Realcomp II Ltd., the largest multiple listing service in Michigan, is preparing for a legal battle with the U.S. Federal Trade Commission over an MLS policy that blocks some property listings from display on public Web sites such as Realtor.com and an MLS-owned home-search site.

The National Association of Realtors earlier this year announced 14 separate government investigations that focused on MLS policies relating to restrictions on the display of some property listings.

Realcomp II Ltd., the largest multiple listing service in Michigan, is preparing for a legal battle with the U.S. Federal Trade Commission over an MLS policy that blocks some property listings from display on public Web sites such as Realtor.com and an MLS-owned home-search site.

The National Association of Realtors earlier this year announced 14 separate government investigations that focused on MLS policies relating to restrictions on the display of some property listings. Inman News has reported on four MLSs contacted by the Federal Trade Commission that have changed their policies.

New Jersey MLS, the Realtors Association of Northeast Wisconsin MLS, the Northern New England Real Estate Network and the Austin Board of Realtors have lifted display restrictions relating to “exclusive agency listings,” a type of listing agreement between a home seller and a broker that allows the seller to directly market the home and does not obligate the seller to pay the broker if the seller personally locates a buyer.

While the FTC had proposed an agreement with Realcomp II that would require the MLS to change its policy for exclusive agency listings, the board of directors voted against the agency’s proposed consent agreement. Realcomp II is owned by seven local Realtor boards and has about 15,000 members in Southeast Michigan.

Karen Kage, CEO for Realcomp II, said that the MLS has not yet received a formal complaint from FTC officials, though the MLS “received word that they were going to file a formal complaint.” The agreement proposed by the FTC was similar to the one that the Austin Board of Realtors signed, Kage said.

In the Austin example, the FTC charged that the MLS rules restrained competition among brokers and represents a joint action by a group of competitors to withhold property information from publicly accessible Web sites. In settling the FTC charges, the Austin Board of Realtors agreed not to interfere with members’ ability to enter into any kind of lawful listing agreement with home sellers, and the board also agreed not to adopt or enforce any rules that favor one type of property listing agreement over another.

Realcomp II passed the rule relating to the Web site display of exclusive agency listings in 2004 because of the potential for those listings to facilitate a sale without a Realtor, Kage said. The rule prohibits exclusive agency listings from display on national property-search site Realtor.com, an MLS-owned property-search site at MoveInMichigan.com, and all of its members’ sites that feature property information through a data-sharing agreement with other brokers — a standard known as IDX or Internet Data Exchange.

Meanwhile, the rule change did not impose these display restrictions for a more common form of listing agreement called “exclusive right to sell.” Under standard exclusive right to sell agreements, a home seller is also allowed to market the home and personally seek out buyers, but the seller must pay the broker regardless of who brings in the buyer.

“Exclusive agency gives the seller the right to sell it themselves and the MLS is in the business of securing sales through the use of a Realtor,” Kage said. Exclusive agency listings, because they can facilitate the sale of a home without a Realtor, can fall “outside the scope of what an MLS is.” The MLS, she said, is designed to “help the public but through the Realtors. An MLS’s job is just to service the Realtors. That is our core function.”

In a Sept. 18 statement, Realcomp II announced that the FTC intends to file a formal complaint against the MLS “which asserts that Realcomp II’s rules and policies disfavor real estate brokers that employ nontraditional forms of listing agreements.”

Kage stated in that announcement, “We have an obligation, first and foremost, to our Realtor customers. The purpose of our MLS is to facilitate the sale of properties between listing and selling agents and, in turn, ensure compensation for both parties. To change our rules and organizational structure, established by our board of governors and agreed to by our broker members, would entirely compromise the purpose of the MLS and the core service we provide to our Realtor participants who pay us to represent their best interests.”

Kage said there were less than a dozen questions or comments about the exclusive agency rule since it passed. “It was certainly a very small minority” of members that questioned the rule, she added. Exclusive agency listings now account for about 1 percent of all of the property listings in the MLS database, she said, and prior to the rule the MLS did not differentiate between exclusive agency listings and exclusive right to sell listings.

In March 2006, FTC officials requested information about the MLS policy, Kage said. The MLS received a proposed consent agreement from the FTC on Sept. 14 and the MLS board voted down the agreement on Sept. 15. MLS officials notified FTC officials on Sept. 18 that Realcomp II “would not be moving forward with the consent agreement,” Kage said.

“We’re not aware of any (MLSs that) have taken a similar stance to what we have,” Kage said. If there is a lawsuit, she said that Realcomp II may draw upon its errors and omissions insurance policy to assist with legal costs.

Albert Hepp of BuySelf Realty Inc., a flat-fee real estate company that operates in Michigan and four other states, said he is glad that the FTC is actively investigating MLS policies related to exclusive agency listings. “I think it’s very appropriate and needed,” he said. He said the exclusive agency rules that block listings from reaching some public Web sites appear to him as “a deliberate action to try to hurt a new form of innovation in the real estate business.”

In a public comment to the U.S. Department of Justice in November, Hepp wrote, “Many MLSs only share listings defined as exclusive right to sell through upload to Realtor.com as a way to reduce the exposure of nontraditional listings.” In that letter, he also named Realcomp II as an MLS that allows its members to conduct property searches based on types of listing agreements, which he said could allow agents “to screen out” some types of property listings in searches.

Antitrust officials for the FTC and U.S. Department of Justice have weighed in on another real estate issue in the state, too.

Michigan and more than a dozen other states have considered legislation or regulations, in every case backed by state Realtor trade groups, that require real estate licensees to perform a minimum set of services for clients — at least for certain types of service agreements.

Federal officials have opposed the Michigan proposal and some other so-called “minimum-service” measures, charging that they can potentially limit consumer choice and obstruct competition. Meanwhile, proponents have said that the laws protect consumers by ensuring that they receive sufficient services in real estate transactions.

In 2003, Realcomp II defined an exclusive right to sell listing as “a listing where the listing agent offers full service to the sellers.” This means that in order to be considered an exclusive right to sell listing by the MLS, a broker must also provide a specific range of services to the client.

The MLS also categorized other listings as either exclusive agency listings, “limited service listings” in which a listing broker does not provide certain services to clients, and “MLS entry only” listings in which a property is entered into the MLS but other traditional real estate services are not offered.

According to a December 2003 notice by Realcomp II, the full-service listing category was set up as the default property search for MLS members, and “if you wish to search for listings matching any of the other listing type choices … you’ll need to modify your search criteria accordingly.”

In an April 2004 notice, Kage wrote that MLS members frequently ask why Realcomp II accepts all types of property listings. The National Association of Realtors requires MLSs to accept all types of listings, she stated, and the MLS “has been advised from more than one legal counsel to accept and include” all listings. “However, MLSs have the option of requiring that the listing type be clearly identified. So, we implemented mandatory disclosure for everyone’s benefit.”

And in a June 2004 notice to members, Kage stated that she had spoken with representatives for about 20 MLSs, and “not one of them had made the decision to prohibit the limited service or MLS entry only listings from their database. They reported that they had been advised to accept these listings, but to also establish ways of identifying the level of service being offered.”

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