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An administrative law judge today dismissed a complaint filed by the U.S. Federal Trade Commission, which charged that a Detroit-area multiple listing service, Realcomp II, illegally restricted competition by failing to share information about a category of properties with some public Web sites. FTC officials said they will appeal the decision to the full commission.

The FTC “has not demonstrated that Realcomp, despite having market power in the relevant market, unreasonably restrained or substantially lessened competition, thereby resulting in consumer harm,” stated Judge Stephen J. McGuire in his Dec. 10 opinion that was made public today.

Karen Kage, executive director for Realcomp, said, “We’re pleased with the decision and it’s been a very long process,” noting that the FTC can appeal the decision.

Patrick J. Roach, deputy assistant director of the Anticompetitive Practices Division for the FTC Bureau of Competition, confirmed that the FTC will seek an appeal to the judge’s decision. “We think there are quite a number of errors in assessing the record and in analysis in the administrative law judge’s decision. We think the full commission, when it reviews the record, will reach a different conclusion.” He added, “We will be pressing forward with a review by the full commission.”

In October 2006, the FTC announced actions against Realcomp II and a group of six other MLSs that had similarly set restrictions in the online sharing of information about properties under a specific type of listing agreement. All the MLSs except for Realcomp II, a Realtor association-owned MLS, agreed to settle the FTC’s complaints by lifting the restrictions.

The Realcomp and related FTC investigations have focused on MLS restrictions that discriminate against a type of listing agreement known as exclusive agency, under which a seller is not obligated to pay a commission to a broker in the sale of a property if the seller brings in a buyer without the assistance of the broker.

These types of listing agreements, the FTC has argued, are generally favored by companies that offer alternatives to traditional full-service real estate brokerage companies, such as flat-fee, limited-service, low-cost or unbundled real estate services. A more common type of listing agreement, known as an exclusive-right-to-sell agreement, provides that sellers must pay a commission to the listing broker in the sale, regardless of who brings in the buyer.

FTC investigations have also led other MLSs to change their policies, and the National Association of Realtors board of directors in November 2006 approved a policy that requires all Realtor association-owned MLSs “to include all property listings carried by MLSs in feeds distributed to MLS members and national aggregators like Realtor.com. That policy applies to all listings, regardless of the type of listing agreement.”

This policy, which was adopted following the FTC’s complaint against Realcomp and other MLSs, provides an exception that allows MLSs to ban the transmission of listing information if the listed property’s street address or a graphic display of a property’s location is publicly displayed and the seller displays a for-sale-by-owner sign on the property or another sign or notice that indicates that the seller is seeking direct contact from buyers.

Despite the judge’s finding that Realcomp’s restrictions in sharing property information with some public Web sites have a “narrowly crafted, pro-competitive justification,” the MLS’s policies are still in direct conflict with the National Association of Realtors policy, and Kage said there will be discussions between MLS and NAR officials on this matter. “We’re working with NAR to come to some agreement on how they’re going to handle that.”

The national Realtor group has supported Realcomp’s legal fight, approving a maximum $175,000 contribution in November 2006 to aid the MLS’s defense and an additional $125,000 in November this year.

Laurie Janik, general counsel for the National Association of Realtors, said that the association is “absolutely delighted” with the judge’s decision. “He gave a great deal of thoughtful analysis with all of the testimony and we are delighted with the conclusion.”

Janik said she does not believe that the association will revisit the association’s own MLS policies related to exclusive-agency listings, as the judge’s decision is applicable only to the market area where Realcomp is operating.

“We’re very pleased with the policy we have in place. It allows MLSs some optional flexibility if they want it. I could not imagine we would revisit our policy.”

Meanwhile, Albert Hepp, a flat-fee broker who serves as president of the American Real Estate Broker Alliance, a national alliance of flat-fee brokers, said he is disappointed with the judge’s decision and NAR’s stance on the issue.

“We are disappointed in the ruling and urge the FTC to appeal,” he said. “Anyone who truly understands the MLS knows that this is a clear-cut case of an MLS hiding the listings of discounters to harm consumer choice. Once again, the NAR has unfortunately chosen to fight competition while claiming to promote it.”

