‘No legitimate justification’: California broker sues NAR over ‘anticompetitive’ dues

A California real estate broker is suing the National Association of Realtors (NAR) over a policy that forces brokers to pay dues for agents who aren’t members of their state, local or national Realtor associations.

John Diaz, who’s based in Modesto, claims that NAR’s Variable Dues Formula (VDF) policy penalizes brokers for associating with agents who aren’t Realtors. He claims this limits a broker’s ability to compete with larger firms by imposing undue financial pressure that disproportionately impacts small brokerages.

In the charges, Diaz claims that the policy is “an illegal group boycott” that has “no legitimate justification.” He said the result of the policy is “reduced consumer choice, artificial inflation of business costs and market foreclosure for alternative business models in real estate brokerage.”

The California Association of Realtors (CAR), the Lodi Association of Realtors and the Central Valley Association of Realtors are also named defendants in the suit, as are five unknown “Does” whom Diaz said he will name when their identities are uncovered.

CAR declined to comment to HousingWire. The other defendants and representatives for Diaz could not be reached immediately.

The lawsuit states that many agents choose not to become Realtors in remote areas like Modesto, where the trade group doesn’t provide benefits. But not being a Realtor can prevent a brokerage from hiring them because of the financial barrier it poses.

The case is being brought “per se,” meaning that the plaintiff claims that the behavior is inherently illegal and anticompetitive, thus absolving them of proving any negative impact of the rule. 

The plaintiff charges the defendants with violations of the Sherman Act and the California Cartwright Act.

The VDF rule is written into NAR’s bylaws and requires brokers to pay additional dues for each non-Realtor agent working for the brokerage. Failure to do so can result in the broker’s own membership being suspended or revoked.

But Diaz said there are “legitimate and lawful business interests” in hiring licensed agents for tasks that don’t require NAR membership or services related to membership. 

Examples provided are “Agent Visual Inspection Disclosures” — which are required by California state law — commercial sales and leasing activity. Diaz believes the VDF rule punishes brokers for hiring personnel to perform these duties.

Diaz’s suit is the latest in a long line of attacks against NAR policies and rules, most notably the landmark Sitzer-Burnett case that NAR settled for $418 million. The plaintiffs in the case asserted that NAR’s requirement for listing agents to provide blanket offers of compensation to buyer agents on NAR-affiliated MLSs was anticompetitive.

The settlement roiled the industry and imposed new rules that ban offers of agent compensation on the local MLS, in addition to requirements related to the agreements that prospective homebuyers sign with their Realtors.

Sitzer-Burnett was also brought per se, and the Missouri judge in the case — Stephen Bough — allowed it to proceed as such. Industry observers believe that played a huge role in NAR losing the case.