Editor’s note: This story has been updated to include a comment by the National Association of Realtors’ General Counsel, Laurie Janik.
Michigan’s largest multiple listing service "unreasonably restrained competition" among real estate brokers by refusing to transmit exclusive agency property listings favored by discount brokers to Realtor.com and other public-facing Web sites, a federal appeals court has ruled.
Farmington Hills, Mich.-based Realcomp II Ltd. has "substantial market power" in Southeastern Michigan, and its website policies resulted in "actual anticompetitive effects," the Sixth Circuit Court of Appeals said in denying the MLS’s petition to overturn a 2009 Federal Trade Commission order that the MLS rescind them.
With $725,000 in backing from the National Association of Realtors, Realcomp has waged a 4 1/2-year legal battle with the FTC over its treatment of exclusive agency listings, racking up legal expenses of more than $2.4 million.
Although the MLS could appeal the latest decision, Realcomp CEO Karen Kage said she had not reviewed all of the documents in the case, and declined to comment.
NAR General Counsel Laurie Janik said that because other MLSs don’t have similar rules in place, the appeals court ruling is unlikely to have a wider impact.
"I’m sure it’s extremely disappointing news to the folks at Realcomp, but it’s not the kind of case that’s going to send ripples across the rest of the industry," Janik said.
Asked if NAR would provide further financial backing if Realcomp decided to appeal, Janik noted that the next stop "would be the U.S. Supreme Court. I think that would be a long shot."
If Realcomp did petition the Supreme Court, it would be up to NAR’s legal action committee, and ultimately the board, whether to provide additional financial support, Janik said.
Bruce Hahn, president of the American Homeowners Grassroots Alliance, a consumer advocacy organization, said in a statement that the appeals court decision appears to render the issue "dead."
Other MLSs tried the same tactics against limited-service brokers, Hahn said, and NAR "invested heavily in this appeal. It is time for MLSs and industry leaders to put this issue behind them and stop wasting their members’ dues money on lost causes that … offend their customers and tarnish the profession’s reputation."
In October 2006, the FTC announced actions against seven MLSs that were refusing to transmit exclusive agency property listings to public-facing websites.
Five MLSs — located in Colorado, New Hampshire, New Jersey, Virginia and Wisconsin — agreed to discontinue their policies, entering into consent agreements with the FTC. A sixth MLS, Michigan-based MiRealSource, entered into a consent agreement with the FTC in February 2007.
Realcomp, which denied its policies were anticompetitive and claimed the right to protect its members from "free riding" by home sellers, took the FTC to court.
Realcomp won the first round of the battle, when an administrative law judge ruled in December 2007 that the FTC hadn’t proved that the MLS "unreasonably restrained or substantially lessened competition, thereby resulting in consumer harm."
But in unanimous 4-0 decision, in October 2009 the full commission ruled that Realcomp’s policies created a "significant impediment" to consumers’ ability to access listings represented by limited-service brokers, and served to protect full-service brokers from competition.
The FTC ordered Realcomp to rescind the website policy, instituted in 2001, but Realcomp appealed the FTC’s ruling and order. In February 2009 the Sixth Circuit Court of Appeals denied Realcomp’s motion to stay the FTC’s order pending the outcome of the appeal.
Only then did the MLS rescind its policy of not transmitting exclusive agency listings to Realtor.com, MoveInMichigan.com, and other public sites. Realcomp also deleted language from its MLS rules and regulations that prohibited brokers from displaying other brokers’ exclusive agency listings on their own IDX (Internet Data Exchange) websites.
Last fall, Realcomp and MiRealSource reached separate agreements to settle a 2007 lawsuit filed against them by Home Quarters Real Estate Group, which offered cash rebates to buyers and commission discounts to sellers.
Appeals court decision
In their appeals court brief, FTC attorneys said the increasingly vital role of Internet marketing has "dramatically changed the competitive landscape in the real estate industry," bringing limited-service listing brokers to the forefront.
Realcomp, which is governed by full service brokers, "responded to this competitive threat by adopting a set of policies regarding how limited service listings are treated on its MLS," the FTC said.
Limited-service brokers employing exclusive agency listing agreements typically charge a flat fee to clients who want their homes to be listed in the MLS. If the listing broker provides no other services, sellers owe them no additional commission when their house sells, although they may agree to pay a commission to a cooperating broker who brings a buyer to the transaction.
Full-service brokers usually employ "exclusive right to sell" listing agreements, offering a package of bundled services in exchange for a commission that’s based on a percentage of the property’s selling price.
In addition to restricting publication of exclusive agency listings in 2001, Realcomp also adopted a policy two years later in which the default setting for agent searches of the MLS’ listings database returned only exclusive right to sell listings in results.
In 2004, Realcomp adopted a minimum services requirement for members to provide an array of bundled services in order for their listings to qualify as exclusive right to sell listings.
Realcomp enforced the policies with fines of up to $2,500 per violation, and lengthy suspensions from the MLS, the FTC said. The search-function policy and minimum services requirement were repealed in April 2007.
In challenging the FTC’s ruling, lawyers for Realcomp argued that home sellers entering into exclusive agency listing contracts were engaging in "free riding."
A seller with an exclusive agency listing "is both the potential client of a cooperating broker and a competitor of cooperating brokers," attorneys for Realcomp said.
If sellers did not employ a cooperating broker, the MLS maintained, sellers compensated Realcomp only through their payment to the listing broker, which did not cover all of Realcomp’s costs.
The appeals court rejected that argument, noting that sellers entering into exclusive agency contracts employed cooperating brokers 80 percent of the time. No compensation is provided to cooperating brokers when sellers contract with unrepresented buyers regardless of the type of listing agreement used, the appeals court said.
Exclusive agency sellers weren’t engaged in "free riding" because they had to employ a listing broker who was a dues-paying Realcomp member in order to get their properties listed in the MLS, the court said in its opinion.
Realcomp also claimed its website policy protected buyers represented by a cooperating broker from being at a "bidding disadvantage" against unrepresented buyers for exclusive agency listings.
The appeals court agreed with the FTC that such an argument only "reinforces the conclusion that (the policies) have an anticompetitive effect by deliberately protecting established commissions and preventing the reduction in the cost of selling a home."
"Even if there are financial incentives for a home seller to contract with an unrepresented buyer over a cooperating broker, Realcomp offers no meritorious pro-competitive justification for protecting cooperating brokers from pressure to lower costs," the appeals court ruled.