The National Association of Realtors has filed a counterclaim against discount brokerage REX Real Estate, alleging the company’s false statements have harmed the 1.5-million-member trade group and misled consumers.
Late Thursday, NAR hit back against a series of claims by REX that the trade group had committed anti-trust violations and inflated agent commissions with a lawsuit that will likely force REX to back up its claims, not just in regards to NAR, but its own business model. REX has touted itself as a brokerage that charges homesellers a 2-percent listing fee, doesn’t use MLSs, finds buyers using artificial intelligence and social media targeting, and has a policy of never paying outside buyer’s brokers — claims NAR’s countersuit challenges.
“REX intended to, and did in fact, confuse and mislead consumers into believing that sellers who list their homes for sale with REX do not pay buyer-agent commissions; that REX’s technology allows it to unlock lower prices for clients without using multiple listing services to find in-market buyers; and that NAR, through its rules governing multiple listing services, has artificially inflated commissions, hindered the development of technology for home listings, and engaged in unlawful or unfair conduct,” NAR’s attorneys wrote in the counterclaim.
“REX’s statements of fact are material and are likely to influence the purchasing decisions of consumers,” the counterclaim further states. “As a proximate result of REX’s actions, NAR has suffered and is likely to continue to suffer harm to its reputation and a lessening of the goodwill associated with its services and commercial activities. This harm is ongoing.”
Over the past couple of years, REX has made a reputation for itself as a flamethrower, accusing NAR of inflating agent commissions through its rules and alleging the trade group therefore suppresses homeownership rates and reduces overall household wealth. REX sued NAR and Zillow in March 2021, alleging antitrust violations for a NAR rule, dubbed the “No-Commingling Rule,” that prompted Zillow to separate non-multiple listing service listings from MLS listings on its website, including listings from REX.
‘A false narrative’
The counterclaim alleges one count of false advertising in violation of the Lanham Act. In an emailed statement, REX General Michael Toth told Inman, “We have seen this playbook before. NAR’s [standard operating procedure] when they are called out for limiting competition and consumer choice is to try create a false narrative. NAR did not file a new lawsuit against REX, it filed a baseless counterclaim in our lawsuit against Zillow and NAR’s collusion to restrict consumers from having digital access to all the homes for sale.
“NAR did the same thing last fall regarding the U.S. Department of Justice,” Toth continued, referring to NAR’s petition to stop a DOJ probe into NAR rules.
“NAR claimed it was suing DOJ when in fact NAR was merely attempting to quash a legitimate subpoena into NAR’s anti-competitive practices. And it did the same thing in our case when it misstated prior consent decrees with DOJ, which led the Justice Department to intervene in our case to correct the record. The facts and law are on the side of REX and consumer choice, not NAR and industry control.”
‘Not an innovator’
In its counterclaim, NAR’s attorneys declared that “REX is not an innovator” and that “REX’s Campaign of Lies Has Disparaged NAR and Harmed Its Reputation.”
“From its inception, REX has sought to draw a distinction between its services and those offered by members of NAR by publicly promoting itself as an ‘innovator’ and accusing NAR and its members of engaging in illegal or unfair conduct,” they continued. “Yet … REX is a follower that provides the same types of services as thousands of other brokerages have long provided before it, and often in ways that are cheaper and better than REX.”
REX has claimed that “REX’s services cost significantly less when compared with those of traditional real estate agents,” who are “members of the National Association of Realtors (NAR)” and that NAR’s rules and policies “guarantee real estate agents a certain commission on each transaction while inflating consumer home prices by as much as $50 billion per year.”
But contrary to what REX has said in its marketing, REX’s seller clients do sometimes pay buyer-agent commissions, as Toth told Inman in an interview last year. NAR included that interview as an exhibit in its counterclaim.
“REX’s advertising boasts, repeatedly and without reservation, that homesellers who list their homes with REX do not pay buyer-agent commissions,” the counterclaim said. “REX’s advertisements do not adequately disclose that when a homebuyer is represented by an agent and refuses to pay her agent’s fee out of her own pocket, the homeseller may have to pay some or all of the commission owed to the buyer’s agent to close the sale.”
Moreover, NAR’s attorneys noted that some NAR members offer sellers discounted commissions, including Redfin, which offers sellers a 1.5 percent listing fee but also discloses that the buyer agent commission is not included and therefore the sellers may pay a higher total commission.
The counterclaim also asserted that REX’s claims about its technological superiority are false or at minimum misleading because REX’s lawsuit claims that its ability to display its listings on Zillow’s website alongside MLS listings is critical to the brokerage’s ability to compete.
“In other words, the viability of REX’s business hinges on its ability to access and use proprietary technology that was built by one of its putative competitors on the exact terms that it wants,” the counterclaim said.
“If REX’s technology in fact did what it claims — finding buyers using artificial intelligence outside of the multiple listing service — REX could not claim, as it has in this lawsuit, that it must have access to Zillow’s website, on the first tab, to compete.”
NAR has previously faulted REX for allegedly using antitrust litigation as a business strategy and the trade group’s counterclaim makes a similar argument.
“Unable to gain traction in the marketplace with its preferred approach — offering fees that are no lower than its competition and relying on technology built by someone else — REX had to find someone else to blame for its faults,” the counterclaim said.
NAR’s attorneys argued that REX is trying to convince consumers to use its services through false allegations about NAR and MLSs.
“NAR will oppose attempts to mislead consumers, including attempts to mislead consumers about buying or selling a home generally or about the services or cost of using Realtors, most of whom are small businesspeople,” said NAR President Leslie Rouda Smith in a statement.
“Independent, local multiple listing services benefit competition and fair housing, and NAR will ensure consumers can make the choice to participate in local broker marketplaces, or not, with a full understanding of how they work.
“The truth is that if home buyers and sellers are deceived into avoiding multiple listing services, they would lose the services’ pro-consumer, pro-competitive benefits,” Smith said. “Sellers lose exposure to the largest available pool of buyers, and buyers lose access to the largest available pool of properties for sale. Our goal with this action is to protect consumers.”
Negotiate commission ‘any time’?
According to the counterclaim, “NAR rules and multiple listing service policies never prohibit negotiations between the listing broker and a cooperating broker at any time during the transaction.” The filing specifically notes that under the Realtor Code of Ethics‘ Standard of Practice 3-3, a listing broker and a cooperating broker are expressly authorized to come to an agreement to change cooperative compensation, “and that can happen before a property is shown, after showing, or even after an offer is accepted.”
However, whether “any time” applies to when a buyer agent is submitting an offer to a listing agent is unclear. According to the Realtor code’s Standard of Practice 16-16, “Realtors, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.”
Asked about this provision, NAR spokesperson Mantill Williams reiterated that “Listing brokers and cooperating brokers can negotiate offers of compensation at any time” and added, “The Realtor Code of Ethics SOP 16-16, ensures that buyer agents don’t place their interests ahead of their client’s interests by holding a client’s offer hostage in an effort to increase the amount of compensation they will receive from a listing agent.”
NAR demands a jury trial and seeks damages, treble damages, attorneys’ fees and costs, “disgorgement of REX’s illicit profits,” and an injunction prohibiting REX from making false statements about its services and NAR’s services.
Read the counterclaim: