Litigation as business strategy is common in all industries. In fact, the very threat of litigation is often enough to elicit the desired response from one’s competitor. In the real estate industry, especially in the past few years, antitrust litigation as business strategy has become more prevalent.
Recent antitrust lawsuits in real estate
The most recent example of this thrust-and-parry game among brokerages is Compass’ lawsuit against REBNY, filed less than a week ago. A week earlier, it was REX suing Zillow for what it deemed anticompetitive practices.
In the preceding two years, it was different agent groups suing the National Association of Realtors and various MLSs for the adoption and implementation of the Clear Cooperation Policy (CC Policy), which requires brokerages to enter their listing within one business day of marketing the property to the public.
All of these private antitrust lawsuits have one thing in common: Brokerages or agent groups, stymied in the pursuit of their business models by certain industry association rules and competitor practices, allege that such rules and practices have hurt their ability to compete and thereby harmed consumers in violation of antitrust laws.
The plaintiffs in these cases seek to protect themselves from competitors by wrapping themselves in the cloak of antitrust crusaders. Ironically, their allegations of consumer harm are extraordinarily vague and almost never quantified.
The response of industry leaders to the adoption of the CC Policy by NAR and its implementation by the MLSs is the clearest example of this type of behavior and worth examining in detail.
One month before NAR adopted the CC Policy in November of 2019, Bright MLS which serves mid-Atlantic markets, adopted an almost identical rule. It drew immediate pushback from Compass, which was touting its “Coming Soon” listings at the time. Compass fired the first shot in the fight that followed with a “pre-litigation letter” (whatever that is) to BrightMLS leadership.
A few months later, within weeks of the CCP implementation deadline of May 1, 2020, both Top Agent Network (TAN) and PLS.com sued NAR and select MLSs. After losing its case in February of this year, PLS.com announced earlier this month that it would appeal the dismissal of its case.
The main allegation of these legal threats was the same: NAR and its member MLSs, by requiring brokerages to follow the CC Policy, had violated federal antitrust laws. Not surprisingly, both the TAN and PLS lawsuits were dismissed, the former with the right to refile if likelihood of success on the merits were shown.
Naked attempts to protect business models
To those of us who have studied, taught or practiced antitrust law, the conclusion reached by the courts in these two cases was entirely predictable. These lawsuits and the anti-CC Policy rhetoric that’s very much still alive on real estate forums ignore the most central principle of antitrust law: Antitrust laws exist to protect competition, not competitors.
Alleging consumer harm, vaguely and abstractly, because an industry rule or a business practice hurts one’s ability to compete with others is not a showing of antitrust violations. Every complaint, starting with Compass’ pre-litigation letter in October 2019 to PLS.com’s current appeal of its dismissal, make roughly the same argument, which goes something like this:
- Our business model is great for consumers
- The industry rule or business practice harms our ability to pursue our business model
- Therefore, the rule or practice in question harms consumers and violates antitrust laws
The allegations generally start and end with self-praise and an assertion of how pro-competitive the plaintiff’s business model is. There is little or no effort to show the potential consumer benefits of the CC Policy, like transparency and maximum exposure.
As for the alleged economic harm to consumers, it is neither specific nor measured. Indeed, the very logic of these lawsuits and the lack of evidence of harm lay bare the fact that these threats and lawsuits were thinly disguised attempts by brokerages and agent groups to protect themselves.
Each plaintiff sought to protect its specific business model — “Coming Soon” listings in the case of Compass, off-market listings in the case of TAN and PLS. This is not what antitrust law is about. In fact, it is a perversion of antitrust law.
Of course, no trade association rule is unambiguously pro-consumer or anti-consumer. In antitrust cases that involve such rules, the court will ask itself whether the consumer harm from such a rule is greater than the benefit that flows from it.
In the case of the Clear Cooperation Policy, the specific question facing the courts was this: Does the alleged consumer harm resulting from the CC Policy outweigh the benefit to buyers and sellers from broader dissemination of listing information resulting from it?
In all instances, the courts ruled no. The fact that these cases were summarily dismissed simply means that the courts found them to be naked attempts to protect business models.