The judge’s decision focused on Realcomp’s policy that blocked the MLS from sharing property listings information for properties under exclusive-agency listing contracts with public Web sites, such as Realtor.com, MoveInMichigan.com and other property-search sites operated through data-exchange agreements among Realcomp members. But the original complaint had focused on other Realcomp policies, too, that were changed prior to the judge’s ruling.

For example, an attachment to the judge’s decision details an agreement by Realcomp and the FTC over a contested “search function policy” adopted in 2003 that defaulted to a search of exclusive-right-to-sell listings and required MLS users to specifically search for exclusive-agency listings to view those properties. That policy was changed in April 2007, and the agreement provides that Realcomp “shall … cease and desist from adopting or enforcing any policy, rule, practice or agreement … that treats exclusive agency listings, or any other lawful listings, in a less advantageous manner than exclusive-right-to-sell listings with regard to the search function in the Realcomp MLS.”

Also, the agreement provides that searches in the Realcomp system cannot associate exclusive-right-to-sell listings with full-service offerings, and cannot prevent limited-service and MLS-entry-only listings that are under exclusive-right-to-sell contracts.

Realcomp changed its policy in September to prevent the tying of exclusive-right-to-sell listings with the provision of full services in a real estate transaction, Kage said. The former policy had provided that full-service listings “could only be an exclusive-right-to-sell (listing),” she said. “We realized that wasn’t necessarily the case and shouldn’t be the case. We separated the listing type from the level of services and made it two entirely different fields and that’s the way it works today.”

Michigan is among more than a dozen states that have introduced legislation setting a minimum level of services that real estate licensees in the state must perform in a real estate transaction, at least when operating under certain types of contractual agreements with clients. This legislation — sometimes referred to as minimum-service legislation — has met resistance from the FTC and U.S. Department of Justice in Michigan and other states.

In addition to the FTC complaint and administrative hearing process, Realcomp is also the subject of a lawsuit brought by company called Home Quarters Real Estate Group LLC that formerly offered low-cost real estate brokerage services in Michigan. That company alleges that Realcomp and MiRealSource, another Michigan MLS, sought to block the company’s access to MLS data “as part of their efforts to destroy (its) innovative business model and to thwart competition.”

That lawsuit, filed earlier this year, was amended in August, and lawyers for the MLSs have filed a motion to dismiss the complaint.

Jeff Kermath, broker-owner for AmeriSell Realty in Saline, Mich., who offers flat-fee real estate services and is a member of Realcomp and other MLSs in the state, said the judge’s decision in the case brought by the FTC was surprising to him.

“The fact that (Realcomp) does not transmit exclusive-agency listings to various sites harms the consumer — that is obvious. It’s not even gray,” he said. Because exclusive-agency listings information is not passed along to a number of public-facing Web sites, it ultimately provides less exposure for the homeowner “and in the end decreases the odds of a successful sale.”

“If the consumer chooses an exclusive-agency listing, we’re forced to enter them into another MLS that doesn’t filter the data, which increases our workload. Then the seller has two MLS numbers, which is sometimes a bit confusing,” he added.

The judge had stated in his opinion that the Web site policy adopted by Realcomp addresses a “free rider problem” of home sellers under exclusive-agency contracts “who sought to utilize the marketing benefits of such (Web) sites to compete with Realcomp cooperating brokers for buyers, without offering compensation or reciprocal benefits to the cooperative. In addition, it provided one limited efficiency of reducing the bidding disadvantage for buyers who are represented by a cooperating broker.”

But Kermath said that his clients typically offer a commission to cooperating brokers who bring a buyer into the sale, which is to the advantage of MLS participants. Sellers under exclusive-agency contracts, he said, “may create an opportunity for a buyer’s agent.”

He said he believes the Realcomp policy effectively leads participants to seek exclusive-right-to-sell contracts to increase the odds of a successful sale, which discriminates against exclusive-agency representation.

Besides the series of actions against MLSs announced in October, the FTC has also announced similar actions against other MLSs, and on Wednesday announced a settlement agreement with an MLS in Wisconsin.

After considering the appeal, the full commission of the FTC will render a final decision on the matter. If the commission finds in favor of the FTC, that decision can be appealed by Realcomp to a federal court, said Roach of the FTC.

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