2005: A busy year for real estate regulators

Federal actions put industry officials in the hot seat

It’s a safe bet that 2005 will be one of the most memorable – if not unforgettable – years on record for the leaders of the National Association of Realtors.

Most notably, it is the year that the U.S. Department of Justice filed an antitrust lawsuit against the 1.2 million-member trade group, charging that the group’s policies for the display and sharing of online property listings are too restrictive.

But that is just one among a series of federal actions this year relating to potential antitrust violations within the real estate industry.

The Federal Trade Commission, U.S. Justice Department, U.S. Government Accountability Office and some state attorney general’s offices are among the agencies that are taking a hard look at industry practices. And in several cases, they didn’t like what they saw.

Many of the government actions and opinions this year have focused on industry-backed restrictions on real estate rebates, discount and limited-service real estate service offerings, and the online distribution of some types of property listings.

The U.S. Justice Department in September announced a lawsuit against the Realtors association, and the Realtors group on the same day withdrew an online property listings policy that was named in the lawsuit, instead substituting a new policy. The association later asked Realtor-owned multiple listing services not to implement the new policy, as this new policy is also the subject of the litigation with the Justice Department. And the Justice Department amended its complaint against the Realtor group in October.

Laurie Janik, general counsel for the trade group, said during an annual conference in October that the association intends to file a motion by Dec. 5 to dismiss the Justice Department lawsuit. The government will have 60 days to respond to this motion, and the association will have 30 days to reply to this response, she said. “At that point the judge may wish to sit down and try to resolve (this) through settlement. We are willing to discuss settlement,” Janik also said during the conference, though she stressed that the association will not compromise its position on key issues.

The lawsuit follows more than two years of investigation, and legal experts say the outcome may be several years away if the case goes to trial.

Janik also said at that time that the U.S. Justice Department, among other federal and state agencies, is investigating several Realtor-operated MLSs over policies that prevent some types of property listings from being displayed on home-search sites such as Realtor.com.

Local MLS restrictions probed

Inman News reported in September that the U.S. Federal Trade Commission contacted the Austin Board of Realtors to inquire about local MLS policy that prevents the display of some for-sale property listings at some home-search Web sites.

The policy places restrictions on exclusive agency listings, which allow an agent to list and market a property for sale and also allow the seller to personally seek out a buyer for the property. If the seller finds the buyer, the seller is not obligated to pay a commission to the agent. Because these listings can function as a for-sale-by-owner property listing, some MLSs have adopted or considered restrictions to the online dissemination of the listings.

In North Carolina, several discount real estate companies complained to the Attorney General’s Office in June about a similar proposal by the Raleigh Regional Association of Realtors’ Triangle Multiple Listing Service, though the association backed away from the proposal pending any action by the Justice Department.

Heartland MLS in Kansas and the Monmouth-Ocean MLS in New Jersey are also among the MLSs that adopted policies restricting the online distribution of exclusive agency listings.

The Northern Ohio Regional MLS in November 2004 amended MLS policy to provide that home sellers cannot place a “for sale by owner” sign at their home or advertise the home in any medium as “for sale by owner” if they participate in an exclusive right to sell listing. Under this type of listing agreement, home sellers have the right to sell their own home but must pay the listing agent regardless of how the home is sold.

Realtor groups have said that such MLS policies seek to eliminate confusion over whether a property is a for-sale-by-owner property or whether the home seller is working with an agent, while opponents have said that such policies seem to target discount real estate companies that allow home sellers to take on a lot of personal responsibility in the real estate transaction.

Minimum-service requirements in the spotlight

Also controversial are state-approved measures that establish new minimum service requirements for real estate brokers, effectively banning some types of discounted limited-service real estate offerings.

Legislators and regulators have passed laws and rules in several states already, with other states considering similar industry-backed measures. Typically, the state measures require that real estate brokers accept and present all offers and counteroffers on behalf of a client, for example, and are required to negotiate on behalf of a client. Realtor groups have said that such measures help to ensure that consumers receive an adequate level of service in a transaction while guarding against situations in which a full-service agent does not know who to work with when a limited-service broker is on the other side of the transaction.

But consumer groups and real estate discounters have said that consumers should be able to decide what services they need in a real estate transaction, and companies shouldn’t be restricted from providing limited-service offerings. The Federal Trade Commission and U.S. Justice Department have offered a very similar argument in opposing these state measures, though lawmakers and governors have generally passed these measures even after federal opposition.

This year, state officials passed so-called minimum-service laws in Alabama, Missouri, Oklahoma and Texas despite federal protest. The Justice Department earlier this month criticized a minimum-service proposal in New Mexico, and department officials issued a letter to Oklahoma regulators in October opposing proposed real estate rules that relate to minimum-service responsibilities in that state.

Also in October, Justice Department and Federal Trade Commission officials sent a letter to state officials in Michigan to express opposition to a minimum-service proposal in that state.

Top administrators for the Federal Trade Commission have met this year with top leaders of the National Association of Realtors, including its current president, past president and chief economist. Among the topics of discussion: Minimum-service laws promoted by state Realtor associations. Al Mansell, during his one-year term as president of the National Association of Realtors, earlier this year introduced a minimum-service law in Utah that was approved and enacted.

The National Association of Realtors has not formally endorsed states’ minimum-service measures but has offered legal advice about these measures to administrators at state Realtor associations.

Government office issues report on real estate competition

In September, the U.S. Government Accountability Office released a report on real estate industry competition stating that MLS rules and state measures can in some cases discourage price competition. The report also found that, as of Aug. 16, Alabama, Florida, Illinois, Iowa, Missouri, Oklahoma, Texas and Utah had enacted minimum-service standards, with Delaware and Kansas considering minimum-service standards.

A separate analysis by the Association of Real Estate License Law Officials, a nonprofit group for real estate regulators, found that Alabama, Illinois, Iowa, Missouri, Oklahoma, Texas and Utah are among the states that have enacted some form of minimum-service legislation within the past couple of years. And Inman News has reported that several more states have adopted state measures with similar language.

Ohio and Wisconsin are also considering measures to define minimum-service requirements, though real estate discounters in these states have not reported any major objections to the legislative proposals.

Anti-rebate rules, alleged boycotting investigated

While the federal government’s objections to minimum-service measures have not yet led to lawsuits – state laws are largely immune to federal antitrust lawsuits – the Justice Department earlier this year sued the Kentucky Real Estate Commission over restrictions on the offer of real estate rebates to consumers.

And the South Dakota Real Estate Commission, prompted by a Justice Department investigation, announced in August that it has cancelled out earlier rulings that prevented commission rebates, incentives and other discounts to buyers and sellers. The GAO report states that more than a dozen states prohibit real estate brokers from offering rebates on commissions.

In August, the Justice Department reportedly closed an investigation of alleged boycotting practices in the Tulsa, Okla., area. In June, officials at Foxtons, a discount real estate company operating in New Jersey, Connecticut and New York, complained to the New Jersey Attorney General’s Office about possible anticompetitive practices by dozens of real estate brokerages.

In another matter, the New York Attorney General’s Office and the U.S. Federal Trade Commission are scrutinizing practices within the Real Estate Board of New York, a powerful New York City real estate organization that represents a group of professionals, including real estate brokers, developers and lawyers. This group is not affiliated with the National Association of Realtors.

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