When Shorewest Realtors, one of Wisconsin’s largest real estate brokerages, stopped information for listings under contract with limited-service brokers from appearing on the company’s public-facing Web site, the local multiple listing service stood behind the company’s right to do so.

The MLS, Multiple Listing Service Inc., last year signed a consent order with federal regulators in which it agreed not to block the publication of "exclusive agency" listings represented by limited-service brokers.

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 highlighted 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. This final segment, 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.

When Shorewest Realtors, one of Wisconsin’s largest real estate brokerages, stopped information for listings under contract with limited-service brokers from appearing on the company’s public-facing Web site, the local multiple listing service stood behind the company’s right to do so.

The MLS, Multiple Listing Service Inc., last year signed a consent order with federal regulators in which it agreed not to block the publication of "exclusive agency" listings represented by limited-service brokers.

But MLS Inc., citing rules taken directly from a National Association of Realtors policy handbook, says its member brokers have the right to decline to publish other members’ listings on a case-by-case basis, based on criteria like geographic location, list price, broker compensation, listing type, and level of service (see Part 1).

Some limited-service brokers question whether, by adopting rules that seem to allow Shorewest to block their listings from appearing on Shorewest’s Internet Data Exchange (IDX) site, MLS Inc. has violated the spirit, if not the letter, of its consent agreement with the Federal Trade Commission (FTC).

"The agreement with the FTC says all listings have to be treated equally and fairly," said Paul Liebe, broker-owner of Redefined Realty, an Oconomowoc, Wis.-based brokerage offering flat-fee services to clients. "If you call the MLS, they will tell you Shorewest can do whatever they want."

Among other things, the consent order prohibits MLS Inc. from taking any action to "restrict or interfere with the ability of (members) to enter into exclusive-agency listings or other lawful listing agreements."

"Exclusive agency" contracts are often used by brokers offering flat-fee services at a reduced cost, providing a discount to sellers who want their property to appear in an MLS but are willing to take on some of the work usually performed by real estate agents — such as marketing and negotiating.

Because of Shorewest’s dominant position in the market, sellers who want to list with a limited-service broker may consider themselves to be at a disadvantage if their home does not appear on Shorewest’s IDX site, said Corey Scholtka, broker-owner of Waukesha, Wis.-based BuyHomes.com LLC.

When Shorewest stopped publishing limited-service and exclusive-agency listings, Scholtka said some of his clients were upset.

In the greater Milwaukee area, he said, "People perceive Shorewest to be the MLS. It’s not, but I have to be proactive in telling my clients they will not be getting this (exposure on Shorewest’s IDX site)."

Although it’s too soon to say with certainty, "I think this is costing me money," Scholtka said of Shorewest’s decision to stop publishing limited-service and exclusive-agency listings.

To address his clients’ worries that real estate agents working for full-service brokers might choose not to show prospective buyers homes represented by limited-service brokers — and because those listings are no longer being published on Shorewest’s IDX site — Scholtka said he’s introduced a new three-month listing program as an alternative to the 12-month program he has typically entered into with sellers in the past.

The shorter listing program — which carries a $333 flat fee instead of the $555 Scholtka charges for a 12-month listing — gives sellers a chance to see how their listing will be received. If, after three months, they think they would be better off with a full-service broker, they can make the switch, Scholtka said.

Liebe agreed that Shorewest’s IDX site "is a very important site" to consumers. "I know a lot of people say they use Realtor.com, and I think those are the two biggest sites people go to" when looking for homes for sale in the area, he said.

FTC’s concerns

Scholtka and Liebe’s concerns about access to full-service brokers’ IDX sites sound much like those voiced by the FTC in a 2007 complaint against MLS Inc.

The FTC said it objected to restrictions on the publication of exclusive-agency listings, because consumers weren’t able to see those listings on "approved Web sites" — including MLS Inc.’s public-facing site, WiHome.com; Realtor.com; and the IDX sites of participating brokers like Shorewest.

"Consumers are harmed by this rule because it inhibits a lower-cost option to sellers and increases search costs to buyers," the FTC alleged in its complaint. MLS Inc.’s rule "constitutes a concerted refusal to deal except on specified terms with respect to a key input for the provision of real estate brokerage services." …CONTINUED

The FTC could see no "plausible efficiency justification" for the restrictions, which were "not reasonably ancillary to the legitimate and beneficial objectives of the MLS."

The same language is found in the consent order. Although the consent order permits MLS Inc. to adopt rules allowing members to make independent decisions regarding the display of other broker’s IDX listings, the FTC said those rules must be "reasonably ancillary to the legitimate and beneficial objectives of the MLS."

But MLS Inc. had already adopted the rules and procedures that seem to allow Shorewest to exclude limited service listings from its IDX site at the time the MLS entered into its March 13, 2008 consent order with the FTC. The FTC did not object to the rules, based on NAR’s IDX policy, or to the creation of a "limited service" listing field allowing brokers and agents to screen those listings out, an attorney for MLS Inc. said in a March 23 written opinion.

But MLS Inc.’s limited-service brokers aren’t the first to question an MLS’s adoption of NAR’s IDX policy, or the association’s stance that brokers have the right to selectively block listings from appearing on their IDX sites if they are exclusive agency or limited service.

In 2007, Chris Nye, president of the Washington state-based flat-fee brokerage MLS4owners.com, complained to the FTC and U.S. Justice Department when the Tri-Cities Association of Realtors MLS adopted the passage of the NAR Handbook on MLS Policy in question — Section 18.2.4, Part Three, Section F.

That section of the handbook lists the "objective criteria" brokers may use in refusing to display other brokers’ IDX listings, including geographic location, list price, type of property, cooperative compensation offered by listing brokers, type of listing, or level of service provided by the listing firm.

