A U.S. district court in Northern California has thwarted a private listing service’s latest attempt to stop the National Association of Realtors from enforcing a policy designed to curtail pocket listings while raising concerns about potentially anticompetitive behavior on both sides.
In May 2020, Top Agent Network, a firm that operates a members-only private group of real estate agents, filed a federal lawsuit alleging NAR and fellow defendants the California Association of Realtors (C.A.R.) and the San Francisco Association of Realtors (SFAR) violated a slew of antitrust and unfair competition laws for adopting the Clear Cooperation Policy, which requires listing brokers to submit a listing to their multiple listing service within one business day of marketing a property to the public.
The controversial rule is meant to effectively end the growing practice of publicizing listings for days or weeks without making them universally available to other agents. Some MLSs have instituted hefty fines to enforce the policy, including SFAR.
In July 2020, the court denied TAN’s motion for a preliminary injunction against the policy, and subsequently tossed two amended complaints from the firm, the last of which dismissed C.A.R. as a defendant in the suit. In April, U.S. District Judge Vince Chhabria gave TAN “one final chance to amend” after finding that TAN had failed to allege an antitrust violation.
On May 18, TAN filed its third amended complaint, zeroing in on the policy’s carve-out for office exclusives, which allows brokers and licensees of a listing brokerage to promote a listing within the brokerage and to that brokerage’s clients one on one without having to submit the listing to the MLS. Some real estate brokers have threatened mutiny over the exemption, which they argue inadvertently benefits large, national brokerages at the expense of smaller, independent brokerages.
On Monday, Chhabria dismissed the complaint with prejudice, meaning permanently, though TAN may choose to appeal the decision. Former pocket listing service The PLS has done exactly that in its own case against NAR over the Clear Cooperation Policy. That appeal is pending.
In his order, Chhabria said that TAN’s complaint had laid out “a reasonable argument” that the Clear Cooperation Policy “is so broad that its overall effect on the market for homes is anticompetitive.”
“The Policy leverages NAR’s control of the real estate market to coerce most agents into giving up their off-MLS activities entirely, without regard to the competitive value of those activities,” Chhabria wrote.
“The complaint alleges with particularity that there is demand among consumers — that is, home buyers and sellers — for options to engage agents who can help them buy or sell a home without going through the MLS.
“And the complaint plausibly alleges that the Policy, by forcing those consumers to choose between the MLS and a problematic in-house transaction at a large brokerage, reduces consumer choice and stymies competition among agents for off-MLS sales. While not as clear-cut as concerns about super-competitive pricing, these kinds of harms are also the concern of antitrust law.”
However, Chhabria suggested that TAN was the wrong plaintiff to bring an antitrust suit over the policy because TAN’s business model, which restricts membership to the top 10 percent of agents in a market by sales volume, is itself anticompetitive and plaintiffs cannot use antitrust law as a shield for anticompetitive activities.
“TAN could never allege an antitrust injury from [NAR’s policy]” because the policy would actually ameliorate the aspects of TAN’s business model that make it anticompetitive, he wrote.
“What TAN’s complaint fails to reckon with is that listings are just information, and competitive marketplaces generally thrive on open information,” he said. “Indeed, the point of the MLS is that such platforms are necessary for facilitating home sales. Sellers need to be able to list their homes in a manner that allows buyers to compare listings and identify potential matches. And keeping that platform running and operational requires setting rules that ensure fair play among members.”
“The key pro-competitive benefit of this system is that every NAR-affiliated MLS is open to any licensed real estate agent who is willing to pay the fees,” he added.
However, if there were a competing listing service that was equally open to all licensed agents, such a service likely “would have standing to bring an antitrust claim if it plausibly alleged that the Policy was causing it to lose members. In that sense, it is the breadth of the Policy — sweeping in open-network competitors as well as exclusive ones — that raises an antitrust concern,” he said.
Because of TAN’s exclusivity, when a seller lists a home with a TAN agent without listing it in the local MLS, it’s reasonable to infer that competition for that home is decreased, according to Chhabria.
“Only buyers who have enlisted the services of a TAN member agent are able to view the listing and bid for it,” he said. “At the same time, the allegation that all TAN agents are also NAR members means that those agents and their clients are benefitting from open access to the listings on the MLS.
“Sellers’ agents can gather information on how to position their homes competitively against comparable properties and buyers’ agents can seek listings for their clients both in the open pool and on the exclusive network. But the vast majority of agents (those who are NAR members but not TAN members) have no way of knowing what listings the TAN agents are keeping secluded from the open market.”
Chhabria highlighted the role of the MLS as key to how TAN’s members earned their status as top agents in the first place and contended that now “TAN agents want to pull the ladder up behind them” and not allow other agents to do the same.
“Instead of continuing to share listings with the open network of agents that supported their ascent, they would prefer to hoard choice listings among themselves,” he wrote. “Antitrust law does not give them that right.”
“The most plausible inference is that the overall effect of the Policy, at least to the extent it applies to agents who wish to join exclusive listing services, is to increase competition,” he added.
In an emailed statement, Paul T. Llewellyn, partner at Lewis & Llewellyn LLP and an attorney for TAN, told Inman the company was “exploring all available options to challenge” the Clear Cooperation Policy.
“While we are disappointed at the Court’s conclusion that Top Agent Network is not the proper plaintiff to challenge the so-called ‘clear cooperation policy’ on antitrust grounds, the Court clearly has concerns about the potential anticompetitive nature of the policy,” Llewellyn said.
“We strongly believe that the policy is bad for consumers and bad for the public, and it’s only a matter of time before this ill-advised rule is repealed or struck down.”
TAN CEO David Faudman gave no indication that the company intends to change its business model.
“We feel strongly that NAR’s new MLS policy is bad for agents and bad for consumers and is just another anti-competitive attempt by the NAR to use its monopoly power to crush market alternatives,” Faudman told Inman via email.
“Importantly, as the court pointed out, while NAR’s own commissioned research found the vast majority of NAR’s member agents to be ‘unsophisticated’ and ‘unproductive,’ NAR continues to implement rules designed to keep these unproductive agents paying NAR dues anyway.
“Conversely, Top Agent Network remains focused on raising the quality and choice of services productive agents provide to their serious buyer and seller clients.”
In an emailed statement, Mantill Williams, NAR’s vice president of communications, said the trade group is pleased with the court’s ruling.
“We applaud Judge Chhabria’s continued recognition of the procompetitive benefits of the Clear Cooperation Policy,” Williams said. “The CCP was created to ensure that publicly marketed property listings are widely available and accessible to ensure equity among consumers.
“This is another example of courts finding that independent, local broker organizations benefit competition through open markets by providing transparency that enables price and quality comparisons across all listings within a market.”
SFAR declined to comment for this story.
Read the order granting the defendants’ motion to dismiss: