Realty Times November 6, 2003

Why The VOW Issue Remains Contentious
by Blanche Evans

The National Association of Realtors is undergoing a Department of Justice (DOJ) inquiry to examine the competitive impact of certain rules suggested by the Virtual Office Website policy approved by NAR leadership in May, 2003.

The new policy was to have been adopted within local laws and customs and implemented by boards and MLSs by January 2004. But, sustained dissension by certain Internet-based "discount" brokerages has led to a DOJ investigation causing the NAR leadership to consider postponing adoption at the NAR MLS Policy Committee meeting to be held at the annual convention and Expo in San Francisco this week.

Highlighting the fray is a recent article in the Wall Street Journal, which gets just enough of the facts right to be credible, but not enough to be accurate, unfortunately.

In the article "Realtors' Limits on Web Listings Face A Federal Antitrust Inquiry," WSJ authors Patrick Barta and John R. Wilke recount the struggle between online "discount" brokerage firms and the NAR, whose members dominate the real estate industry. They report that the NAR is being investigated by the DOJ over a "contentious new industry rule that will give brokers the option of restricting Internet-based competitors from posting certain listings online."

Really? One wonders who Barta and Wilke interviewed to form that opinion. It's really more of an accusation, especially when there is plenty of information to the contrary.

Here are a few questions that the WSJ didn't ask, and the DOJ might not think of either. And if they had, their conclusions might be a little different.

  • What determines what is and what is not a "discount brokerage"? Is there such a thing?

  • Should any brokerage firm be held to a different standard than others? Does an online brokerage firm have more "rights" than a firm that doesn't operate online?

  • If a firm operates a Website, does that make it an online brokerage?

  • Should any brokerage firm be given unique concessions by other brokerage firms because of its chosen business model?

    The short answers are:

  • No, all commissions are negotiable. Any firm can "discount" off its own rate, but that doesn't necessarily mean it is discounting off an industry standard, which is now anywhere from two to seven percent across the country. If all brokers negotiate commissions, aren't they all "discounting"? To say otherwise would imply that the real estate industry has been fixing rates. If so, what are those rates? Where are they written down? If rates can be fixed, then would a "discount" broker be "fixing rates" when it tells consumers that it can sell a home for X amount less than other brokers? You tell us, DOJ.

  • No. Brokers are independent contractors who agree to cooperate. One broker should not be forced to care or to give special concessions to any competitor simply because the competitor chooses to work in a virtual environment. Any broker will say the competitor should abide by the same rules as the rest. Whether that competitor chooses to office online or in a barn should make no difference to anyone. If a broker wants to office in a Website, that's his business.

  • No. It means you are a brokerage that operates a Website online. If you examine the phrase 'virtual office Website,' the noun is Website, not office. Websites are publications. They have words and pictures, don't they? That means they can also be used as advertisements. Websites are operated by brokers, but they aren't the broker any more than a newspaper ad is the broker. An Internet Website merely allows more interaction between consumers and brokers than a print ad because it has a phone line that publishes text attached to the ad. Other than that, there is no difference.

  • No. If a businessperson wants to join the brokerage community, there is no reason why the other brokers should step aside, bend over, or face anti-trust charges simply because they won't get out of the newcomer's way. Being new in the industry isn't an entitlement. Offering "discounts" isn't an entitlement. Or getting gullible reporters to believe one is a "new breed" isn't an entitlement. There is no new breed because the game is the same. Make money. Grab market share. Isn't that exactly what the "online discount brokerage firms" are trying to do?

    What these "online discount brokerage firms" really want is to get a hall pass to skip over the dues-paying and go right to profitability. Who wouldn't? But lawsuits and tattling to the DOJ isn't the way to get there.

    While some public sympathy may be generated by well-meaning reporters who smell a future story, (won't it be fun to watch the NAR take a tumble) it's doubtful that they would be so sympathetic if the same kinds of challenges were happening in their industry.

    Imagine a publisher called Startup that has developed a business model based on publishing the news, only it doesn't have any writers or any stories. The fastest way to have a product, decides Startup, is to use the WSJ's stories.

    Fortunately for the WSJ, there are copyright laws that prevent Startup from doing that. Further, WSJ isn't under any obligation to syndicate, link to, or otherwise benefit Startup if it doesn't want to. Why? Because WSJ incurred the time, trouble, expense and risk to obtain the stories.

    Now what if the WSJ were a member of a cooperative that shares information? Members agree to share their information as long as other members don't use the information to gain a competitive advantage. Startup becomes a member of that cooperative and demands that the WSJ be forced to share its stories. When WSJ refuses, Startup calls the DOJ.

    Absurd? Not any more absurd than what is happening in the real estate industry. The only difference is that the WSJ has federal copyright laws protecting its inventory, and the real estate industry doesn't. All they have is a voluntary gentleman's agreement that shared inventory won't be used to harm individual members. The MLS is a kind of cigar room for b-to-b communication. But if a member wants to use that inventory to get customers that means it wants to pull customers away from the others, and if they tell consumers that they charge less than their competitors, then they are attempting to gain a competitive edge. Somehow in this upside-down world, brokers who want to protect their investments are made the villains.

    Why should the standard be different for the real estate industry? Brokers obtain listings at great time, effort, expense and risk, yet here is the DOJ investigating whether or not they should be forced to share their "copyright" with a competitor.

    What's lost is that the brokers are already cooperating by sharing the listing in the MLS, something no law in any state demands that any broker must do. Now they are getting investigated because they want to share the listing but don't want it featured as part of a discount brokerage ad? That's not only understandable, it should be respected.

    But milking the cow through the fence isn't good enough for some people, not when you can get the DOJ to hand over the cow.


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