It's not just another Friday the 13th for the National Association of Realtors. Instead of wasting duplicitous actions and taxpayers' money pursuing as many as seven or more individual MLSs for alleged restraint of trade, the Federal Trade Commission is going to work with the NAR to come up with a way MLSs can display listings in a way that's fair for homesellers and their agents and the agents they pay to cooperate in the transaction.

Some so-called "nontraditional" brokers have accused as many as 14 MLSs of restraint of trade practices. The MLSs have fired back that some activities don't meet the rules of cooperation established by cooperating broker members long before the so-called nontraditional brokers ever showed up. For example, MLSs serve brokers as a cooperative tool but also as a means to establish compensation among cooperating brokers. The MLS, according to some, was never meant to provide listings for sellers who refuse to compensate brokers for their time and expertise.

At issue are the types of agreements brokers use to get their listings into the MLS. Some agreements with sellers, such as the Exclusive Agency Listing Agreement, include the ability of the seller to find their own buyer without compensating the broker. Other agreements, known as Exclusive Right To Sell Listing Agreements, mean the broker gets paid as the listing agent no matter where the buyer comes from. The issue is heated because once the listing is displayed in the MLS to other brokers and the public, it's increasingly difficult to prove whether or not the actions of the listing broker were responsible for bringing the buyer and whether or not he/she deserves to be paid.

According to the harshly-worded press release issued by the FTC, five MLSs under investigation have agreed to a consent order, which is settling without admission of guilt.

But in typical fashion, the FTC named them anyway, charging the associations with "violating the FTC Act by adopting anticompetitive rules or policies that limit the publication and Internet marketing of certain sellers' properties, but not others, based only on the terms of their listing contracts. According to the FTC, the associations' rules or policies state that information about properties will not be made available on popular real estate websites unless the listing contracts are Exclusive Right to Sell Listings. These policies, when implemented, prevented properties with nontraditional listing contracts from being displayed on a wide range of public websites. Each respondent, prior to the Commission's acceptance of the consent orders for public comment, rescinded or modified its rules to discontinue the challenged practices:

1. Information and Real Estate Services, LLC, based in Loveland, Colorado, which operates a regional MLS for northern Colorado, that is used by more than 5,000 real estate professionals;

2. Northern New England Real Estate Network, Inc., which is based in Concord, New Hampshire, and operates an MLS for the state that is used by several thousand real estate professionals;

3. Williamsburg Area Association of Realtors, Inc., which is based in Williamsburg, Virginia, and operates an MLS for that area and surrounding counties that is used by approximately 650 real estate brokers;

4. Realtors Association of Northeast Wisconsin, Inc., which is based in Appleton, Wisconsin, and operates an MLS for areas including Green Bay, Appleton, Oshkosh, and Fond du Lac, Wisconsin, and surrounding counties, and is used by more than 1,500 real estate brokers; and

5. Monmouth County Association of Realtors, Inc., which is based in Tinton Falls, New Jersey, and operates an MLS for Monmouth and Ocean counties and the surrounding areas of the state that is used by several thousand real estate professionals.

The FTC filed administrative complaints against two other MLSs, Realcomp II, Ltd., a corporation owned by several Realtor boards and associations, and broker-owned MIRealSource, Inc. Both Michigan-based MLSs, have decided to litigate the charges.

The Commission alleges that the challenged conduct occurred between 2001 and 2005, that the associations have market power in that they are the sole or dominant MLS service in their respective areas, and that membership in each of the MLS systems is necessary for a broker to provide effective real estate services to home buyers and sellers.

As a result of the polices, the FTC charges, MLS members have been discouraged from offering or accepting Exclusive Agency Listings or other kinds of nontraditional listing agreements, limiting their ability to provide consumers with unbundled brokerage services and making it harder to sell homes. The Commission also contends that the website policies do not produce competitive efficiencies to balance their anticompetitive effects."

The Commission votes to issue the two administrative complaints were 5-0. And why wouldn't it be unanimous? After all, the Commission is agreeing with itself.

Suddenly, after the conference call during which some said the FTC "sensationalized" the alleged anticompetitive activities, the FTC phoned the NAR and said they would be willing to work with NAR for a solution, or the FTC could be looking at filing numerous complaints against similar rules, and facing more MLSs that decide to stand up to the FTC. With approximately 900 MLSs operating across the nation, that could statistically mean as many as 29 percent of MLSs could choose to fight back.

Mary Trupo, spokesperson for the NAR, says that the FTC's concern is that they believe that unfair advantages are given to one real estate model over another, that the MLSs are trying to disadvantage nontraditional brokers. "These complaints are about how the listings are displayed, they all allow the nontraditional broker to place listings but they may not be given the same viewership and they might be in a less visible location as other listings," she says.

"The good news is that Laurie Janik (NAR's general counsel) and our legal department is reaching out to the FTC to come together and try and help establish some guidelines on how MLSs should operate and be structured," explains Trupo.

Meanwhile, the FTC is looking at a "number of other investigations" but Trupo says she doesn't know if there are 8 or 80 more cases pending. "At one point, the FTC talked about 14 MLSs but they only took action against seven. They dropped some cases."

Observes Skip Oliva, president and spokesperson for the Voluntary Trade Council, "The FTC is organizing a hostile takeover of the Internet realty listings and the real estate industry. There is no law enforcement agenda, they've invented a new legal interpretation to do this. You shouldn't be allowed to sue for something you think is going to happen."

He says, "The FTC has maintained that although MLS websites are privately owned and operated by local Realtor associations, they must offer non-discriminatory access to Exclusive Agency Listings. In practice, this makes all MLS websites a public utility regulated by the FTC, which has no constitutional or statutory authority over the real estate industry."

"An unelected, publicly unaccountable agency like the FTC has no authority to usurp the traditional role of state governments in regulating the real estate industry. This isn't just a technical argument for 'state's rights.' It's a recognition that free markets can only function when central planning and government intervention is kept to a minimum, if not eliminated entirely."

In essence, Oliva says that the FTC is violating the rights of the MLSs, comparing the actions of the FTC as the antitrust equivalent to "Germany's invasion of Czechoslovakia."

While acknowledging that many real estate industry practices are anti-competitive, Oliva says further intervention by the FTC is not the solution. "Abusive licensing and regulatory requirements plague the real estate industry in every state. But the only viable solution is to eliminate these legal barriers at the state level. Abolishing the property rights of MLS owners only makes things worse. Private property rights, not government regulation, are the only way to ensure competitive and free markets."

In other news, the NAR is still negotiating with the Department of Justice and its lawsuit against the NAR over its Internet Data Display policy.

Published: October 13, 2006

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