Boy, some things are happening this week. Last night, I saw that NAR had filed its response in the form of a motion to dismiss the Moehrl v. NAR case. That was entirely expected, and now that I have a copy of the filing (Thanks Jay Thompson!) I can look at what the theory of the defense is likely to be. I’ll post on that later once I’ve reviewed the filing.
In the meantime, I have had multiple clients, friends, and contacts reach out to me today as I was sitting in meetings about something they learned about today. It appears that the U.S. Department of Justice has made a written demand to Corelogic, the top MLS platform vendor, for a whole lot of documents and testimony-under-oath about all kinds of things pertaining to MLS data — particularly cooperating compensation information.
According to my source at CoreLogic, all major MLS vendors received the same Civil Investigative Demand from the DOJ, but thus far, only my friends who are CoreLogic customers were notified. I’d love to get some confirmation from Black Knight and FBS and their customers whether they too received the same demand from the DOJ or not.
With permission from my sources, I’ll embed the documents below. Then have some thoughts about what this could mean.
Let’s get into it.
The Demand from the DOJ
We might as well begin with the CID itself.
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I don’t know about you, but I think there is something intimidating about the letterhead and a letter that begins:
This civil investigative demand is issued pursuant to the Antitrust Civil Process Act, 15 U.S.C. §§ 1311-1314, in the course of an antitrust investigation to determine whether there is, has been, or may be a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 by conduct, activities, or proposed action of the following nature: Practices that may unreasonably restrain competition in the provision of residential real-estate brokerages services in local markets in the United States, including Greater Las Vegas.
You are required by this demand to produce all documentary material described in the attached schedule that is in your possession, custody, or control, and to make it available at your address indicated above for inspection and copying or reproduction by a custodian named below. You are also required to answer the interrogatories on the attached schedule. Each interrogatory must be answered separately and fully in writing, unless it is objected to, in which event the reasons for the objection must be stated in lieu of an answer. Such production of documents and answers to interrogatories shall occur on the 16th day of May, 2019 at 5:00 p.m.
The production of documentary material and the interrogatory answers in response to this demand must be made under a sworn certificate, in the form printed on the reverse side of this demand, by the person to whom this demand is directed or, if not a natural person, by a person or persons having knowledge of the facts and circumstances relating to such production and/or responsible for answering each interrogatory.
A bit later, in case this wasn’t intimidating enough, the DOJ is kind enough to inform the reader: “Your attention is directed to 18 U.S.C. § 1505, printed in full on the reverse side of this demand, which makes obstruction of this investigation a criminal offense.” Yikes!
Before we get into what is actually being demanded by the DOJ, I am curious about one thing. The deadline to produce documents and answers was May 16th… which was four days ago. My MLS clients and contacts received an email from CoreLogic today, which read:
Please be advised that CoreLogic has received a Civil Investigative Demand (CID) from the US Department of Justice (DOJ) pursuant to the Antitrust Civil Process Act (15 U.S.C. §§ 1311-1314). According to the CID, the DOJ is conducting an antitrust investigation related to the practices of residential real estate brokerages services in local markets in the United States. The CID includes a demand for documents and answers to interrogatories. We believe that some of your confidential information may be disclosed as a part of our response to the CID.
CoreLogic safeguards the confidential information of our clients. However, the CID has the force of law, and compliance with the CID is mandatory rather than voluntary. We thus have no choice but to respond.
This notice is being provided to you to permit you to intervene in the proceeding and assert any rights you may have to maintain the confidential nature of the information intended to be produced.
Not that any sane MLS would want to intervene, but if someone did want to, isn’t it too late to intervene four days after the deadline? CoreLogic had this CID in hand since April 16, 2019… so one does wonder what took them so long to notify their MLS clients. Maybe it’s no harm, no foul, since I’m not sure that any MLS anywhere would have intervened, but still… it’s odd.
It is also very, very interesting that the DOJ called out Las Vegas. After all, its jurisdiction and its investigation is not limited to one area… so why specifically name Greater Las Vegas area?
What the DOJ Wants
Anyhow, we move on to the Schedule to see what the DOJ wants CoreLogic to produce. I won’t quote the entire wall of text, since you can read the CID yourself above. But it seems pretty clear what the DOJ is after, isn’t it?
The first major area is whether MLS members can search for properties based on amount or type of cooperating commission offered. The DOJ seems very interested in whether MLS subscribers can search by commission amount, or type, and if not, why not. The DOJ wants every email or letter between CoreLogic and its customer MLSs that pertain to how much a member can and cannot search by commission amount or type.
Since Moehrl v. NAR is at the forefront of our minds, there should be alarm bells ringing.
The second major area is far more sweeping. The second area of document production covers “any policy, guideline, rule, practice, agreement, or contract term that restricts the Company’s usage, distribution, sale, or licensing of any MLS data.” The DOJ wants CoreLogic to supply any documents that outline any “possible or actual reason, rationale, or basis” for such a policy, rule, etc. etc.
