Realtors Under Fire From DOJ, GAO, And That is Just the Beginning

It has been almost a year since Congressman Michael Oxley (R, Ohio), Chairman of the House Committee on Financial Services, wrote a letter to the General Accountability Office (GAO) asking questions about the state of competition in the real estate industry. In June 2005 he was joined by the ranking committee member Barney Frank (D, Massachusetts) in asking the GAO more questions, this time about the role banks might play in increasing competition in the real estate industry.

Last week the answers, which were sent to Oxley on August 31, were released to the public. The GAO report was merely the second blow to the National Association of Realtors (NAR) in a single month.

NAR has found itself to be in the sights of several federal agencies for some time � Oxley has been asking questions, but the real worry has been the Department of Justice, which has been investigating the apparent control that the NAR and the many local Multiple Listing Services have over real estate sales, particularly online. DOJ has also tussled with several states over proposed or existing legislation to require a minimum level of service from agents � a slap at limited service real estate agents which, we suppose NAR doesn�t object to - and to restrict so-called affinity fees paid by agents for referrals from non-agents.

All of this, at bottom, is part of ongoing pressure on real estate agents to be more competitive in their fees. Bear with us folks; we will do our best to sort it out.

First, the Department of Justice and the Internet.

In early September the Department of Justice sued the National Association of Realtors under Section 4 of the Sherman Act, to enjoin NAR from �maintaining or enforcing a policy that restrains competition from brokers who use the Internet to more efficiently and cost effectively service home sellers and buyers, and from adopting other related anticompetitive rules.� The suit was, on one hand, no surprise as DOJ had been threatening such action since last spring, but NAR thought it had taken specific and sufficient action to address the department�s concerns.

The original way for agents to display MLS information on line was the Internet Data Exchange system (IDX), which permitted an MLS member to post listing information and photos online and share listings with other agents who could also display those listings on their sites. If an agent did not wish to allow another agent to post her listings on line that was fine, but IDX was reciprocal and the agent who did not share her listings could not share in the listings of others. An IDX was simply an ad, a device to attract buyers and encourage them to call in on listings. IDX soon evolved into what NAR called Virtual Office Websites or VOWs. VOWs usually required customers to sign in with personal information in order to view listings and some agents took it a step farther, requiring even casual Internet surfers to agree to buyer contracts.

MLS listings have always been available to all its member agents but are controlled by the agent who took the listing. While agents agree to cooperate with other agents in selling a property, they do not necessarily agree to have their listings become part of a competitor�s website and lots of agents were unhappy. Therefore NAR created an �opt out� policy, which gave agents the right to refuse to allow their listings to be carried on some or all competitors� websites.

And it was this opt out policy that caught DOJ�s attention. The Department alleged that this policy was anti-competitive, restricted Internet competition and was specifically targeting discount brokers. DOJ also objected to another part of the NAR policy that tries to restrict the use of contact information obtained from customers registering with VOW to make referrals to non-real estate related businesses such as mortgage or moving companies.

NAR immediately met with Department of Justice officials and announced it would work to develop a single, uniform rule governing the display of Multiple Listing Service data on web sites and to delay the implementation of the then existing VOW policy until the beginning of 2006 in order to make such modifications. NAR has now scrapped the VOW policy and formulated new Internet Listing Display (ILD) rules. Under these rules, listing brokers will not be allowed to restrict the display of their listings on selected competitors� web sites. Instead, all MLS property listing data available for display will automatically be available to all MLS members unless a member notifies the MLS in advance that he or she does not want to participate (at all) in Internet Listing Display. In that case, none of the agent�s listings will be available for display on other brokers� web sites and the agent will not be allowed to display other brokers� listings on his or her own web site. If a broker who has elected to �opt out� he or she may not reverse that decision for 90 days. Under this policy, an agent who has opted out of displaying their listings on competitors� web sites is allowed an exception if a seller requests that their property be displayed on the Web sites of all other members of the MLS.

Having eliminated the selective part of the VOW opt out policy, NAR thought it had satisfied the DOJ�s objection to its policy. Instead, on September 8, DOJ filed the above referenced Civil Action. NAR responded to the suit saying they were disappointed that its multi-year attempt to develop a Web listings policy �that's a win for consumers and also preserves the rights of real estate brokers will end up in court. We worked long and hard to understand and accommodate the government's demands. In the end, however, it proved impossible to do so without fatally compromising our members' interests� At stake is a principle that's vital to our members and central to the cause of organized real estate: We believe REALTORS� should be free to market their customers' properties as they see fit and that consumers who wish to have their property listed in the MLS should have the right to choose whether their homes are displayed on the Internet or not. After all, MLSs are not public utilities; they are private databases created for and maintained by real estate professionals for real estate professionals.�

The Department of Justice was apparently unmoved by this argument and on October 5 filed an amended complaint stating: In its amended complaint, the DOJ says provisions in the new ILD policy that allows agents to unilaterally withhold their listings from display on competitors� web sites still violates antitrust laws. The amended complaint also finds fault with what it calls an unwarranted exception that allows agents who have opted out to still display their listings on public sites like REALTOR.com. DOJ also restated some of its earlier objections to the VOW policy.

NAR countered that it has rescinded the VOW policy and has instructed local associations to either rescind it or refrain from applying and enforcing the provisions targeted as anticompetitive by DOJ.

�A victory by the Department of Justice will drive brokers out of MLSs,� NAR says, �resulting in less competition in real estate services, higher costs, [and] less availability of listing information, the very outcome Justice seeks to avoid.�

NAR says it has no plans to settle the case.

And what of Oxley and the General Accountability Office? More on them, not to mention a few other players who been taking aim at NAR and real estate agents in general.