Michigan’s largest multiple listing service has been named in an antitrust lawsuit that claims MLS policies allegedly aimed at hindering limited-service brokers stifled competition, resulting in tens of thousands of home sellers paying inflated commissions to full-service brokerages.
Realcomp II Ltd. has not yet filed a response to the Oct. 8 lawsuit, which seeks class-action status to represent anyone who, during a four-year period ending on April 27, 2007, hired a real estate brokerage to help them sell a home in the four-county area in Southeastern Michigan served by Realcomp.
But the MLS — based in the Detroit suburb of Farmington Hills — has denied similar allegations in two related lawsuits, one of which is the product of the MLSs’ four-year battle with federal antitrust regulators.
In October 2006, the Federal Trade Commission announced that it was taking action against seven MLSs over their refusal to transmit "exclusive agency" property listings — a type of listing agreement commonly employed by limited-service brokers — to public websites such as Realtor.com.
Five MLSs, located in Colorado, New Hampshire, New Jersey, Virginia and Wisconsin, entered into consent agreements with the FTC in which they agreed to discontinue such policies. A sixth MLS, Michigan-based MiRealSource, entered into a consent agreement with the FTC in February 2007.
Realcomp’s board of directors repealed two policies that the FTC had taken issue with — including minimum service requirements for brokers posting exclusive right-to-sell listings — in April 2007.
But Realcomp, which serves Wayne, Oakland, Macomb and Livingston counties, refused to rescind its policy of not including exclusive agency listings in the feeds it provides to public websites, including the MLS’s own public-facing site, MoveInMichigan.com.
Realcomp won the first round of its legal battle with the FTC, when, in a December 2007 decision, an administrative law judge ruled that the FTC had not demonstrated that the MLS "unreasonably restrained or substantially lessened competition, thereby resulting in consumer harm."
But in a unanimous 4-0 decision last year, the Federal Trade Commission ruled that Realcomp’s website policy and related requirements imposed a "significant impediment" to consumer access to listings represented by limited-service brokers, which in turn helped protect full-service brokers’ commissions from competition.
Realcomp appealed the decision, and the FTC’s order that Realcomp rescind its website policy, to the Sixth Circuit Court of Appeals.
In February, the Court of Appeals denied Realcomp’s motion to stay the FTC’s order pending the outcome of the appeal, saying Realcomp had not shown it was facing irreparable harm.
Realcomp rescinded its policy of not transmitting exclusive agency listings to Realtor.com, MoveInMichigan.com, and other public sites. The MLS also deleted language from its MLS rules and regulations that prohibited brokers from displaying other brokers’ exclusive agency listings on their own IDX (Internet data exchange) websites.
In November 2006, the National Association of Realtors had amended its own model IDX policy, striking language that allowed MLSs to exclude some properties from display on IDX websites based on the type of listing agreement. At the time, Realcomp declined to adopt NAR’s stance.
But NAR provided $550,000 in assistance to help Realcomp pay $2.4 million in legal expenses the MLS racked up through 2009, and has committed to pay half of Realcomp’s legal expenses in appealing the FTC decision, up to a limit of $175,000.
Now, Realcomp faces a potential class-action suit that cites the same three MLS policies that the FTC challenged four years ago because they were allegedly aimed at stifling competition from limited-service brokers.
The lawsuit claims Realcomp "restrained, suppressed and eliminated price competition for real estate brokerage services" in Southeastern Michigan, maintaining prices for those services at "artificially high levels."
The MLS’s policies "deprived free and open market competition," the suit alleged, causing consumers "to pay more than they otherwise would have paid for real estate brokerage services."
The lawsuit names as plaintiffs three couples who each sold a home in 2005, paying commissions of 6 percent to 7 percent. It seeks to represent all similarly situated homeowners who purchased real estate brokerage services in Realcomp’s service area from May 1, 2004 through April 27, 2007.
That number could be in the "tens of thousands," the seven attorneys filing the lawsuit said, citing FTC figures that at least 71,801 homes listed by Realcomp brokers sold between November 2004 through October 2006.
The lawsuit maintains that Realcomp’s board members and shareholders — primarily full-service brokers — intentionally tried to limit competition from limited-service brokers.
