As attorneys for the National Association of Realtors (NAR) meet today with attorneys from the Department of Justice (DOJ), it's a good time for reflection on how the real estate industry works, and why further federal interference could be a disaster.

This is a country where state laws license, and regulate, real estate sales professionals but not the builders of homes. We live in a culture that doesn't miss a chance to bombard its citizens with marketing messages, yet according to annual Gallup polls, salespersons are among the least respected of professionals.

Realtors are routinely lampooned in movies, books, and the press as money-grubbing liars who can't be trusted to work in their clients' best interests.

The public seldom hears about the other side -- Realtors like Irene Mabry in Baltimore, who works tirelessly to get low-income buyers into homes, or Oral Lee Brown, an East Oakland Realtor who pays for underprivileged children to go to college. The NAR recognizes individuals like these with the HOPE Awards (Home Ownership Participation for Everyone), which are given every other year to seven organizations, and individuals, who make outstanding contributions to the cause of increasing minority homeownership. "Realtor of the Year" is given by local associations all over the country, but it's not an award for productivity; it's for outstanding community service.

On the political front, the NAR is the homeowner's greatest advocate. The NAR's lobbyists routinely fight congressional bills to do away with mortgage interest rate deductions and to lower the capital gains on homesteads, at the cost of hundreds of thousands of dollars annually. Realtors have supplied millions in relief funds, here and abroad, to help rebuild homes lost in natural or terrorist related disasters.

To have created such a powerful group of 1.2 million competitors is a true achievement, because individually, NAR members are state-licensed salespeople, independent contractors, who work under the tutelage, supervision and legal protection of a licensed broker. Even in their own offices, they compete. They buy their own insurance, drive their own cars, and they don't get paid until the deal closes.

It is these independent businesspersons who decided, decades ago, that they could better serve consumers if they put all their listings together in a multiple listing service. Following the rules set by real estate associations or broker-owners, the MLS operates to provide fair and easy access to listings for members, and a means for those members to know what the listing broker is offering in the way of cooperative commissions.

Members have permission to show and sell each other's listings. What they do not have, is permission to advertise another broker's listings without permission.

Brokers say that they should have the right to show other broker's listings on their websites, without their permission, because consumers want this sort of access. But the MLS is for brokers with customers. It is not designed to give any one broker an advertising advantage over another. That's why brokers should be able to control who gets their listings. In the MLS system, brokers owe each other professionalism and cooperation -- they don't owe each other content for websites.

The MLS system works because it makes sense for brokers and consumers. When a broker puts a listing into the MLS, they know that it will be shown and negotiated by a professional, using professional standards. The buyer's agent knows that the listing will be marketed, and negotiated, by a professional, using professional standards. Consumers know when they use a Realtor with access to the MLS that they will have their choice of homes among all the listed homes in the marketplace.

It doesn't get any more consumer friendly than that without significantly infringing on members' profitability. Consumers would love to use the MLS for a few dollars to sell their own homes, but that wasn't the purpose brokers had in establishing a cooperative.

The MLS can ask brokers to follow the rules, which are largely designed to protect sellers, but the MLS does not dictate how brokers may do business. It doesn't exclude buyer's brokers, so-called discounters, or third-party referral fee lead generators.

However, individual brokers and agents can decide for themselves that participation in a local MLS is good or bad for their business. Brokers can establish their own MLSs; there's no rule that says they must be association-owned and operated. Or, they don't have to be a member of any MLS at all. Many brokers subsist on in-house listings only. It's perfectly within the law, because there's no law that stipulates that a broker has to be a member of an MLS.

That's the conundrum faced by the NAR, while it agonized over its virtual office policy. At the risk of losing members via the local MLSs, NAR's only choice was to enact rules that simply reinforce what state law says -- that brokers have the right to control where their listings are advertised.

Brokers are already sharing their listings in the MLS, a cooperative environment unequaled in any other business. Forcing brokers to share their listings in an advertising environment that they don't control is going too far. When a broker puts a listing into a newspaper, they know what to expect, but putting a listing onto the websites of all your competitors, to provide your competitor with eye candy, is another story. Brokers do have, and should have, control over the environments where their listings are advertised. And websites, no matter how they're sliced, are advertising mediums, even if they serve other purposes, such as minimizing office expenses.

From this perspective, it's hard to watch the NAR being accused of making home ownership more expensive by protecting the commission structures of full-service members at the expense of so-called "discount brokers" and third-party lead generators. The virtual office policy has nothing to do with commissions.

If anyone does any protecting of commissions, it is more likely to be the individual broker.

Published: May 11, 2005

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