Editor’s note: In this two-part series, Inman News looks at difficulties flat-fee brokers who offer limited services have faced in getting their listings published more widely on the Web. Part 1 highlights one Wisconsin-based full-service broker’s decision not to display limited-service or exclusive-agency listings, and the National Association of Realtors policy adopted by other multiple listing services that could lead other brokers to do the same. Part 2 examines why the U.S. Federal Trade Commission and limited-service brokers have viewed "MLS approved" Web sites, including brokerages’ Internet Data Exchange (IDX) sites, as an important source of information for consumers.

With the backing of its multiple listing service, one of Wisconsin’s largest real estate brokerages, Shorewest Realtors, is blocking exclusive-agency listings and those under contract with limited-service brokers from appearing on the company’s public-facing Web site.

Some limited-service brokers in Southeastern Wisconsin say they thought the public’s right to view their listings was protected by a March 2008 consent order between their MLS, Multiple Listing Service Inc., and federal regulators.

In the consent order, MLS Inc. agreed not to treat listings in which sellers had signed exclusive-agency contracts — often employed by limited-service brokers — "in a less advantageous manner" than other listings.

But MLS Inc. maintains that nothing in the consent order prevents its member brokers from declining to publish other members’ listings on their own public-facing Web sites — as long as listings are excluded only on the basis of "objective criteria" such as the level of service provided by the listing broker and the type of contract signed by the seller.

Limited-service brokers say Shorewest’s refusal to publish their listings could discourage sellers from contracting with them for services — a potential antitrust violation — while also leaving potential homebuyers in the dark about the existence of 5 percent to 15 percent of listings in their market.

Similar spats could crop up elsewhere, because MLS Inc.’s rules governing the publication of shared Internet Data Exchange (IDX) listings are taken directly from a National Association of Realtors policy handbook and have been adopted by many other MLSs.

Member brokers of any MLS that has adopted NAR’s IDX policy could follow Shorewest’s lead and claim the right to selectively refuse to publish exclusive-agency and limited-service listings on their IDX sites. Shorewest may be the first company to test whether exercising that right will attract the attention of federal regulators.

In 2007, a limited-service brokerage in Washington state, MLS4owners.com, asked federal regulators to look into the local MLS’s adoption of NAR’s IDX policy as a potential violation of antitrust law (see story). The Tri-Cities Association of Realtors MLS hasn’t rescinded the policy, but its member brokers haven’t attempted to block limited-service listings from publication either.

The dispute in Wisconsin is further complicated because MLS Inc. is one of a number of MLSs that have entered into consent agreements with the Federal Trade Commission over their past handling of  exclusive-agency listings. The consent agreements stemmed from the FTC’s allegations that some MLSs discouraged sellers from choosing lower-cost, limited-service brokers by refusing exclusive-agency listings or restricting their publication on "approved Web sites."

In 2001, for example, MLS Inc. adopted a policy not to feed exclusive-agency listings to the MLS’s public-facing Web site, WiHomes.com, or to member broker’s IDX Web sites and third-party Web sites like Realtor.com, the FTC alleged.

"Exclusive agency" contracts are often employed by brokers offering flat-fee, menu-based services at a reduced cost. The contracts are popular with sellers who want their property to appear in an MLS but are willing to take on some tasks traditionally performed by real estate agents — such as marketing and negotiating — in exchange for paying a smaller commission.

Full-service brokers, on the other hand, typically enter into "exclusive right to sell" contracts, which typically guarantee that they will be paid a percentage of a home’s sale price regardless of who brings the buyer to the closing table.

Limited-service brokers in Southeastern Wisconsin say that even before the FTC intervened, they had found a way around MLS Inc.’s restrictions on the publication of exclusive-agency listings: by using the exclusive-right-to-sell contracts favored by full-service brokers instead.

Corey Scholtka, broker-owner of Waukesha-based BuyHomes.com LLC, says that since 2003 he’s charged a nominal commission — 0.01 percent — in addition to the flat fees charged by limited-service brokers. This small additional charge, equal to $30 on the sale of a $300,000 home, allows Scholtka to enter into exclusive-right-to-sell contracts with clients, he said. …CONTINUED

"The MLS started sending me letters, saying we feel you are stretching things, you are actually exclusive agency," Scholtka said. But Scholtka said that because his sellers are not allowed to declare that their properties are "for sale by owner" and must pay him regardless of who sells the property, "I was right in a legal sense. I turned them upside down."

Action by FTC

In October 2006, MLS Inc. rescinded its policy restricting the Internet publication of exclusive-agency listings — the same month the FTC issued complaints against two MLSs and announced consent orders with five others over similar conduct.

Suburban Milwaukee-based MLS Inc., which was not one of the seven companies targeted in that enforcement action, agreed to enter into a consent order with the FTC in December 2007. The consent order was finalized the following March, over the objections of the National Association of Realtors.

