The U.S. Department of Justice vs. the Realty Industry

The U.S. Department of Justice vs. the Realty Industry

From the National Association of Realtors’ Virtual Office Website policy, to laws and regulations in individual states across the country, the U.S. Department of Justice has been fighting since 2003 what it believes are illegal practices by the U.S. realty industry that harm the American consumer.
The issues can be complex at times, but understanding what’s going on can be very valuable when buying or selling a home.

The Virtual Office Website Policy

In May 2003, the National Association of Realtors (NAR) passed their Virtual Office Website policy which allows realtors to selectively exclude their listings from other websites.
Later that same year, the U.S. Department of Justice (DOJ) launched an official inquiry into the policy—concerned that the policy could lead to practices which were anticompetitive and monopolistic.

Realtors could now, for example, allow fellow realtors access to their listings, but deny access to other competitors who threatened the traditional business model of the realty industry—by undercutting the standard 6% commission, for example. Colluding with competitors in order to stifle others, however, violates U.S. antitrust law.

Two years later, the DOJ investigation into the policy is still ongoing. While the NAR has stated publicly that they believe “the opt-out provision is legal and appropriate” and that they would “go to court for as long as it takes,” just five days after a May 9 Wall Street Journal report that the DOJ was preparing to finally bring suit in the case, the NAR authorized its leadership to develop a single, uniform policy governing the sharing of its listings.

DOJ vs. Local Realtor Organizations

While investigating the NAR’s VOW policy, the DOJ has also been involved in a number of individual local cases.

In March 2005, the DOJ sued the Kentucky Real Estate Commission, challenging their regulation that prohibits Kentucky real estate brokers and sales associates from offering rebates and other inducements to attract customers.
The DOJ charges that the regulation violates Section 1 of the Sherman Act by stifling competition and thus restraining trade.
Fourteen other states have similar policies.

In April 2005, the DOJ sent an official inquiry to the Greater Tulsa (Oklahoma) Association of Realtors on charges of “boycotting”—refusal by traditional realtors to show homes listed by discount realty companies.
While the practice is well-known to industry insiders, it’s both an antitrust violation and a violation of the realtor’s responsibility to their home buying clients.

Justice has also weighed in on debates in Oklahoma and Texas, who are considering bills that could eliminate many discount brokerage models by mandating that firms provide some minimum level of real estate services—bills championed by the realtor organizations in each state.
Illinois already has passed similar legislation.

Effects of DOJ Efforts

At the root of all these cases is the issue of collusion.
In order to maintain the current realtor-controlled market for home buying and selling, realtors, who are in all other respects direct competitors with one another, agree to “play nice” with other realtors, while at the same time excluding competitors who operate differently.
That’s a direct violation of U.S. antitrust law.

However, while the DOJ has continued to increase its investigations into antitrust behavior by the real estate industry, no suits have actually yet gone to court.
The debate has been played out only in the media.

Still, even with no concrete results to show for them yet, their efforts have begun to shed light on the issues and to raise some valid questions about how the market works.
More and more consumers are realizing that there are other, increasingly viable options for buying or selling a home.
And those who still choose to go the traditional route are finding more realtors whose main focus is the customer and not simply the maintenance of a way of doing business.

In the long-run competition increases, and increased competition means both lower prices for consumers and also companies who work much harder to bring value to their customers.
Realtors who fail to adjust to this new environment will find themselves out of business, but those who are able to best meet the needs of their customers will still find a market rich with opportunity.

Buyers and sellers will always need help through the complicated process of buying and selling a home.
What is changing is who provides that help and how they do it—all to the benefit of the consumer.