That’s incredibly broad. It covers everything from IDX to VOW to private comments in the MLS. But I think I know what the real target here is: Sold and Off-Market Information.
And then we get this doozy of a demand:
3. Submit each database or data set used or maintained by the Company that may be used to measure the frequency of searches of MLS listings by each member of any MLS on the Company’s multiple listing platform that condition results based on the amount of compensation or type of compensation offered by listing brokers to buyer brokers.
Wouldn’t that database be… like the MLS database itself? The entire thing? Maybe I’m wrong, but does seem like the DOJ is going to be digging through the MLS database for CoreLogic’s customer MLSs to see about commissions and data that CoreLogic is not allowed to distribute or sell. It sure does seem like DOJ is going to do its own statistical analysis to see what’s going on beneath the hood of dozens of the largest MLSs in the country.
You know what this sounds like, don’t you? Longtime readers and Red Dot Subscribers should immediately think of Commissioner of Competition v. TREB. I wrote about that massive case in the November report.
The Likely Shape of Regulatory Action
Based solely on the DOJ’s Civil Investigative Demand, I’m going to speculate wildly and irresponsibly. Because I don’t have any responsibilities when it comes to speculating about regulatory action, unlike say Katie Johnson or Mitch Skinner. So I get to have fun while they have to be sober.
It really does feel like the DOJ (and possibly the FTC, its comrade in arms when it comes to regulating the real estate industry) is going to bring some kind of an enforcement action against a variety of MLSs, possibly against NAR (as the entity that creates national rules and regulations for MLSs), alleging that most of the “private information” on the MLS is anti-competitive. Why would the DOJ invoke the Sherman Anti-Trust Act otherwise?
At the same time, either the DOJ or the FTC or someone else with jurisdiction is likely to promulgate regulation requiring disclosure of previously private information. If Commissioner v. TREB is any indication, that is going to involve:
- Sold and pending homes
- Withdrawn, expired, suspended or terminated listings
- Offers of cooperating commission
See, in the Canadian, case the “Disputed Data” that the Competition Bureau went after TREB over was those three categories.
Just like in the U.S., all of those were kept behind the walls of the TREB MLS. Subscribers had access to that information, but the information was not to be made public. The VOW feed from TREB did not contain this information, and obviously, the IDX feed did not either. And that’s what the Canadian authorities went after.
I think it’s more likely than not that the U.S. government copies the Canadian precedent and mandates public disclosure of the above information. If anything, the DOJ might require a broader disclosure than did the Canadian Competition Bureau; after all, the CID asks for documents pertaining to CoreLogic’s ability to distribute, sell or license “any MLS data.” That implies not just Participants in an MLS, but third-party portals and others such as banks and investment funds.
The syndication feed to Zillow, Realtor.com, and others might become far more robust.
There are three reasons why I think this is what’s in the works.
First, mandating disclosure is fairly light-touch when it comes to regulation. Mandating that the MLS prohibit the sharing of commissions between listing and buyer brokers is a heavy regulatory requirement, and the industry would fight that to the Supreme Court. Ordering businesses to do X or to stop doing Y is always a tricky business for government regulators. But requiring that businesses simply disclose X or Y is far easier to do.
Second, regulators are not exactly risk-taking by nature. The fact that the Canadian Competition Bureau did this, fought the real estate industry for seven years, and won at the highest level of that country’s legal system (which is nearly identical to our own) gives our regulators a great deal of comfort when they do something very similar.
Third, the regulators could justifiably believe that this “lightweight” regulatory action requiring disclosure of formerly secret information would go a long way towards addressing the issue of high commission costs.
Recall the Brookings Institute panel I wrote about recently. The point that a couple of the panelists made over and over again is that there exists “information asymmetry” between the consumer and the real estate agent. And the panel also agreed that the problem is steering by buyer agents away from houses that do not offer “full market” cooperating commission.
Jack Ryan’s solution to the problem of high commissions was transparency: just let consumers know what the past sold prices on homes were, and they can figure things out for themselves.
For our purposes, it isn’t important whether Ryan is right or wrong; what is important is that the DOJ and FTC regulators see as Ryan does. And as I mentioned in that post, that focus on knowledge asymmetry was very reminiscent of the FTC/DOJ workshop on the real estate industry from last year.
So in summary, if you are a federal regulator, requiring that the MLS disclose Sold, Pendings, WEST (Withdrawn, Expired, Suspended and Terminated) listings, and Cooperating Commission types and amounts to the public via brokers and agents, as well as via portals and non-Participant companies (who may have to buy or license that data, but cannot be refused it) has three great advantages: (1) it is simple to do, (2) it is less likely to be overturned by a court, and (3) it might actually achieve the goal, which is greater competition and lower commissions.
I think that’s what is coming our way in the near future.
Obviously, the focus on the cooperating commission will impact the Moehrl v. NAR case (and copycat cases). I’ll have to think more about that, and read the motion to dismiss from NAR. Look for that in the next couple of days.
All I can say for now is that we may be living in interesting times… and attracting the attention of the powerful. Two ancient Chinese curses….