An attorney for Nye argued that the policy would allow competitors "who didn’t like us personally and/or our business model" to exclude the company’s listings.

NAR stood behind the Tri-Cities Association of Realtors MLS, saying full-service brokers should have the right not to advertise listings in which the listing broker did nothing beyond submit the listing to the MLS, for example. Full-service brokers may not want to take on the additional liability and workload that would come from completing an entire transaction with no assistance from the listing broker, NAR general counsel Laurie Janik explained at the time (see story).

Neither the FTC nor the Justice Department took action against the Tri-Cities Association of Realtors MLS. The rule still stands today, and many MLSs around the nation have followed suit and adopted NAR’s IDX policy as a rule.

But Nye said the members brokers of the Tri-Cities Association of Realtors MLS haven’t tried to block his or other companies’ limited-service listings. He said he believes that NAR’s IDX policy remains "under the microscope of the federal government" and could still be subject to a legal challenge if a broker tries to stifle competition.

NAR last revised the IDX policy in 2006, striking language that allowed MLSs to exclude some properties from display on IDX Web sites based on the type of listing agreement, but preserving the right of individual MLS members to make such decisions.

The policy was revised after the U.S. Department of Justice filed an antitrust lawsuit against NAR over another method by which brokers can provide consumers with shared listing data: "virtual office Web sites," or VOWs.

Consumers who agree to register to use password-protected VOW sites can access listings data that’s more comprehensive than the information provided on public IDX sites. In its lawsuit, the Department of Justice said NAR’s policy of allowing brokers to withhold listings from VOWs restrained VOW brokers from competing with traditional brokers.

The settlement required NAR to modify its VOW policy to prohibit traditional brokers from withholding listings from VOWs, but did not address the 2006 revisions to the IDX policy.

When Nye asked the Department of Justice to clarify its stance on the IDX policy in the wake of the VOW settlement, the government said it was taking "no position as to the permissibility under the antitrust laws of NAR’s IDX policy" — leaving the door open to further legal action (see story).

Missing listings

Apart from legal considerations, Nye thinks there’s also a practical reason full-service brokers in Washington state continue to run his company’s limited-service IDX listings.

"The brokers know they need all the listings to attract the buyers," Nye said. "Buyers are pretty smart, and pretty tech-savvy."

Nye suggested that limited-service brokers in Wisconsin run advertisements publicizing the fact that Shorewest is not offering consumers access to all the listings in their market.

"I’d run an ad that says, ‘Attention, buyers: Do you know this Web site doesn’t have all the listings? Come visit my Web site,’ " Nye said. …CONTINUED

Although Scholtka and other limited-service brokers haven’t decided whether to mount a formal protest of Shorewest’s practices, a public relations campaign is in the works, they said.

Scholtka wants to organize other limited-service brokers to launch "Operation Full Exposure," making consumers, media and Realtors aware of the issue.

"Sellers who are not getting full market exposure are harmed by this, and without a disclosure on the Shorewest site, buyers don’t know they are not getting all the listings," Scholtka said.

He believes Shorewest — or any other broker that blocks publication of limited-service listings — has a legal and ethical obligation to provide a prominent disclosure on their Web site to consumers.

"They need to say, ‘No, we don’t have all the listings,’ " Scholtka said. "When consumers are on your Web site, you must disclose."

Of the nearly 36,000 properties of all types in MLS Inc.’s database last week, he said, 1,313 were classified as limited service and 916 were under exclusive-agency contracts. After adjusting for double counting of listings that fall under both categories, Scholtka estimated that Shorewest was excluding about 6 percent of listings from its IDX Web site.

Liebe believes that in some markets where limited-service brokers have larger market share, the percentage of omitted listings is even higher.

"In three cities I cover, my company alone has 15 percent market share," Liebe said. "That’s pretty significant from a consumer standpoint."

Shorewest, Liebe said, "is making a business decision, which is fine — it’s a free country, and they are protecting their business model. But they want the best of both worlds. They want to limit our listings, without informing the consumer that our listings are not there."

Scholtka is also urging limited-service brokers to tackle any legitimate concerns full-service brokers may have about working with their clients.

"One of the biggest complaints I hear from full-service brokers is that the seller is not knowledgeable, and that the seller is not holding up their end of the bargain" in the closing process, Scholtka said. "We need to professionalize ourselves, or the next step will be the MLS will increase fines, or the Realtor association will create more rules."

To "beat them to the punch," Scholtka has developed an addenendum to his listing contract, which stipulates that the seller is "exclusively responsible for the negotiation, preparation and execution of any offers" on the home. The addendum also makes clear that the broker’s duty is limited to placing the property in the MLS, responding to inquiries from cooperating brokers and potential buyers, and procuring a purchaser through marketing efforts.

Bob Tarantino, president of Badgerland Realtors Inc. in Delafield, Wis., said education is the key to raising standards among sellers employing limited-service brokers.

"Most sellers think they can handle (the marketing, negotiation and sale of their home), but they really don’t understand the process," Tarantino said.

Tarantino was one of a number of brokers who offer limited services attending a meeting organized by Scholtka last week to discuss a possible response to Shorewest blocking their listings.

Although no firm decisions were made, another objective of the meeting was "to get a little more organized," Liebe said. "We don’t have any representation on the MLS board of directors — it’s all run by the bigger, traditional companies."

Tarantino, who said 75 to 80 percent of his clients are full service, shares that frustration.

"A bunch of us smaller companies are trying to fight the ‘big boys,’ " he said.

Shorewest’s president, Joe Horning — one of two Shorewest executives serving on MLS Inc.’s 15-member board of directors — declined to comment for this story.

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