There are, of course, instances where entering a listing on the MLS could harm the seller. In recognizing this, most MLSs carved out exceptions and processes for such exceptions.
As an agent, I once represented the buyer in the purchase of an off-market house where the family of the seller who was living at home and suffering from dementia wanted to control tightly all showings. One can easily come up with other scenarios where the seller could be harmed by the CC Policy, and no one argues that there should be no exceptions.
In fact, NAR arguably gave into pressure from the larger brokerages in creating the “Office Exclusive” exception. Given the allowance for reasonable exceptions to the CC Policy, the conclusion grows stronger that it was not competition and consumers that the plaintiffs sought to protect, but their business models and themselves. After all, good rules should not be defined by exceptions.
The conclusion that the CC Policy does not violate antitrust law is not to shield all MLS practices from antitrust scrutiny. One practice that potentially violates antitrust laws is the requirement that a cooperating broker commission must be offered by the seller for the property to be listed on the MLS.
Although agents and brokerages are not allowed to discuss buyer’s agent commissions, mechanisms that facilitate higher prices or commissions are arguably anti-competitive. In fact, the claim that the cooperating broker commission requirement is such a facilitating mechanism is the core thesis of the various class-action lawsuits currently making their way through the federal courts.
Unlike the lawsuits against the CC Policy, these class-action lawsuits feature plaintiffs who are consumers, not industry players. More specifically they are sellers who argue specific economic harm in the form of measurably higher commissions.
Restraints of trade
Finally, I also want to address the recent instances of one brokerage suing another for antitrust violations and restraints of trade.
Despite the identity of the formal defendant, the Compass versus REBNY is one such case. In this case, the behavior of two brokerages are central to the allegations, despite their omission as named defendants.
The other prominent case is REX v. Zillow. Both lawsuits basically allege that the business practices of their competitors harm them and, by extension, consumers. Such lawsuits are naked attempts to protect competitors and not competition.
Brokerages should be free to retain listings obtained by its agents even as the agents themselves move to another brokerage (Compass versus REBNY) and brokerages should be able to display their own listings with whatever priority or ranking methodology it chooses (REX versus Zillow).
There are compelling efficiency reasons for both. In the former case, courts are asked to sanction interference with contracts. In the latter, courts are effectively asked to regulate the layout and content of broker websites.
Neither of these cases lay out consumer harm in specific and quantifiable ways. Talk about heavy-handed judicial activism. Or is it crony capitalism? Neither are clearly the intent or purpose of antitrust laws.
Competition has prevailed
I end with this observation: Most of the recent antitrust litigation where the plaintiff has been a broker or agent group have an anti-competitive subtext seldom discussed. Certain players, especially the national brokerages, want to become the de facto private MLS. This aspiration is commonly expressed as, “We want to be the Amazon of real estate.”
The ambitious strategy takes various forms: more listings than others, more types of listings than others, more unique listings than others and earlier listings than others.
“Not so fast,” said NAR and the MLSs as they implemented the CC Policy. “Not so fast,” said the courts as they summarily dismissed the private antitrust lawsuits challenging the CC Policy.
In the end, competition has prevailed, at least for now. Greater transparency, easier home searches. No hidden cache of listings, more exposure for homesellers. No bias favoring large brokerages, competition on an equal footing.
More competition and innovation in services. Most of the private antitrust lawsuits in real estate are furtive attempts to further monopoly through greater control of information, reinforced in turn by powerful network economics.
The purpose of antitrust laws as applied to the real estate industry is not to protect or advance the interests of specific real estate brokerages or agent associations — it is to enable competition among brokerages and among agents, and it is to protect buyers and sellers of real estate.
These consumers are the appropriate “units of analysis” for antitrust purposes —not agents, not agent groups and not brokerages. Balancing consumer benefit and harm is the proper way to analyze allegations of antitrust. Luckily, our courts know their antitrust law.
Perhaps it’s time for our industry to take a collective step back and focus its energies on sellers and buyers, instead of competitors. After all, antitrust laws exist to protect competition, not competitors.
Editor’s note: A previous version of this article stated: “Not surprisingly, both the TAN and PLS lawsuits were dismissed summarily.” However, in the case of TAN, it has the right to refile if likelihood of success on the merits were shown.