NAR’s position was that the FTC should rescind all the consent orders it had entered into with MLSs until the case involving the lone company disputing the allegations — Detroit-area Realcomp II MLS — was resolved.

The FTC rejected NAR’s argument, and today the consent order with MLS Inc. is displayed prominently on the company’s home page.

The order says MLS Inc. may not treat exclusive-agency listings — or any other listings — "in a less advantageous manner than exclusive right to sell listings," or adopt "any policy, rule or practice pertaining to the transmission, downloading, or displaying of information pertaining to such listings."

Because many limited-service brokers had already found a way around MLS Inc.’s restrictions on the publication of exclusive-agency listings — and because the policy had been rescinded in 2006 — the consent order was largely moot.

But limited-service brokers say they were surprised when full-service brokers began resorting to other tactics to restrict consumers’ access to their MLS listings.

In 2005, at the direction of its board of directors, MLS Inc. created a "limited service" listing field, Scholtka said. The new field gave agents and brokers conducting listings searches on internal company systems the ability to exclude properties not represented by full-service brokers.

With the click of the mouse, agents can filter limited-service listings out of automated property searches that are e-mailed to clients, for example.

"When brokers set up searches for clients, the e-mails are (sent out to clients), and the client doesn’t know what the search parameters are," said Paul Liebe, broker-owner of Redefined Realty, another broker offering limited-service options to clients. "There’s no disclosure that says limited-service listings are not included in this search."

Liebe said he learned of the practice after representing a seller who worked as an administrative support staff member for a full-service brokerage.

"Her boss said, ‘Here’s what we do when we set up an automated search for clients. We weed these listings out,’ " Liebe said.

A listing is classified as limited service if brokers don’t offer to perform any one of eight tasks that MLS Inc. defines as full service, including the willingness to hold earnest money, schedule showings, or order title insurance, Scholtka and Liebe said.

"I am doing everything except handling the phone calls and the showings," Liebe said. Many companies defined as limited service are performing seven out of the eight tasks, he said. …CONTINUED

But as far as the MLS is concerned, "It’s all or nothing," Scholtka said. "If you are not doing one of the eight, you could be (offering the cooperating broker) 5 percent commission, and it’s still limited service."

Although they consider each other competitors, in July 2008 Scholtka and Liebe wrote a joint letter to MLS Inc. questioning whether giving brokers the ability to include or exclude exclusive-agency and limited-service listings from searches of the MLS database violated the FTC consent order.

MLS Inc. sought advice from attorney Alan Deutch, who concluded that the ability to use exclusive-agency and limited-service fields as MLS search criteria did not conflict with the consent order.

The limited-service data field and search capabilities were in place before the consent order was in place, and the FTC was aware of them and did not require their removal, Deutch said in a March 23 letter to MLS Inc. Executive Vice President Peter Shuttleworth.

Blocked listings

But as soon became apparent, the creation of a "limited service" listing field also gave brokers a tool to filter those listings and prevent them from appearing on their publicly facing IDX Web sites.

Brokers who want their listings to appear on other brokers’ IDX Web sites enter into reciprocity agreements that generally obligate them to return the favor. The listings of all participating brokers are distributed by the MLS and, in most cases, displayed on each broker’s IDX Web site.

On June 1, about two months after Deutch issued his opinion to MLS Inc., Shorewest began blocking exclusive-agency and limited-service listings from appearing on the company’s IDX site, several brokers told Inman News.

Joe Horning, the president of Shorewest who serves on MLS Inc.’s board of directors, did not dispute that Shorewest has stopped publishing limited-service brokers’ listings on the company’s Web site, but declined to comment.

MLS Inc. maintains that its rule allowing brokers to selectively block some listings from appearing on their IDX sites is based on NAR policy and does not conflict with the FTC consent agreement.

Shuttleworth said MLS Inc’s IDX program has been in place for seven years, with 99 percent participation. The section of the rules governing the program are taken directly from the NAR Handbook on MLS Policy, he said, and allow member brokers to selectively block individual listings based on "objective criteria."

Those criteria include "geography, location, list price, type of property, cooperative compensation offered by listing brokers, type of listing (exclusive-right-to-sell, exclusive-agency or open listing), or the level of service provided by the listing firm," MLS Inc.’s rule and NAR’s IDX policy state.

The FTC consent order also includes language addressing the right of MLS Inc. to allow its member brokers "to make an independent decision regarding the selection of IDX listing information to be … displayed on that participant’s IDX Web site." However, any MLS rule allowing them to do so must be "reasonably ancillary to the legitimate and beneficial objectives of the MLS."

In Deutch’s opinion, the consent order "makes it clear that the individual participants can make whatever decisions they desire as to what listing they worked with or displayed," the lawyer said in his letter to MLS Inc.’s Shuttleworth.

Next: Part 2 examines why the U.S. Federal Trade Commission and limited-service brokers have viewed "MLS approved" Web sites including brokerages’ Internet Data Exchange (IDX) sites as an important source of information for consumers.


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