Realcomp II MLS, a Detroit-area multiple listing service that ultimately stood alone in challenging the government’s position that MLSs are breaking the law if they refuse to transmit "exclusive agency" property listings favored by discount brokers to public Web sites, has been ordered to reverse its policy.
In a unanimous 4-0 decision, the Federal Trade Commission (FTC) found that Realcomp II’s Web site policy and related requirements impose a "significant impediment" to consumer access to listings represented by limited-service brokers, helping protect full-service brokers’ commissions from competition.
Full-service real estate brokers created Realcomp’s policies because they "perceived the possible expansion of limited-service brokerage, in combination with consumers’ direct access to MLS listings via Internet Web sites, to pose extremely serious threats to their traditional business model," the FTC said in an opinion issued today.
The policies, the FTC said, "singled out the new limited-service brokerage business model and put it at a considerable competitive disadvantage, particularly in the context of the increasing competitive importance of certain key Internet Web sites to disseminate listing information to consumers."
The FTC issued an order giving Realcomp 30 days from the date the order becomes final to amend its rules and regulations to comply with the order, and 90 days to inform members. The order will not become final for at least 14 days, when a window for filing a petition for reconsideration closes.
Realcomp — which won the first round of its legal battle with the FTC, when an administrative law judge dismissed the government’s complaint against it — could appeal today’s order by the full commission to U.S. Court of Appeals for the Sixth Circuit.
Realcomp Chief Executive Officer Karen Kage said the MLSs board of directors will decide whether to appeal the ruling when it meets next, on Nov. 20.
"Obviously, we are very disappointed," Kage said. "We felt we made a very strong case (in 2007) and the administrative law judge agreed with us."
Exclusive-agency contracts are frequently used by brokers offering flat-fee, menu-based services at a reduced cost. Sellers who want their property to appear in an MLS but are willing to take on some of the work traditionally performed by real estate agents, such as marketing and negotiating, may view such services as an attractive alternative to a full-service broker. …CONTINUED
In the initial hearing process, Kage testified that Realcomp made it a policy not to transmit exclusive-agency listings because "it was not in the best interests of its members, the Realtors, to provide free advertising for home sellers who were negotiating their own deals."
In a Dec. 10, 2007, opinion, Judge Stephen J. McGuire ruled that while Realcomp had power over the market, the FTC had not demonstrated that it "unreasonably restrained or substantially lessened competition, thereby resulting in consumer harm" (see story).
The FTC quickly announced it would appeal the decision to the full commission, citing "a number of errors in assessing the record and in analysis."
Albert Hepp, the president of a national alliance of flat-fee brokers, the American Real Estate Broker Alliance, said he was "thrilled" to have a unanimous ruling by the FTC, "saying basically, ‘Thou shall not hide the listings of discounters.’ "
Hepp, who testified in the case, said the ruling should discourage other MLSs — especially smaller ones without the resources of Realcomp — from introducing similar policies.
"I think to get smacked down by a 4-0 unanimous ruling by the commissioners makes other MLSs that might want to disadvantage discounters less likely to do so," Hepp said. "It has that impact of taking away the temptation that, if Realcomp got away with it, then maybe we can get away with it by making the same argument that Realcomp did."
But Hepp said different rules and policies aimed at discount brokers have evolved at other MLSs. One, he said, has a prohibition on the publication of listings if a yard sign allows buyers to contact sellers directly.
"It’s a cat-and-mouse game, where the mice try to see what they can get away with without attracting the cat’s attention," Hepp said. "When they get caught, some of them will try something different."
In October 2006, the FTC issued complaints against Realcomp and another MLS, MiRealSource Inc., that allegedly restricted the Internet publication of exclusive-agency listings. The FTC announced consent orders with five other MLSs over similar conduct. …CONTINUED
The National Association of Realtors amended its Internet Data Exchange (IDX) policy the following month, 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.
Realcomp, the only MLS to fight the FTC in court (MiRealSource entered into a consent order in February 2007), has declined to adopt NAR’s IDX policy.
Realcomp has argued that it would become a public utility if it were forced to distribute all current listings to public Web sites, including Realtor.com and the MLS’s own public-facing site, MoveInMichigan.com.
"There are a lot of Web sites out there that consumers can use," Kage said. She said the majority of Realcomp subscribers — "those that we’ve heard from, have been very supportive of our action."
NAR has provided several hundred thousand dollars in funding for Realcomp’s legal defense, and has argued the FTC should rescind the consent orders with other MLSs until the Realcomp case is resolved.
NAR’s position that individual MLS members can choose whether or not to publish exclusive-agency listings was recently cited by a Wisconsin-based MLS as a reason for standing behind a decision by one of the state’s largest brokerages, Shorewest Realtors, to block exclusive-agency listings and those under contract with limited-service brokers from appearing on the company’s public-facing Web site.
The MLS, Multiple Listing Service Inc., is operating under the terms of an FTC consent decree governing the publication of exclusive-agency listings (see story).
In September, a federal district court granted final approval of a settlement between the Department of Justice and a South Carolina MLS accused of subjecting applicants to "potentially intimidating" interviews before a committee dominated by traditional full-service brokers.
The settlement protects the right of Consolidated Multiple Listing Service Inc. (CMLS) member brokers to enter into "exclusive agency" contracts with sellers, and requires the MLS to admit any broker who is licensed in South Carolina (see story).
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