In a few weeks, Des Moines brokers Iowa Realty and First Realty, both owned by Homeservices of America, Inc. and its challenger Next Generation Realty are going to come to blows in front of a jury. The fight's already so bloody it's hard to tell who's winning.

And like most fights, this one could have easily been avoided.

Next Generation Realty VS big broker, Realtor board and the MLS

According to Tom Franklin, co-owner of Next Generation, the 450,000 population of Des Moines is under the brokerage monopoly thumb of Iowa Realty which has a 50 percent market share in the area, and its sister company First Realty which has 15 percent market share. He says that the monopoly has been instrumental in hurting his alternative business model company, a flat-fee organization, with adverse splits and that the big broker has influenced the MLS to impose rules that cause his organization to pay an inordinate number of "exclusive right to sell" listing fees. This is a problem for him, he says, because Next Generation charges $3500 to sellers for an "exclusive right to sell" listing, and nearly 100 percent of his listings are sold that way.

While Franklin sees nothing wrong with keeping his listings from the other members of the MLS, via exclusive right to sells, he certainly doesn't like it when other brokers decide to coop with him exactly what they were getting from him - zero.

Says Franklin, "They (Iowa Realty and First Realty) have about 65 percent of the market, and that is huge for this market. They sent us a letter that they would not pay us any commission if we sold one of their listings."

The Realtor board refused to intervene, says Franklin, when Franklin complained that other brokers were being compensated as much as three and a half percent. Adding insult to injury, the MLS committee began to impose fees for exclusive-right-to-sell listings of $30 apiece. Next Generation refused to pay the fees and two years later, is in arrears over $30,000. The MLS informed the board and the board bounced Next Generation out of the MLS for nonpayment.

That's when the Des Moines Area Association of Realtors and the Des Moines MLS, which Franklin says are also monopolized by the Homeservices' brokers, were added to the suit.

Mike Knapp, president of Iowa Realty, could not be reached for comment, but that doesn't mean there isn't another side to the story.

Having your cake and eat it, too

Next Generation wants the right to introduce a new business model to consumers, but without playing by the rules of established brokers and their cooperative repositories - MLSs. Calling its biggest competitor a monopoly may be a red herring devised to divert attention from a basic fact - that Next Generation withheld listings and the opportunity to sell them from the other brokers first. Why is it okay for Next Generation to withhold cooperation from brokers by hiding them behind exclusive right to sell listings, and not okay for brokers to say, 'then it's only fair that we don't pay you anything either."

Next Generation took advantage of a hole in the MLS rulebooks that allows exclusive right to sell listings to be treated the same as other listings by the MLS. The fact that the MLS tried to plug the hole when it realized that one company was taking unfair advantage of other members is only contributing to the issue.

"We are giving them (sellers) a way to sell their homes and still have equity so they can buy another home," says Franklin, "so that the seven percent doesn't take everything they have. Otherwise, they couldn't sell it because there was no equity, and we have a program that helps them through that process."

What does Next Generation bring to the party for the other brokers?

"We are bringing buyers, what all their sellers say they want," says Franklin. "You have to realize that sellers want to sell their home and if they are willing to pay 7 percent in the market, they are willing to pay half of that to any buyer broker. I realize that we aren't putting our listings in the MLS, but that is not our choice, that is our sellers' choice. We can't choose for the sellers."

But that isn't really true - the sellers are making the choice based on an attractive option and being told that other brokers will demand 3 1/2 percent more in commissions from the seller. Who wouldn't make that choice given the options? And that is what puts $3500 in Next Generation's coffers per client over other fee for service companies that get as little as $500 to put their clients' homes in the MLS. In effect, Next Generation is already getting both "sides" and wants to keep it that way.

The "exclusive right to sell" listing

At the heart of this issue is the "exclusive right to sell" listing, which is used "in about five percent of Realtor-listed homes," says Marty Lee, CEO of the Iowa Association of Realtors. "In a few cases, a seller will want only one agent to show the home. Maybe they have a lot of antiques or something, but even so, most will put compensation in the MLS for other brokers who bring buyers." Editor's note: The definition of exclusive right to sell differs in many jurisdictions. In most areas, exclusive right to sell listings are shown by the listing broker or agent only, but offers of compensation are still made to cooperating brokers. In the case of Next Generation Realty, no offer of compensation was extended, according to Franklin.)

But "exclusive right to sell" listings, also known as office listings, have their drawbacks that most consumers don't realize. For one, by their very nature, they limit the number of buyers who see the property to those working with the listing agent or agency. Second, they are impractical for buyers. If all listings were exclusive right to sell, a buyer would literally have to work with multiple agents to look at homes. This slows the buying process which in turn hurts sellers. Third, MLSs were invented to be consumer-friendly by providing a sensible, agreeable way for all participating brokers and agents to share listing data and compensation. Again, by allowing the seller to pay the commissions or fees out of proceeds from the transaction, everyone's mind is on getting the house sold, not on which broker is more important to his/her client.

What makes Next Generation's suit curious is that the whole fight could have been easily avoided with an offer of compensation of $1 to any cooperating broker on any of its listings. Then the company's listings would have been in the MLS and the company would have avoided the extra $30 per listing fees, but that isn't how the company chose to do it.

"Our program is so complete that we are selling homes as fast as the others for the same price, that their need and desire to put it on there is diminished," says Franklin. "If you had a choice to buy a coffeemaker from a large department store for $150 and buy it from Wal-Mart for $100, what would you do? We have packaged it for our sellers for a lesser fee; it is appealing to those sellers who have a need to sell their homes. They have a need for us or they would be for sale by owners. We have a lot of sellers in that position."

If the company was doing that well without other brokers or the MLS, then what is the point of the lawsuit?

Editors Note, Feb. 20, 2003: Both lawsuits filed by Next Generation Realty against the Des Moines Area Association of Realtors and the Des Moines MLS and Iowa Realty have been thrown out of the court and dismissed. Full Story --> Flat-fee Broker Flat Out Of Luck

Published: February 18, 2003

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