Limited-service brokers often employ exclusive agency listing agreements, which allow them to charge a nonrefundable, flat fee to clients who want their homes to be listed in the MLS. Depending on the level of service desired, sellers may owe the listing broker nothing more when their house sells, although they must pay cooperating brokers who bring a buyer to a transaction.
Full-service brokers typically employ "exclusive right-to-sell" listing agreements, offering a package of bundled services in exchange for a commission that’s based on a percentage of the property’s selling price.
Beginning in June 2001, the lawsuit claims, Realcomp "responded to the entry of limited-service brokers in its service area by adopting a set of policies that limited the exposure of certain discount listing data available through its MLS and its feeds to the approved websites."
Although Realcomp’s lawyers advised the MLS that an outright ban of exclusive agency listings would violate antitrust law, Realcomp adopted policies designed to penalize discount brokers, the suit claims.
From May 2004 through April 2007, Realcomp modified the search tool brokers and agents use to look for properties in the MLS so that the default setting would not return exclusive agency listings. In order to see exclusive agency listings, brokers needed to change the default setting to include them in the results.
During the same period, Realcomp adopted minimum service requirements for brokers placing exclusive right-to-sell listings.
Some limited-service brokers use exclusive right-to-sell, flat-fee listing agreements, in which they are compensated with fixed fees, instead of a commission based on a percentage of selling price.
In order for their listings to qualify as exclusive right-to-sell listings, brokers had to be able to arrange appointments for cooperating brokers to show listed properties to potential buyers, accept and present offers to purchasers procured by cooperating brokers, advise sellers on the merits of the offers to purchase, assist sellers with counteroffers, and negotiate on behalf of sellers.
"If a home seller was to perform any of those required services, the listing could not be identified as an ERTS listing in Realcomp’s MLS," the lawsuit said. "When combined with Realcomp’s website policy, the minimum service requirement prevented brokers without full-service ERTS listings from exposing them to the general public through Realcomp’s MLS feeds to the publicly available approved websites."
Although Realcomp has not responded to the complaint — filed by seven attorneys working at four law firms in as many states — it has addressed the issues raised in the class-action lawsuit in the course of its four-year battle with the FTC.
In appealing the FTC’s decision and order to the Sixth Circuit Court of Appeals, Realcomp maintains that it has the right to place restrictions on members, as long as those restrictions don’t cause "anti-competitive harm" that constitute an "unreasonable restraint of trade."
The only economic evidence of an "anti-competitive effect" put forward by the FTC was from an expert who concluded that Realcomp’s policies reduced the percentage of home sellers who chose exclusive agency contracts, attorneys for Realcomp said in their petition to the Court of Appeals.
The FTC’s expert witness concluded that exclusive agency listings peaked in October 2004, at about 1.7 percent of all Realcomp listings, and never exceeded 1 percent after early 2005. From May 2004 to October 2006, reported exclusive agency listings fell about 50 percent, from 1.5 percent to 0.75 percent of all Realcomp listings, the FTC argued.
Realcomp disputed that finding, citing its own expert’s conclusion that the MLSs restrictions reduced the share of exclusive agency listings by a statistically insignificant 0.24 percentage points.
Furthermore, attorneys for Realcomp said, the FTC presented no empirical evidence of the website policy’s effect on commissions for exclusive right-to-sell listings, or sales prices of exclusive agency listings.
In other words, the FTC never showed that Realcomp’s policies actually harmed consumers — the home sellers who chose exclusive agency contracts.
The FTC’s argument that Realcomp’s policies were aimed at limited-service brokers is also unsupported, attorneys for the MLS said. Discount brokers in Southeast Michigan also offer discounted flat-fee exclusive right-to-sell listing agreements, and full-service brokers employ exclusive agency listing agreements.
In the Realcomp service area, discount brokers use exclusive right-to-sell listing contracts at twice the rate of exclusive agency contracts, attorneys for the MLS maintained. And traditional brokers also use exclusive agency listings, accounting for as many as 60 percent of those placed in the Realcomp MLS.
