estate companies about their rules governing listings.
At a meeting with the National Association of Realtors in late June, the department raised concerns that agents will attempt to circumvent the new rules, NAR President Kevin Sears said in a letter to the group’s members.
“Clearly the DOJ is still very much involved in this,” said Gary Acosta, chief executive of the National Association of Hispanic Real Estate Professionals, who attended the meeting.
The new industry rules included in the NAR class-action settlement go into effect on Aug. 17, but the full settlement is not scheduled to receive final approval from a federal judge until November. That means the Justice Department has months to decide if it wants to formally object to the settlement and argue it won’t bring commissions down enough. That wouldn’t automatically negate the agreement, but a judge could tell the parties to go back to the negotiating table.
An attorney for the Justice Department said at a court hearing in another case in May that the department hadn’t yet decided whether to intervene in NAR’s settlement.
The Justice Department has a history of investigating the residential real-estate business dating to the 1940s, when a department lawsuit led the Supreme Court to declare that local real-estate associations’ mandatory fees were illegal.
A court order last year prevented the Justice Department from doing much to investigate the industry. Then in October, private plaintiffs received a historic $1.8 billion jury verdict in Kansas City, which empowered the plaintiffs’ attorneys to negotiate a nationwide settlement.
The agreement reached in March with NAR is expected to lead to the biggest upheaval in the process of buying and selling homes since the 1990s, when the current system was enacted.
The Justice Department got the green light in April to resume investigating NAR after a federal appeals court ruled that the department wasn’t bound by a previous settlement with the trade group. Now it has to decide whether to let the private plaintiffs’ settlement go into effect and see how the industry adapts or try to push for changes before then.
Read The DOJ Asks: Does the Landmark Real-Estate Settlement Go Far Enough?.