Editor’s note: This is a two-part guest perspective written by Minneapolis attorney Brian N. Larson on the impact of the Justice Department’s antitrust lawsuit against the National Association of Realtors trade group. See Part 2.
Real estate brokerages and multiple listing services have no clearer guidance today in online brokerage than they did four years ago, despite years of National Association of Realtors policymaking and the Justice Department’s lawsuit against the trade group.
The early days of the virtual office Web site debate were typified by fairly open and vigorous discussions. NAR policymaking muddled things quite a bit and brought the attention of the federal government. Right now, the NAR/DOJ lawsuit is the thing, and the industry stands to lose regardless of the outcome.
The potential consequences are grave, but MLSs and brokers might be able to do something about it. They should 1) look back at how the issues arose in the first place, 2) consider the consequences of a continued lack of clarity regarding online brokerage, and 3) engage in constructive discussions to resolve the issues without regard to the NAR/DOJ spat. Part one of this guest opinion sets out after the first of these objectives, and Part 2 will cover the second and third.
The early days
Four years ago, NAR launched its first effort to regulate what were then called virtual office Web sites, VOWs. VOWs were around for years before that, though. At least as far back as 1998, a broker in Minneapolis operated a Web site where he displayed the entire MLS listing inventory to consumers who became his clients online. At the time, I managed the MLS in the Twin Cities. We examined what the broker was doing and realized that we should not attempt to prevent him from delivering brokerage services online. In short, our lawyers told us we could not dictate the medium in which a participating broker delivered his services.
However, we could insist that he live up to the same professional standards as all other brokers, and that he show his client information relating only to properties which 1) he believed the client had or was likely to have an interest in purchasing, and 2) he believed the client had the means to purchase. To us, it seemed clear in the MLS offer of compensation and the MLS policies governing reproduction of listings that cooperating brokers may show listings only to potential buyers who were willing and able to purchase them. At the very least, we told our VOW broker, he would have to ask his client what she was looking for and how she would pay for it. We also demanded that the broker verify the e-mail address or some other means of contacting the client. We never adopted a “VOW policy.” We believed these requirements to exist in our MLS rules, the VOW-operating brokers involved did not complain, and we never had any serious trouble with VOWs after that.
VOWs may have played a role in our decision to adopt IDX, the means by which brokers are allowed to advertise each other’s listings on their Web sites. Some folks thought that IDX would steal the thunder of VOWs, because IDX allowed consumers to see almost all the listings without having to register. Folks generally believed, and rightly, as it turns out, that consumers would rather have a little less information if they can be excused from providing personal information up-front. IDX did not precipitate VOWs and online referral models; quite the contrary – IDX was our first reaction to VOWs. It proved to be an effective one, making VOWs less attractive without prohibiting them.
But from the beginning, we struggled with the dividing line between advertising and online brokerage. IDX was advertising, no doubt, because it involved showing a great quantity of listings to anyone interested in seeing them on the Internet. This is really no different than showing the listings in a newspaper ad or in the window of your brokerage firm office. Because you need a listing broker’s permission to advertise her listings, IDXhad to provide an opt-out for listing brokers.
Online brokerage raised complicated questions about both online and traditional practices: What is necessary to establish a client or customer relationship? How much should the client or customer be able to see? The answers are important, because in theory, if online brokerage is just brokerage online, then listing brokers could not opt out of the display of their listings by competitors.
A further example illustrates the problems. Today almost all MLS systems provide for the following scenario: A consumer sends an e-mail to real estate licensee Susie Smith, saying “I want to buy a three-bedroom home in St. Paul – please e-mail me listings.” Susie goes into the MLSsystem, enters the consumer’s e-mail address and search parameters. Now, the MLS system sends a daily batch of new and changed listings and each day the consumer receives these listings without any further mediation from Susie. Advertising? Or brokerage online? Gray area in the middle?
In the beginning, the NAR seemed to share our view of VOWs – they said online brokerage could be regulated only to the extent that traditional bricks-and-mortar brokers were. If you could do something in the bricks-and-mortar environment, you should be able to do it online. The NARstaff put out an unofficial whitepaper to this effect late in 2000. But the political machinery within the nation’s largest trade association was fated to come up with an entirely different policy conclusion – by the summer of 2002, we were all considering a new proposed NARpolicy that lumped IDXtogether with VOWs and provided for a listing broker opt-out.
That summer, after leaving the Twin Cities MLS, I prepared a report for The Realty Alliance and the late Charles McKee, then its CEO. Interestingly, the group’s mainline “traditional” brokers were divided about how to handle VOWs. Eleven Realty Alliance firms took part in interviews to give their perspectives on VOWs. Nine of the firms interviewed agreed with this statement: “Online provision of brokerage services should not be hindered by listing brokers being able to opt out of their competitors’ virtual office Web sites.” But four of 11 agreed with this statement: “No broker should be able to display my listing on her Web site without my permission, no matter whether she calls her site a ‘VOW’ or ‘IDX’ or whatever.” That means at least two firms agreed with both statements, which contradict each other.
The report I prepared for The Realty Alliance never received much support, even within the Alliance itself. Fears of new business models frightened mainline brokers. While they wanted to support online brokerage in general, they also wanted a way to prevent particular, undesirable entities from getting their listings. NAR leaders and other public figures in the industry encouraged the misperception that VOWs were akin to referral-model brokerages – which as it turns out is not true at all. Under pressure from a relatively small number of quite large firms, NAR added the “selective opt-out” to its policy, which would now permit listing brokers to opt-out of IDXand online brokerage on a blanket basis, or on a competitor-by-competitor basis.
The NAR policy went through a major revision in 2003 (one which restored the distinction between IDX and VOWs and left the pre-existing IDX policy largely intact) and slight revisions thereafter. After protracted but inconclusive negotiations with DOJ, NAR announced a dramatic overhaul in September 2005. That final policy went back to lumping IDX and VOWs together. In effect, listing brokers could opt out (on a blanket basis only) of other firms’ online brokerage efforts.
The September NAR policy precipitated the DOJ lawsuit that now threatens opportunities to innovate. More on that in part two.
Brian N. Larson is an attorney practicing in Minneapolis. The views expressed in this column are not intended as legal advice and do not necessarily represent the views of Larson, his clients, or their affiliates. Reach him for comment at BLarson@LarsonLegal.com.