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 1.
The Justice Department sued the National Association of Realtors in September 2005, alleging that its Internet property listing display policies were anticompetitive. The basis of the suit was the form of the NAR policy before the September revisions. (See Part 1 for a fuller discussion of the history up to this point.)
Leaders in the Realtor association community promptly began ridiculing the DOJ suit and its intentions. Here are paraphrases of some of the comments I’ve heard:
- “They sued us for a policy that has already been rescinded.” This is true. I’m not sure what DOJ was thinking and why they did not update their complaint to address characteristics of the new policy. I’m not a litigation strategist, though.
- “The DOJ is saying that the real estate industry is not competitive; is there anyone who really believes this business is not competitive?” This mischaracterizes DOJ’s complaint. A business can be competitive within a group of incumbent participants, even if they exclude competition from new entrants. An industry can therefore be both competitive and anticompetitive at the same time.
- “The DOJ believes that MLS should be a public utility, that anyone should have full access.” I do not find these assertions in the documents relating to the case, but I cannot read the minds of DOJ attorneys, either.
Sadly, NAR’s policies, the DOJ lawsuit, the resulting indignation in the brokerage community, and characterization of the DOJ’s attorneys as uninformed and unreasonable all miss the point: An opt-out makes no sense in the context of online brokerage. In other words, NAR and its affiliated multiple listing services have no business dictating different operating terms for use of MLS data to deliver brokerage service online than to deliver brokerage services through traditional media.
What MLSs ought to do is to clarify what is expected of all brokers reproducing listing content for their clients and customers. A candidate list might include 1) that the broker identify the consumer and verify some piece of contact information (phone number, address, e-mail address) within a short time after beginning to show her listing content; 2) that the broker inquire of the consumer as to her preferences regarding property to purchase; 3) that the broker make some effort to acquire information upon which the broker could base an assessment that the consumer can afford properties of the type she wants to see; and 4) that the broker show the consumer only those listings consistent with her expressed willingness and ability to pay.
These requirements have long been at the heart of the cooperative function of the MLS. Traditional brokers did not hand out an MLS book to every consumer who walked through the door. In fact, they were not allowed to hand them out at all. A listing brokerage could expect that other brokers were showing its listing information to prospective buyers who were or at least might be interested in purchasing them. After all, the only reason a listing broker puts listings into the MLS is to encourage other brokers to sell them, not to help consumers to browse them.
Consequences of having no resolution
A few companies have continued to operate and build virtual office Web sites, or VOWs, and other forms of online brokerage services since NAR’s first attempt at policy-making on the subject. But in general, development of online brokerage has been stunted or concealed by the uncertainty surrounding NAR’s policies and its dispute with the DOJ. Today an online brokerage operator makes an investment in an approach that may not be viable long term, regardless of whether the DOJ or NAR wins the suit.
If NAR wins, other brokers will be able to opt out of online brokerages, perhaps even on a selective basis. Any online brokerage or group of them with a very effective business model runs the risk that traditional brokers will pull out. On the bright side, the most recent NAR policy would have allowed only blanket opt-outs, and these would have affected IDX as well as VOWs. Most listing brokers would not want to run the risk of losing IDX exposure unless the stakes were very high.
It is unclear what would happen if the DOJ wins. But either under NAR’s September 2005 policy of blanket opt-outs or under the DOJ’s vision of no opt-outs, one significant problem might be state regulators. State laws and most MLS policies prohibit the advertising of another broker’s listing without the listing broker’s permission. Some states have already said that displaying other brokers’ listings online is a form of advertising. In the aftermath of the NAR/DOJ suit, it is hard to say whether other states will follow suit, whether DOJ will attempt to prevent that (as they have with other state regulations of real estate), and what the consequences will be for online brokerage. Any form of opt-out for listing brokers puts online brokerage at a substantial disadvantage.
Ironically, the most disturbing scenario may be the one in which NAR and DOJ reach a settlement. In that case, the future of online brokerage may be decided by lawyers who have never been involved in a real estate transaction, let alone have experience as a real estate broker. The policy chimera that would emerge might look more terrifying than anything so far proposed, and it would likely be subject to a consent decree, meaning NAR and the DOJ would have to agree on changes in the future to fix it. On the bright side, a settlement between would be binding only on those MLSs that choose to conform to NAR policy. MLSs may consider whether that conformity makes sense anymore.
So many issues are up in the air now that only the brave and foolish will invest significant amounts of money in online brokerage today. The consequences for real estate brokers are grave: Instead of being able to use MLS content as an advantage, a lever to transition into online brokerage, forward-looking brokers are stymied by the policies, or the lack of them. In the meantime, new entrants like Zillow and well-funded behemoths like Google are unchallenged as they gather steam behind their business plans. Instead of allowing their broker competitors to display their listings in online brokerage, traditional brokers are now sending their listings to the new models.
The way through
NAR General Counsel Laurie Janik announced to a group of association leaders May 18 that she does not believe the NAR/DOJ suit will be over anytime soon.
I suggest that MLSs seek out the online brokerage operators that are or may be interested in discussing what the reasonable limitations of online listing display should be. These discussions can happen alongside the NAR/DOJ lawsuit, but need not be substantially connected with them. MLSs that can strike a balance with online brokers should adopt policies consistent with that balance. Different MLSs might come up with equally effective and equally legal solutions to this problem. As they do so, a small number of effective models will likely develop.
For NAR-affiliated MLSs, pursuing this course poses risks in their relationships with the national association. For the MLS prepared to take those risks, the rewards will be mostly intangible: The knowledge that you have positioned your organization to be a leader in the development of online brokerage, and the opportunity to shape the outcome rather than just swallowing whatever the lawsuit settlement looks like. One significant advantage is finding resolution so that all brokers, traditional and new-model alike, can understand what is to be expected of them in the online brokerage environment.
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.
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