Judge said discount brokerage had made “compelling arguments” that the law hurts consumers and artificially inflates home prices but that states are immune from federal antitrust laws.

A federal court has dismissed an antitrust lawsuit filed by REX Real Estate seeking to stop Oregon officials from enforcing a state anti-rebate law.

On Thursday, U.S. District Court Judge Marco A. Hernández granted the defendants’ motions to dismiss the case. In doing so, Hernández stressed that he wasn’t ruling “on the wisdom of Oregon’s anti-rebate policy” and noted that REX had made “compelling arguments that excessive fixed broker commissions harm consumers and the housing market.”

Judge Marco A. Hernández

“Plaintiff notes that the U.S. Department of Justice has begun to take action against the anti-competitive activity of traditional real estate brokers and that many states allow commission rebates to home buyers,” he wrote.

REX, a licensed and active broker in 17 states, is a discount full-service real estate brokerage that says it uses “scalable technology” as a means to deliver discounts to buyers through commission fee rebates. The brokerage says its program results in homes costing, on average, 1.25 to 1.5 percent less for buyers.

The brokerage launched in Oregon in January 2019 and soon after received a letter from the Oregon Real Estate Agency — the state agency that licenses real estate brokerage and agents and regulates real estate activity — targeting REX’s buyer rebate program.

REX was violating state law by sharing commission dollars with an unlicensed individual — in this case, the homeowner — the agency said in that March 2019 letter. REX stopped offering rebates in Oregon after that and filed the suit against state officials a year ago, alleging the state’s law both harms consumers and stifles competition by barring new entrants and protecting incumbent brokers who benefit from artificially high commissions.

REX has publicly called for the National Association of Realtors to join REX in supporting the repeal of anti-rebate laws in the 10 states with rebate bans still on the books, including Oregon.

Jack Ryan | Credit: REX

“These policies harm consumers and licensed real estate agents alike with their anachronistic anti-consumer standards,” REX CEO Jack Ryan wrote in an open letter to NAR in September. “Based on the National Association of Home Builder’s Priced Out model, a 2 percent real estate buyer’s rebate would enable over 700,000 Americans to enter the home ownership market.”

NAR’s response to the letter did not state its position on anti-rebate laws. In March, the Consumer Federal of America, a nonprofit consumer watchdog, filed an amicus brief in favor of REX’s suit in March, alleging such laws hurt consumers and prevent commission competition.

Stephen Brobeck

Responding to the court’s ruling, CFA senior fellow Stephen Brobeck told Inman,”The decision is another example of how difficult it has been to remove barriers to price competition in residential real estate markets and why it is so important to uncouple commissions, which would obviate the issue.”

According to Hernández, a state acting in its sovereign capacity “is generally immune from federal antitrust laws” and Governor Kate Brown and the other state officials the brokerage sued were acting on behalf of the state to enforce an anti-rebate law enacted by the state legislature and were thus protected from antitrust liability.

In addition, “[e]ven if Defendants were not entitled to state-action immunity, Plaintiff has failed to allege facts that make its antitrust claim plausible on its face,” Hernández wrote.

He pointed out that “the Sherman Act requires an agreement to restrain trade made between ‘separate economic actors pursuing separate economic interests'” but that the defendants were all members of the executive branch of the Oregon state government.

“Thus, with respect to the Sherman Act, Defendants are members of the same entity,” he wrote. “And with the respect to the alleged anti-competitive action taken, they are not separate decision-makers. Plaintiff alleges no facts supporting an inference that Governor Brown, the Agency, or the Board function as separate economic actors to restrain competition. As such, even if Defendants were not entitled to state-action immunity, Plaintiff’s claim that Defendants engaged in a contract, combination, or conspiracy to restrain competition would fail.”

REX had also sued state officials alleging violations of the due process and equal protections clauses of the Fourteenth Amendment, but the court didn’t buy those claims either, noting that the defendants had stated a “legitimate purpose” behind the law: preventing individuals without real estate licenses from receiving compensation for work that can only be performed by state-licensed real estate professionals.

“Because there is no fundamental right to give or receive rebates in real estate transactions, government prohibition of rebates is presumptively valid under the Due Process Clause if it is rationally related to a legitimate government interest,” Hernández wrote.

In an emailed statement, REX General Counsel Michael Toth pointed out that the court had acknowledged that REX had identified serious problems with Oregon’s real estate market.

“Judge Hernandez found REX made a compelling argument but that the federal court was not the right venue,” Toth said.

“Although REX disagrees with the conclusion drawn by the court that its complaints cannot be heard in court, REX is encouraged that the court recognized how the real estate cartel stacks the deck against consumers,” he added.

Michael Toth

Asked whether REX would appeal the judge’s decision, Toth said REX was assessing its options in Oregon.

At the same time, Toth pointed to an Oct. 26 opinion by the Louisiana attorney general clarifying that rebates to real estate consumers are legal in that state. That opinion was just sent to REX on Thursday, the brokerage said.

“Today real estate consumers moved two steps forward and one step back,” Toth said. “In Louisiana, the attorney general clarified that rebates are allowed under state law in a victory for REX and homebuyers.”

The Louisiana opinion was a response to a request from Arlene C. Edwards, legal counsel for the Louisiana Real Estate Commission, earlier this year, who made the request after receiving a letter from REX regarding rebates.

The Louisiana attorney general’s opinion means only seven states now prohibit real estate commission rebates altogether — Oregon, Kansas, Oklahoma, Missouri, Tennessee, Mississippi, and Alaska — and two states restrict rebates.

According to discount brokerage Clever Real Estate, Iowa only allows rebates in a dual agency situation while New Jersey prohibits rebates for buyers but allows them for sellers.

Editor’s note: This story has been updated with a comment from CFA.

Read the court’s opinion:

Email Andrea V. Brambila.

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commission | NAR | realtors
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