"The website policy concerns types of listings, not types of brokers," attorneys for Realcomp said in their appeals court petition. "All participants in the Realcomp MLS are equally subject to the website policy, and the evidence shows that both traditional and nontraditional brokers use both types of listings."
Antitrust law gives businesses some leeway to control "free riding," the diversion of business by rivals without payment, attorneys for Realcomp argued.
"The Realcomp MLS was not created to help property owners who wish to procure their own buyers," the MLS argued, noting that home sellers who sign exclusive agency listing agreements don’t pay commissions to a cooperating broker if they find their own buyer.
Although exclusive agency sellers do pay a fee to the listing broker, Realcomp said it depends on the dues paid by both listing and cooperating brokers.
"In effect, a home seller who uses an exclusive agency contract to find (their own buyer) … seeks all of the benefits from being a Realcomp member — including the distribution of (their listing) listing to certain websites — without paying any membership dues to Realcomp," attorneys for the MLS said.
This can put buyers represented by a cooperating broker at a bidding disadvantage, Realcomp argued, because if they make the same offer for a home as a buyer who is not represented, the homeowner will choose the unrepresented buyer to avoid paying the cooperating broker’s commission.
The FTC’s expert testified that cooperating brokers brought buyers to exclusive agency listings about 80 percent of the time — meaning 20 percent of the time, the properties are sold without the involvement of a Realcomp cooperating broker.
In its response to Realcomp’s petition, the FTC said Realcomp provides no free services to buyers or sellers. Sellers can only make use of the MLS by paying a fee to a dues-paying Realcomp broker, and cooperating brokers are paid for their efforts when they represent buyers of exclusive agency listings.
Because Realcomp members pay quarterly fees, rather than on a per transaction basis, "Realcomp cannot claim any loss of revenue when a seller secures an unrepresented buyer," regardless of the type of listing contract, the FTC said.
Realcomp has also been named in a lawsuit by a defunct brokerage, Home Quarters Real Estate Group, which claims that it was "put out of business" by Realcomp and a neighboring MLS, MiRealSource.
In the lawsuit, filed in May 2007, Home Quarters claims it suffered damages "in excess of $10 million," after Realcomp and MiRealSource both shut off the company’s access to the MLSs on May 20, 2003, in a dispute over the brokerage’s display of listings.
Although MLS access was restored in August, "by that time, Home Quarters’ business was in disarray," and it was forced to refund fees it had collected and lay off employees.
Realcomp and MiRealSource then "enacted new rules that prohibited Home Quarters’ business model and thus would have required that Home Quarters comport with the ‘traditional’ business model dictated by defendants," attorneys for the brokerage said.
Home Quarters, which allowed clients who provided their e-mail addresses the ability to search MLS listings from the brokerage’s website, offered 1 percent cash rebates to buyers and offered to list properties for 4.5 percent commission.
"Traditional Realtors … were threatened by Home Quarters’ business because it jeopardized their profits and their traditional way of doing business," lawyers for the brokerage said in a complaint. "As a result … defendants acted to unreasonably restrain trade and, ultimately, put Home Quarters out of business."
In answering the complaint in February after nearly two years of legal maneuvering, Realcomp said its rules and regulations prohibited Home Quarters from downloading Realcomp’s MLS data and from allowing its clients to search the data. Realcomp denied that it shut off Home Quarters access to its MLS, or that it acted in concert with MiRealSource.
MiRealSource, in its answer and counterclaim, said Home Quarters had not signed up for the MLSs’ broker reciprocity program, and "had no rightful authority to advertise the listings of other brokers absent the prior written consent of other brokers."
Home Quarters violated MiRealSource’s rules and the intellectual property rights of its members by copying and pasting listing information from the MLS into its own website, posting outdated and noncurrent listings in the process, attorneys for the MLS said.
This summer, Home Quarters’ lawsuit against Realcomp and MiRealSource appeared to be headed for a settlement.
In an Aug. 18 motion requesting more time to complete depositions and respond to pending motions, attorneys for the parties in the case reported that a July 29 settlement conference resulted in "substantial progress toward settlement," with only one issue remaining unresolved.
A final pretrial conference is scheduled for Oct. 27, with a jury trial set to begin on Nov. 2 if a settlement is not reached.